Strategy & Best Practices

How to Manage SaaS Churn & Customer Attrition

By Ideas @ AppDirect / June 19, 2016

Supercharge Your Efforts in Reducing SaaS Churn

If you’re like most companies, as your Software as a Service business grows, so does your subscription base. Obviously growth is a good thing, but these increases bring a new set of challenges, including SaaS customer churn. If you Google “healthy churn rate,” you’ll get a variety of answers. Five to seven percent seems to be a common figure, but even a “healthy” churn rate can still present problems, including lost opportunities for upsells and cross-sells, and perhaps most importantly, lost revenue.

The ultimate result? Slower growth.

Think of your churn rate as a temperature gauge for your business. When it’s too high, you know something is wrong and the underlying cause must be found. Identifying the source, however, won’t just fix the problem; it will also make your company much stronger. But where should you start when it comes to customer churn management?

Finding the Source: Why Valued Customers Are Fleeing

Building a strong SaaS company is an important first step, but to remain strong, you have to keep a few customers who leave, some small leaks, from turning into a huge flood and becoming a big problem. The reasons for churn aren’t the same for every company, but there are some common issues.

Poor service. Many SaaS companies are making a critical mistake in how they view customer service. They consider it merely a cost center, a line item where support-related costs are tallied. It can be much more than that; in fact, it can be a deal killer: Eighty-nine percent of customers say they would stop using a company due to poor customer service.

If you want to reduce your churn rate, your customer service is a good place to start. With SaaS products, there can be little to no cost to get up and running and customers will pay a set fee each month for products and services. Even though the initial investment may be small, customers still expect high-quality, hands-on customer service. Be sure that you give them this “white glove” experience that they’re probably expecting.

If you’re stuck on the cost of implementing better customer support, it’s important to keep in mind that customers are willing to pay more for a higher level of service. A recent study found that more than half of customers are happy to pay higher rates for a higher quality experience.

Missteps during customer onboarding. Many customers abandoning SaaS services because they feel lost, don’t understand something about the service, or aren’t getting the value that they expected.

Focus on getting new customers to successfully understand the value gained from using your service, starting on day one. Help them get a quick win under their belts, such as making sure that every seat that a customer has purchased is properly provisioned to the correct employee. Simple steps like these will help your churn rate improve almost automatically.

Not experiencing continued success with the service. We just talked about the importance of securing quick wins, but it’s also critical that customers continue to experience the same level of success throughout their experience with your company and products. At every stage of the relationship, you must continue to provide value and uncover any potential problems (more on this a little later).

Real-Life Strategies for SaaS Customer Retention

Understanding why customers look for other options is critical, but it’s only one part of the equation. You also need to figure out specific, actionable steps you can take to effectively solve any problems and stop the flow of churning customers. The answers are different for every company, but looking at some real life examples can help you know where to start.

1. Identify Red Flags: Why Did the Customer Quit?

Boosting retention requires SaaS providers to take a deep dive and truly understand the customer journey. Every SaaS company must answer this important question: Why did this customer “quit” our service?

The team at SaaS startup Groove decided to figure this out for their own company. After crunching the numbers, the team discovered that Groove had 4.5 percent customer churn year over year, a rate that would overtake its existing growth would become unsustainable. The company would simply be working too hard to replace the customers who left.

To fix the problem, Groove decided to systematically research its customers’ behavior to uncover the underlying factors that were driving such a high rate. The company sought to determine the key differences between users who abandoned its products and those who decided to stay. These key differentiators were called “red flag metrics.” If Groove could successfully identify users who were at the greatest risk before churn occurred, the company could retain more of these at-risk customers. Groove found a couple of key pieces of information, including:

• Customers who quit only stayed in the first session for an average of 35 seconds.
• Customers who were churning were also spending longer than the average amount of time to complete tasks. For example, a task might take most users between 10 and 30 seconds, but customers who churned were spending much more time.

Once identified, these two pieces of information proved highly valuable. Groove could then find high-risk customers before those customers decided to cancel service.

The company used a couple of different tactics to target these high-risk users. For starters, emails were sent to those users offering specific and actionable help with processes that might be difficult. The results were excellent, with a 26 percent response rate. But even more impressive, the 40 percent who responded were still with the company after 30 days.

Key Takeaways

• Know your red flag metrics. Once you identify them, you can utilize that information to drastically reduce churn rates.
• Continually seek out this information; unless you keep an eye on these metrics, you won’t uncover why customers are leaving.
• Use what you learn to be proactive and improve the user experience for all customers.

2. Reduce Churn Through Enhanced Communication

Mention is a service that allows individuals and businesses to track what is being said about them online. With the rise of digital and social media, this service is highly desirable and the company’s user base grew quickly from hundreds to over 200,000. But it struggled with churn and found that its current efforts weren’t sustainable.

To solve the problem, the company deployed several strategies to reduce churn, including:

Segmenting users according to membership type. This helped the company learn more about its most valuable users, and reprioritize requests based on that information.

Revamping help ticket assignment. Mention started handling ticket requests in batches every four hours. Streamlining the system allowed the company to spend more uninterrupted time helping each customer. As a result, all customers reported higher levels of satisfaction (both free trial and paid users).

Providing high-value content to paid users. Paying customers received regular tips that showcased the SaaS provider’s most popular features. Mention also featured monthly success stories to highlight how other companies were using its products and what was working. The company offered regular webinars that showcased real-life customer success stories and actionable advice for customers. The overall results were excellent, with churn decreasing by 22 percent.

Key Takeaways

• Expand successful campaigns. For example, test an automated email campaign that provides high-value content to paid users. If it works, expand that campaign to free trial users as well.
• Avoid the assumption that people “get” the value of what your service provides. Feature success stories, guides, and tips that help them get more value from your service.

3. Reducing Churn Through Customer Happiness

The phrase “customer happiness” seems arbitrary. How do you truly know if your customers are receiving a high level of happiness from your service? HubSpot answered this question as it worked to calculate (and improve) the happiness of each customer it served. The company determines customer happiness by “customer acquisition cost” divided by “dollars spent on ‘smarketing’” (spends on sales and marketing) multiplied by “total number of customers.” The calculation is successful if the customer acquisition cost is less than the customer lifetime value. In other words, the amount a customer pays during the relationship with your company.

The company also takes a different view on churn. Instead of looking at it as a percentage, HubSpot created a Customer Happiness Index. There are several factors that go into this calculation, including how often a customer frequents the company’s blog, converts on email campaigns, engages on social media, and much more. This index aims to take a more holistic view of the customer’s engagement with the brand.

The company also understood that some customers had inbound marketing experience while others had none. Moving customers up the Customer Happiness Index involved the creation of educational content about inbound marketing. Monthly reviews of customer accounts were given at no cost to help highlight the most value from each subscription.
The results were excellent. Tracking the Customer Happiness Index helped HubSpot retain 33 percent of previously unhappy customers.

Key Takeaways

• Find out what your customers need and then shift your efforts to meet those demands to boost their overall satisfaction.
• Make changes to acquisition and onboarding of customers to drive overall increases in satisfcation.

4. Systemically Reduce Churn Through Account Management

When working to reduce churn, you can never communicate enough with customers, provided the information that you are sharing is of high value. Zendesk used this approach by implementing “customer account management” to reduce churn. The company implemented a 12-month program for each new customer focused only on reducing churn. The program included a series of check-ins, phone calls, and emails which opened the lines of communication and were designed to identify challenges before they turned into negative experiences with Zendesk.

The account managers provided information about service features and resources that were designed to help customers get the most value from Zendesk. When faced with a problem, a customer could easily reach his or her dedicated account manager and get the issue resolved before frustration and dissatisfaction grew. The results were greater trust in the brand, increased upgrades, more referrals—and, of course, lower churn rates.

Key Takeaways

• Create a high-touch customer experience. The only time that customers hear from you shouldn’t be when you’re collecting money.
• Use analytics. You need to identify the exact times when customers are most likely to churn. Then, create a plan with a human touch to re-engage these customers. Direct them to resources, solve their problems, and turn those experiences around.

Reducing Customer Churn: A Few Last Tips

The above strategies are an excellent starting point for creating and implementing an effective plan, but here are a few more to inspire your efforts to get churn numbers down.
Get customers to start … faster. The longer customers delay before they use a product for the first time after signup, the higher the likelihood of churn. Set expectations up front and communicate with customers frequently.

Uncover what’s “sticky” about your service. You may favor certain features about your service, but what do your customers love? You might find it’s not the same. For example, HubSpot suffered from high churn early on. Its initial product was search engine optimization, But once customers were done optimizing their sites, they didn’t need to keep paying (a big problem for a subscription-based service provider). The company needed to find new features that would make its products sticky and become part of the customer’s regular workflow. As a result, HubSpot expanded products to include “stickier services”—such as landing page creation—and reduced churn.

Test longer contracts. Depending on the service, it might take time for customers to realize value. In these cases, longer contracts might make sense, so test them. Instead of month-to-month service agreements, test three- or even six-month plans. Doing so may allow your customers more time to engage with your product, and thus reduce churn rates.

Conduct customer exit surveys. Find out why customers are leaving and whether there is anything you can do to solve or minimize these factors.

Moving Forward

Churn is among the few metrics that is directly correlated to your company’s revenue. If you can successfully deploy strategies to reduce churn, you will not only drive higher engagement and brand loyalty, but the positive results will go straight to your bottom line. Accomplishing this, however, requires testing of different strategies to uncover what works for your company. The time and effort are well worth it as you keep more satisfied customers for longer and position your company for greater growth in the future. AppDirect works with SaaS companies to combat churn in a number of ways; by providing premium technical support that enables companies to deliver timely onboarding and tech support with a human touch, for example. This allows companies to efficiently scale software offerings while ensuring that each customer is receiving the highest level of service possible.

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