Call us on: UK: +44 845 075 4040 / USA: +1 800 564 4019

How to understand – and REDUCE – SaaS churn

As more and more of us are beginning to focus on bettering our mental health, you would think that a meditation app like Headspace has struck gold. However, despite boasting over 10 million downloads, one in-depth study found that 92% of Headspace users churn every month!

One challenge that all SaaS companies face is seamlessly integrating into their customers’ lives. People need to feel as though they can’t live without your software, otherwise they’ll simply stop using it.

According to our recent onboarding study, 8 in 10 users say they’ve deleted an app because they didn’t know how to use it.

So, this gives us insight into one of the reasons users may churn. But there could be many more.

In this article we’ll be looking at how to understand and, more importantly, how to REDUCE SaaS churn.

What is churn?

Churn refers to existing customers or users cancelling (or choosing not to renew) their subscriptions with a business.

Put simply: when you lose a customer, that’s churn.

Churn rate, more specifically, is how many customers you’ve lost during a certain period.

There are many different ways to calculate churn, but a simple formula that we like is to pick a time period (e.g. monthly or annually) and then divide the number of customers you lost in that time period by the total number of customers acquired in that same period. Multiply that decimal by 100% and you’ll be left with your churn rate.

Churn rate formula

Churn rate is an important metric for all companies, but it’s even more crucial for SaaS companies – as these rely on recurring revenue from subscriptions.

Here are some of the biggest possible causes of customer churn:

  1. Price
  2. Lack of user understanding
  3. Lack of onboarding
  4. Poor customer experience
  5. Poor product fit

When it comes to an ‘ideal churn rate’, in a perfect world the answer would be 0%! However, the real number seems to be anywhere from 3% – 7%.

If your company is just getting established then it’s likely that your churn rate is higher than that – but don’t worry because there are plenty of things you can do to improve it!

How to reduce churn

If you’re suffering from a high churn rate, here are five different tactics you can try to increase the longevity of your customers’ relationship with your SaaS product.

1. Set expectations

One of the greatest ways to stop churn is to minimise the chances of it ever happening in the first place. You can do this by ensuring you correctly set customer expectations from the get-go.

This means not overselling your software in the earlier stages of your marketing. Promising new customers the world when you’re trying to get them to convert may be tempting, but it’s a surefire way to skyrocket your churn rate.

Instead, make your marketing clear so that customers know exactly what they’re signing up for. A great example of a company that does this is Grammarly.

Unless this is your very first time on the internet, you’ll have no doubt seen a Grammarly ad – they’re pretty enthusiastic with PPC!

Here’s an example:

This ad is clear and concise. It tells you what Grammarly can do for you, and how it does it. It’s not promising to write your emails for you, it’s offering assistance – and showing actual examples of the software while doing so.

This is a great way to attract the right kind of customers – the ones that won’t churn because your SaaS product is valuable to them.

Setting expectations in this way helps to ensure that when customers come onboard, they are happy. And a happy existing customer is so much more valuable than a slightly curious new customer. According to the Boston Consulting Group, it can cost up to 30x as much to acquire a new customer than to retain an existing one.

2. Amazing onboarding

Onboarding is like the first impression your software gives to customers, and we all know what they say about first impressions – you can only make one!

Amazing onboarding will not only draw users in and get them excited about your product, it will also give them a thorough introduction so that they know how to get the most out of the software.

According to our study, over 90% of customers feel that the companies they buy from could do better when it comes to onboarding new customers.

Onboarding stat graphic

In addition to this, when asked how they feel companies could improve in regards to onboarding, 69% of people said that they feel more video should be used.

Onboarding stat graphic

Video is an engaging form of content that gets information across in an effective and memorable way – perfect for onboarding new customers!

Here’s an example of an onboarding video we made for one of our clients, useMango:

useMango is a test automation software. This demo video walks new users through a couple of different use cases, with step by step instructions of how to use the software.

In doing this, it ensures new customers get off on the right foot and know exactly how to get the most out of the software – which, in turn, helps to reduce churn.

Shameless plug: If you’re interested in creating an onboarding video to get your customers up and running quicker than ever before, do get in touch. You can see more about this on our onboarding videos page.

3. Ask for feedback

If your churn rate is high then you have to ask why. But it’s no use simply asking yourself, you need to ask your customers.

By asking for, and implementing, customer feedback, you can improve your relationship with existing customers and learn from your mistakes so that less new customers churn.

Here’s an example of Natural Cycles asking customers for feedback:

Natural Cycles feedback
Natural Cycles feedback

Natural Cycles is a contraceptive app, so it’s very important that customers are onboarded properly and are comfortable using the app.

Here, the app is asking users for feedback and giving them simple, multiple-choice answers to choose from. This is important because it makes giving feedback easy. If users feel as though it is a chore for them to leave feedback, they simply won’t do it.

Another way to ensure that your customers feedback is to ask them at the correct time. Rather than sending them a push notification or an email out of the blue, try implementing a pop-up when they’re actively using your SaaS product.

This, again, makes it more effortless for customers to leave feedback.

And, of course, you can always encourage feedback by offering users incentives:

Pipedrive feedback

(Image source)

4. Analyse your efforts

So far, we’ve focused everything on what to do to stop churn from happening.

But here’s the thing…

…it’s always going to happen (at least to some extent).

And when it does, that doesn’t have to be a bad thing. You can learn a lot when customers churn!

By drilling into your churn rate and analysing when the customer drop off happened, and why, you can harness data that can help you to reduce future churn.

For example, if customers are churning pretty early on then you may need to work on your onboarding – and that could be when you implement an amazing onboarding video to ensure your customers know how to use your software and what to expect!

To avoid any guesswork, you could send a follow up email to users who churned to ask them for their feedback, like this one from BetaList:

BetaList feedback

5. Increase loyalty

We’ve already touched upon the value of existing customers. But, just as a refresher, 65% of a company’s business comes from existing customers.

If your existing customers are loyal and love your brand, then you’ll have less to worry about when it comes to churn.

But loyalty doesn’t come free. According to a recent customer loyalty survey, 75% of consumers say they favour companies that offer rewards.

So, if you want to reduce your churn rate, start thinking about small incentives that you can offer to encourage your existing customers to stick around.

One SaaS company that knows how to reward customers is Uber. Uber users can earn points for every dollar they spend on rides and Uber Eats, with extra points if they use one of the premium services, like Uber Black.

These points can then be redeemed to earn rewards.

Uber rewards

(Image source)

Users can select from a wide variety of rewards, from flexible cancellations to priority pick ups.

None of these rewards are going to ‘break the bank’ for Uber, but they’re a nice gesture to show customers that they’re valued.

By implementing a loyalty program into your SaaS company, particularly a point-based system like Uber (that encourages customers to spend more in order to win more), you will likely see a reduction in your churn rate.

Final thoughts

Some things in life are inevitable: ageing, taxes, and SaaS churn. Fortunately, there are things you can do to minimise the effects of these inevitabilities. For ageing, there’s anti-wrinkle cream. And for churn rate, there are the 5 tips we’ve shared with you today!

If you’re ready to take the first step towards reducing your churn rate, visit our Onboarding Videos page to find out more about giving your new customers the welcome they deserve.