- On this blog post, you'll learn:
- What is Churn, Liquid Churn and Gross Churn;
- Why Customer Experience is the solution to combat churn;
- How to reduce your churn rate.
Every business owner has heard about churn. If you still don't know what it is, let me explain quickly (if you do, skip the next three paragraphs): there are two types of churn, according to the kind of loss.
The first one is called customer churn is the number of closed accounts due to cancellation of contracts. This is measured during a specific period and takes into account only clients that are leaving, without counting the new ones or plan alterations.
There is also revenue churn: the amount of money lost due to plan cancellations or alterations (to less expensive options, called downgrades), compared to the total revenue from the period. This is a great metric to track how much money was lost due to churn during that time.
But remember that, while this last metric also takes into consideration downgrades, the first one is only thinking about the number of cancellations.
[READ FROM HERE] Both client and revenue churn are incredibly important to compare and analyze the company's results. However, remember that revenue churn gives you a big picture on your SaaS' current status. For example, if a user cancels their monthly subscription of US$ 19, it doesn't look as bad as the cancellation of a US$ 199 plan.
So it's important to pay attention to users that are leaving your company or changing their plans. And since it's so intimately related to your company's financial health, churn rate should be one of the first metrics analyzed on your monthly report.
It's necessary to compare performance, create reports and analyze results to identify what can be improved to reduce churn, maximize customer retention and generate more revenue.
The point of this content isn't teaching you how to calculate your churn rate - you can learn that in our specific content about metrics - but to show how only a few changes can have a huge impact on your retention rates over time.
I know there are a lot of content about churn on the internet, so I'll talk about more obscure and hidden strategies. Let's do this?
Gross Churn vs Net Churn: a brief explanation
Going beyond churn analysis, it's important to know there are two main forms to calculate both customer and revenue churn: gross churn and net churn.
Gross churn is the total number of lost users or revenue, monthly or annual (Monthly Recurring Revenue or Annual Recurring Revenue), during an specific amount of time.
It's simple: if a company loses 5 of their 100 clients in a month, for example, the customer gross churn is 5%. Or if the revenue lost due to cancellation is US$ 50 from a total of US$ 1000, the revenue gross churn is 5%.
Net churn, on the other hand, takes into account both the recurring revenue and plan variations from users that already exist during the period you're checking.
As you can see, gross and net churn are very different from each other. The second gives a more complete understanding of what is going on in your business, including the evolution of revenue. For example, a SaaS can have a revenue gross churn of 7% but a net churn of 2%, which is pretty acceptable.
Some churns are inevitable
Of course you, as a company, should try and retain your clients, but in some situations that's impossible. Let's see?
- Death: yes, it happens and no one talks about it. About 1% of all clients that "abandon" the company, do so because of death and it should be taken into consideration when building your company's strategy or looking at your data.
- Bankruptcy: sometimes, businesses close their doors. One or two dots out of the curve are not a problem. But if these clients represent a significant share of your churn, it means that you're attracting high risk clients and that needs to be changed.
- Incompatibility: you sell bananas and your customers want tomatoes. They buy bananas knowing you don't have tomatoes, nor will have them, so at some point you both will realize you just don't have the right fit. For a SaaS company, this means that this customer shouldn't have been converted in the first place, or it did at the right moment, originally, but your solution doesn't attend to their need anymore.
The first step to think about user retention is understanding why they're leaving
Every churn happens for a reason. It's like in a marriage - people don't just wake up one day and decide to end things and get a divorce.
There are signs and symptoms, usually cumulative, that indicate that churn is about to happen. And before you invent the most creative ways to keep your clients, you must know the reasons that are making them want to cancel their subscription to your SaaS.
- The grass is always greener on the other side: the research State of the Industry 2017 revealed the average percentage of companies that look for better solutions to change providers for no particular reason other than improvement. For Marketing and Sales services, for example, that's about 21% of clients. In terms of market segments, the ones most likely to churn are Health and Retail. The Software segment has an average churn potential of 19% .
- Dissatisfaction with the service: according to the Customer Experience specialist Esteban Kolsky, 67% of all clients that churn do it because of bad experiences with service. However, only one in 26 dissatisfied customers will actually complain to the company; the rest will just cancel. Thinking about this, answer: how is your customer experience?
- Lack of support and follow up: from bad onboarding to lack of response for the support team, there are many problems related to lack of communication and follow up that can affect both new customers (quick churn) and older ones.
Customer Experience is the solution to combat churn
If most of your clients are leaving due to dissatisfaction, there is an easy solution for you: invest on Customer Experience.
According to Kolsky, 85% of all churn could have been avoided with a good retention strategy. Remember that.
Let's not get into the merits of Customer Experience in this post, but I'll leave a few articles for you to take a look - and you should:
- What is customer experience and why does it matter?
- Customer experience: secret weapon to boost conversions
6 ways to reduce your churn rate
Before we start, note that some of these tips will only give you results on the medium and long run, since most of them are related to the user's experience with your product. As you must know, most of the results of user retention strategies won't show immediately, but they can help (a lot) with reducing your SaaS' churn rate.
1. Optimize and segment your SaaS' communication
It may seem silly, but maybe your company is attracting the wrong audience, or trying to transmit the same message to audiences with different needs. Pay attention to the existing communication strategies.
Did you ever think that you're attracting leads that think you can solve a problem for them, but then they realize your product is not exactly what they needed? It's like the situation with bananas and tomatoes I've mentioned before.
Understand your market and audience so that you can have success in your marketing strategies. Knowing your persona, and what they look for, is one of the main requirements to become a successful SaaS company.
Passion and belief in your market, customers and journey. Total commitment to understanding every nuance of your market and niche, and shipping software to serve it.
Some things you should know to avoid mistakes:
- Product value: know what's your competitive edge, what's the value of your product to clients and the market. That's what will make a lead opt for your product instead of your competitor's. Also, know how to advocate it;
- Personas: it's extremely important to have a complete profile of your ideal client, their needs, fears and preferences. Think of all you can do to understand their shopping habits (talking about the decision maker here), create the customer journey map and perfect your communication;
- Market positioning: know your competitors, the market you belong to, or the one you want to take over, what are the gaps your product can fill in and the main business opportunities for your company;
- Channels for content marketing: if you have your own content marketing strategy, your blog and website should all be in the same address. And not only should they have the same language and talk about the same subject, but also indicate which persona you're trying to reach.
Remember that each content should be aligned to make your visitors and clients know what your product is about, what's the value, which features can be used and what will be the results obtained from it. After all, your product need to attend to your clients needs.
2. Perfect your user onboarding from the very beginning
This tip is related to your user's first contact with the product. User onboarding, as you must know, is the process of introducing the solution to the client, either during trial or after signing-up. It's the perfect way to let them discover features, how to set the system up and learn how to interact with it, what results to expect, etc.
And, most importantly, user onboarding is a great way to make them see why your product is a good investment.
The problem of doing it badly is that it can make your churn increase. Let's look at a few examples:
- If the onboarding is shallow and doesn't show all the potential your product has or how it can be used by the user.
- If the onboarding is too complicated. In this case, the user can't follow what's being showed in the interface.
- In some cases, onboarding doesn't even exist. When this happens, the user is "thrown" straight into the system without a proper tour or guidance.
- The value of your product is not properly shown and the "WOW" moment doesn't happen, or only happens after the onboarding.
It's essential for the user to interact with your product's main features from their first moment in the product. With that, they'll acquire enough autonomy to use it on their own and understand its main benefits.
An onboarding should induce fascination in order to reduce a SaaS churn rate. They must fall in love with your product immediately. If your clients see value and benefits, they'll have reason to keep to keep paying for it every month.
Some users may continue to use your product even if they have some minor issues during the onboarding. However, if they fail to see value in the first month(s), there is a big chance of churn.
Which takes us to the next item…
3. Follow your user through the system
This is the best way to identify bottlenecks and problems that might make them frustrated and lead to churn. Following the user's online interactions is essential both during onboarding and after, during regular client use.
With that information, you'll be able to create emails that help new users, answer doubts, send in-app messages, etc. This all results in a better customer experience and more deals for your company.
4. Improve user engagement
Interacting with a user that already pays for your product is a great way to keep them close, and lower your churn rate. Clients like to know that the company is interested in more than just providing a service: they want someone who cares, who is committed to give them the best, that they can trust and that will always offer the best experience.
There are many ways to do that, but sending out dozens of emails and notifications without a strategy and calling it "customer engagement" is useless. The user should be able to respond to your messages, so think of ways of interacting where everybody wins.
The best way to do this is by bringing relevant content into the conversation. Users need to interact actively with the company. Share its blog posts and ebooks, ask for feedback and make them free to tell you what they think of your product.
Imagine a nurturing campaign focused on client retention, where users receive insights of the current market, success cases, tips, and news. Basically, you should be providing everything that might help clients to obtain more, better results with your product.
Go beyond email marketing: in-app messages and notifications are also great user engagement strategies. Marketing and sales automation platforms allow you to send notifications based on different attributes, which makes communication even more personal and straightforward.See other tips below:
- 7 strategies to retain customers way before they churn
- Pre-churn haunts you? Check these re-engagement tricks
5. Offer new perspectives with app integrations
Sometimes, offering the product is not enough to keep users as paying customers. The search for new tools to improve productivity increases all the time. Offer new ways to use your product and see your churn rates go down in the blink of an eye (metaphorically speaking).
A large number of SaaS companies will invest on app integrations, connecting two services that are completely different to improve productivity. It's not hard to find companies with products that connect to CRMs and marketing automation platforms through API (Application Programming Interface).
Integrations can bring good results for everyone involved, so contact companies from different segments than yours, or even the same but that are not in direct competition with you, to create these integrations.
If you offer new perspectives and ways to use your product, you'll be increasing your clients' interest in staying with you, as well as your retention rates. Not to mention that integrations can also help you get new customers, since it invites clients from other companies to get to know your product and company better.
6. Acquire valuable feedbacks from churned users
As important as creating an environment of interaction with your clients is to offer a communication channel for users that want to cancel their subscription to your SaaS product. Making is hard to cancel will only make things much worse.
Ask them to fill out a form or talk to them on the phone after a few days to know what exactly happened. Prioritize direct contact insteads of automatic messages. Personalized emails also work. Find out why they're leaving you. Any type of feedback from a canceling user is as important as the one from a new client.
This is not the moment to beg them to stay. Keep in mind that even if this user turns into a churned client, it's always best to maintain a good impression. After all, the information left by him can help you solve current and future problems that you might not even know existed.
3 marketing tips - they can also help you retain clients
Churn can happen for reasons other than dissatisfaction, which one of them being finding a better product on the market. See how to avoid these kinds of "external influence" churns.
1. Think about having long-time customers - update and optimize your product
A SaaS product cannot get outdated. It's necessary to keep it always relevant, following the marketing trends and improvements, providing more value to the client and offering new features that boost the client's processes and their company's results. Keeping customers interested and satisfied with your SaaS is essential for long-term retention.
2. Pay attention to the competition
As I've said before, a part of your clients are always looking for other solutions, asking themselves if changing providers will give them better results. That's why you should to the same! Keep an eye on your competition, see what they're offering, how is their service, prices, system possibilities, etc. And protect yourself!
Have active Ads and PPC campaigns at all time to neutralize churn and conquer new clients. Invest in comparison charts and use this marketing vision to update your product. That's the secret to staying at the top!
3. If the cause for cancellation is money, try to negotiate
Churn due to money problems is a reality but they can be neutralized, to a certain extent. Negotiate price or payment conditions can hurt your liquid churn on the short term, but there is a chance to recover this contract when your client's financial situation improves again, which makes this strategy worth it.
Offer downgrades or, as we've said, special payment conditions. But be careful not to go too far and end up hurting your revenue by the bottom line!
As you can see, SaaS churn can be solved even before it happens. But it's essential to focus on the customer and their experience, so that you can provide the best service possible.
The truth is that results are not instantaneous, but they're constant. Reducing the number of users that abandon your product usually means more recurring revenue, which has a great impact on your annual reports and make your company grow.
How about a chat with our team to discover how Pipz can help your company to reduce churn? Schedule a demo and talk to our specialists - no strings attached!