The SaaS domain is highly competitive, making businesses struggle with diverse challenges. Customer churn is perhaps the worst because losing a customer can erode your confidence, besides causing a revenue decline. A high churn rate may even indicate an impending product failure. Undoubtedly, watching the number of customers onboarding and canceling should be a priority.
According to a 2022 KBCM SaaS Survey, the median gross dollar churn for private SaaS companies is 14%. That’s a huge number, considering a churn rate of 3-8% is regarded as healthy in the industry. If you see anything more with your company’s churn, you need to buckle up sooner than later.
Let us explain the concept with numbers. A monthly churn of 4% means that if you start with 1000 customers in a year, you will end up with only 610 of them by the end of the year. From a revenue perspective, it indicates a drop from $10,000 monthly recurring revenue (MRR) in January to $6100 MRR by the end of the year (if each customer gives monthly revenue of $10).
Fortunately, a few strategies can help you overcome the high churn rate problems without much effort. Here are the ones SaaS companies of all sizes and scales can rely on:
Understand the Potential Causes
According to Zippia, there are more than 17,000 SaaS businesses in the US alone. Retention is hard when customers are spoiled for choice. The first step is to understand the potential issues causing a high customer churn for your business. Here are the ones you should pay attention to:
1. Pricing Issues
If your customers find a massive price difference between your offering and that of your competitors, a high churn rate is impending. No one wants to pay more for comparable quality. To prevent this, you must assess the market and ensure competitive pricing.
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2. Competitor Offers
In an industry rife with competition, your competitors will always have something to poach your customers. Factors like better pricing models, new products or services, and improved customer service processes can make them more attractive and lead to a high churn rate for your business.
3. Lack of Value
Even the most loyal customers may leave if your product or services fail to deliver value and meet their needs and expectations. Regular feedback and relevant product improvement can help you overcome the issue.
Leverage Data Analytics for Real-Time Tracking
Identifying the root cause of customer churn is a great start, but you cannot take a set-and-forget approach to it. User behavior in the SaaS market may change faster than you imagine, and real-time tracking is the only way to stay a step ahead. The best way to track metrics is by adopting a reliable data analytics platform that crunches numbers and provides actionable insights in seconds.
Comparative notes that having quick answers to the “whys” of customer churn can empower your team to act fast and prevent losing them in the long run. You can proactively analyze at-risk cohorts and prioritize them with real-time data, analytics, and insights.
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Have an Actionable Retention Strategy
Statistics state that 77% of customers remain loyal to a brand for more than 10 years. Retention seems easy, but it can get tricky in competitive industries like SaaS. Customers often churn involuntarily due to unexpected reasons, such as their card payments getting declined. A single glitch at the end of the journey means you may lose them forever.
For SaaS marketers, it is crucial to foresee such events and create an actionable retention strategy to deal with them as they happen. For example, you can integrate smart payment tools to handle expired cards, automatically update payment information, and retry payment renewals to prevent payment failures.
Invest in a Customer Success Team
According to the latest report, the customer satisfaction score (CSAT) benchmark for 2023 is 85%. The number is enough to show the value of the experience you deliver to your customers to prevent churn. Investing in a customer success team is the key for SaaS businesses, as their offerings are often complex for beginners.
The role of these employees is to handhold the customers with data migration, training, and real-time feedback. They should be available to address issues people may face while using the SaaS product. The customer success team must have in-depth knowledge of the SaaS product and the value it delivers to different customers.
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Conclusion
Reducing churn rates should be a priority for SaaS companies because the cost of customer acquisition may often run in the thousands. The last thing you want is for clients to leave after all the hard work.
Dealing with churn rates requires a strategic approach, so you should be prepared with a proper plan. Follow these steps to predict the potential reasons and address them before the loss hurts your revenues and reputation.
