If you’re running a SaaS business, there’s a good chance churn is keeping you awake at night. Customers may stop using your product for reasons beyond your control, but you still need a plan in place to reduce churn. For this blog post, we’ll dive into different types of churn and explain how to focus your retention efforts for the best results.
Churn & the Different Types
First, a quick overview of churn.
Churn happens when a customer no longer subscribes to your product or service. It’s typically measured as a churn rate (simply divide the total number of customers lost by your total number of customers). It’s the best representation of how your business is doing with keeping customers by your side.
Churn comes in many different flavors:
- Voluntary Churn – a customer actively chose to cancel their subscription.
- Example: A customer does not renew or continue their gift subscription.
- Involuntary Churn – this happens indirectly, a result of a passive action by a customer.
- Example: A customer’s credit card expires or is replaced, resulting in the payment failing and the subscription ultimately expiring.
- Happy Churn – a customer finished using your product for the purpose they intended, and the original challenge they were experiencing is resolved.
- Example: A customer uses your product for a promotional campaign and then cancels their subscription, having had a positive experience.
So in the case of a customer that left due to happy churn, you will need to spend the same level of energy and resources winning them back as you might if they churned voluntarily or involuntarily. Right? Not necessarily.
In fact, customers that leave due to this reason can provide huge advantages to your SaaS company:
- They experienced great value from your product or service as a customer and are therefore likely to choose your service again when the same need arises.
- They are also likely to advocate for your service. They make great candidates for testimonials, case studies and a referral.
- They can provide a wealth of feedback as it pertains to your product roadmap and help you address the very reason they stopped using your service.
It’s best to keep these relationships alive and to look for engagement opportunities so these former customers stay current on the direction of your product. They could become one of your strongest brand advocates.
To Reduce Churn: Focus on Your Most Valuable Customers
Although losing a customer here or there may seem insignificant, this loss can impact your business significantly, from revenue and reduced profitability to greater acquisition costs.
So how can you protect your investment? There is behavior you can watch for to detect customers at risk of canceling.
Is their contract coming up for renewal? Customers are more likely to churn when faced with a renewal decision.
Are they paying their bills on time? This is an indicator of the customer’s financial health.
Are they engaged with your product by making it part of their daily workflow? Are they referring other customers? These are two strong signs that churning away is unlikely.
It’s easy to identify customers based on their likelihood to leave and then offer incentives to retain them. But this thinking is flawed.
Just because a customer is likely to churn doesn’t mean it’s worth your time and investment to prevent it as not all customers are equally important to your company. Companies often fail to take into account whether a customer creates any substantial revenue, as well as their likelihood of responding to an offer to stay.
According to Gartner, 80 percent of a company’s future revenue comes from just 20 percent of its existing customers. These are your most valuable customers and must be cared for.
Tips for Reducing Churn
Once you’ve identified your most valuable customers, keep them satisfied using the following tactics:
- Customer Experience – Optimize processes and prevent issues with your product by avoiding bugs, data loss and slow performance. A good Customer Success Team can support this.
- Customer Service – Focus on providing good service to customers who reach out for help. Utilize the channels that are convenient for them, such as within your app, your documentation or product reviews.
- Feedback Sessions – Survey customers to identify their needs and apply this information. It’s the best way to understand their line of thinking.
- Referral Program – Happy customers refer other customers, which are your best leads. Identify customers that act as referrals and extend a discount their way.
When all is said and done, churn is churn and your customers are no longer paying you. But there are tactics you can use to identify your most valuable customers and ensure they are getting the benefits that drove them to sign up in the first place.
Good news! We’re currently developing new features for our Revenue Retention Tools that will make it even easier to fight churn and increase renewal rates. For more information on our retention capabilities, click here.