February 27, 2020
Churn is one of the most vital metrics to track in any SaaS business. Spending money on marketing to acquire new customers only to then lose them is neither efficient nor scalable. Positive net churn alongside scalable growth enables any startup to grow exponentially.
Nearly all Venture Capitalists (VCs) spend time discussing and writing about churn, and always want their investments to have strong control and reporting on their churn rates. Bessemer Venture Partners says an acceptable churn rate for a SaaS business is between 5% and 7% annually.
Note that Bessemer's figure of 7% churn annually does not equate to 7% churn per month, this would be extremely unhealthy - in fact, a 7% annual churn rate equates to 0.42 – 0.58% churn per month. This means businesses with acceptable churn lose about 1 out of every 200 customers (or pounds) per month. Churn directly correlates to your Year on Year (YoY) growth.
Of course, to reduce churn, you must be able to effectively track it in the first place. In this blog post, we will look at some of the best platforms on the market to track churn, and then look into some of the ways to help reduce your churn percentage.
There are two key ways to measure your churn rate; the first is to use a subscription management tool with churn analytics built in such as Pabbly. Using a tool like Pabbly allows you to see your active customer base over time, and crucially report on how many customers have cancelled their subscriptions with you. Breaking this data down into customer segment and/or subscription type will allow you to pinpoint areas to focus on almost immediately.
Of course, this first method is most suited for SaaS startups that haven't locked down a subscription management tool yet, as uprooting customers from an existing tool onto a new one can be time-consuming.
The second way to measure your churn rate, and one that is more suited to businesses who already have an existing subscription management tool or have built subscriptions into their product and use a payment processor such as PayPal or Stripe, is to use a subscriptions analytics tool such as ChartMogul.
ChartMogul allows you to connect data from your payment processor(s), and app distributors such as the Apple App Store and Google Play, and then report on active subscriptions versus those that have been cancelled. ChartMogul also allows you to analyse the most likely point that customers churn, for example, 50% of your churn may happen in month 3, but without a subscription analytics tool you will never know this so won't be able to take action to prevent it. By using a subscription analytics tool you may also notice differences in your churn by region or country, again with this data to hand you can start work on strengthening relationships in those regions to reduce your overall churn percentage.
There is no magic wand to reduce your churn rate, but there is a key to doing so - ensure your customers realise the value of your product/service.
Once a customer starts to use your service, either through a sale or as part of a free trial, ensure their expectations are managed correctly. Don't over-promise on what you can deliver or list features that either are not yet available or are in early stages of development so prone to bugs or errors, this ensures when a customer joins they aren't immediately at risk of churn due to a bad product fit.
It's also important to onboard your customer in a structured manner, this can be done in a variety of ways but always be sure to share the onboarding plan with your customer so they know what to expect and when. We recommend an initial call, email or in-app message to welcome them to your platform and crucially ask them why they've started using your service - make a note of this for later. This initial call is an ideal time to share links to contact your support team and view knowledgebase articles if you have them.
Around two weeks after they start using your service we recommend making contact with your customer again to see how they are finding things, if they have any questions, or need any guidance on how to perform a specific action. Refer back to the why that you made a note of when they first started, ensure they're still working towards that same goal. This touchpoint is also a great time to provide the user with 'hints and tips' on how to use your service most effectively.
Then 4-8 weeks after a customer starts using your service make contact with them once more to ensure they're seeing value by referring back to the why answer once more, by this point they should be able to confirm your service is helping them achieve their goals - if they don't start to dig into how they're using your service and what you can do to help them see value, build out a success plan and share it with them.
Post this initial eight week period your job remains to ensure they keep realising (more and more) value from your service. A great way to do this is by hosting webinars on best practice and showcasing how other customers have used your service to achieve a certain goal. Customers love to learn from other customers.
Always make sure new features and your product roadmap are communicated to and shared with your existing customer base. There's a good chance a percentage of your customers were looking at alternative solutions to yours because they required a feature you've either just released or are planning to release!
Finally, it's a great idea to allow customers to submit feature requests and see feature requests submitted by other customers. Using a tool like Canny allows you to do this effortlessly, customers can add, see and vote on feature requests which allows them to feel close to your development cycle - a crucial point here is to engage your Product Management teams on this initiative, having a list of 50 feature requests in order of customer votes is brilliant but if none of them are updated or implemented it quickly becomes a pointless exercise.
Hopefully, this blog post provided an overview of the best ways to measure churn and then how to work to reduce it. The SaaSy People provide outsourced Customer Support and Onboarding services to ensure your customers quickly recognise the value of your service and receive world-class customer support, get in touch today to learn more!
