Churn is something that every SaaS business experiences, but needs to be reined in before it gets out of hand. A high churn rate can devastate a new company, especially in the Software-as-a-Service industry. If your churn is in the double-digits, it needs to be addressed quickly before you lose control of the situation. Luckily, because many businesses experience the same problem, there are proven ways to reduce churn before it can ruin a SaaS business.
What is Churn?
Churn is referred to the rate at which current SaaS customers cancel their subscriptions to the service. It is part of every SaaS business and accurate calculation is important in forecasting revenue. Churn impacts every individual business uniquely. If customer acquisition costs are very low, a high churn rate will not affect a SaaS business as much as one with high customer acquisition and marketing costs. Even if marketing and customer acquisition were free, it is still more profitable to reduce churn and many business owners marvel at the prospect of how to accomplish this.
Reduce Churn Using the Tools You Have: The Phone
Finding ways to reduce churn in a business is, almost by definition, something that can’t be done overnight. It takes time to fix any number of problems that a customer could have, and more time to fix any systemic problems that may be present. Simply put, the best way to reduce churn is with increased customer satisfaction and one of the best way to improve customer satisfaction is the use of the phone channel.
It is important to contact every customer on a relatively frequent basis. Whether the time frame is three or even six months, it is important to establish a rapport with existing customers. This will make them feel valued as well as establish a line of communication if anything were to go wrong. It is much easier to cancel a subscription when a nameless automated response is on the other end. Adding a human element can only make customers feel more comfortable. The most effective means of communication is still a phone call. An email is easily disregarded and could be considered automated spam. A phone call is much more personal and is more likely to generate a response. A personal relationship with the customer support team is paramount in the battle to reduce churn.
Another outcome of this approach is that you will be able to identify when a customer is likely to churn. If a usually friendly customer is short and annoyed or if someone is dodging calls from customer service when they usually welcome them, it can be a sign that a customer is thinking of cancelling. This is the time to reassure the customer and find out why they are thinking of leaving. Even if they churn in the end, it will provide useful information for future customers.
Find Out Why Customers Churn
Some customer cancellations and non-renewals will be unavoidable. They still sting, but there are many that have nothing to do with your business. This is the minority of cases however, with the majority having something to do with the business itself. It is extremely important to find out why a customer is deciding to move on from your company to prevent others from doing the same. An exit interview phone conversation when the customer cancels is the perfect way to do this. As stated above, emails and automatic messages are often ignored. People are not always truthful, but a phone call will allow an agent to assess the customer and their behavior to determine their own conclusion as to why the customer left. More generally, this is an opportunity to find out where your business is falling short. If many customers are churning for the same reason, it is important to address the issue before any more business is lost.
Learn What Makes a Loyal Customer
A mistake made by many SaaS companies trying to reduce churn is focusing only on the customers who are close to churning or have already cancelled their subscriptions. While it is important to understand why these customers have left, it is equally important to understand why other customers stay. A short phone conversation with a consistent customer can uncover the reasons why they are loyal to your company. This conversation will likely also detail which areas the customer could be more pleased with, enabling you to enact changes that will benefit both loyal customers and those who are on the fence about staying. On top of that, these conversations will reinforce the value that the customer has to your business. They will feel as though they have an impact on the company, even more so if they see the changes they suggest enacted.
Use Calls as a Teaching Opportunity
While speed of clearing customer support tickets can be important in some instances, it is not the ultimate goal to get every customer off of the phone as quickly as possible. Granted, if the main complaint of customers is that customer support takes too long, this is not a relevant tip. For many cases, customers will be glad to spend a few extra minutes talking about the platform. Use support calls to teach the customer about important or unknown features. Inform them about future updates and ways to prevent any future problems. If they are calling about a problem that could have been fixed by the user, let them know. In the long run, this will limit customer support requests and make for a more comfortable navigation for the customer.
Too many companies delegate the on-boarding of customers to new or untrained staff. It is generally seen as a universal experience for the customer and not enough focus is on unique customer needs. Make sure that a trained representative is on the phone with a new customer. It is important that they know the platform and can assist with any questions that the customer has. A customer is the most optimistic about a product immediately after they purchase, so they will be more forgiving of any time it takes to get the platform running. However, if they feel as though they are getting cut-rate customer service right off the bat, they’ll be much more likely to churn in the future. Take the time to make sure new customers as knowledgeable about your product as possible. As with many aspects of business, first impressions are everything.
Determine At-Risk Customers
Customers that use your product every day can teach you a lot about what you are doing right, but those who have stopped using your product are the ones who need the most focus. These are the ones who are most likely to churn, and action needs to be taken. Call the customers who haven’t been active in the last month or so and ask them why. There may be an issue that can be resolved to get them back to being the active user they once were. Don’t write-off customers who haven’t used your product in a while. Once a customer has decided to cancel it is much more difficult to persuade them to stay. If they are still subscribed, it is important to reinforce and remind them of why they signed up to begin with. Even if they don’t come back, you will have solid information as to why they have become disinterested. This can only help the company moving forward.
Require Phone Cancelations
This should be considered as a last-ditch attempt to reduce churn, as many customers can be put off by this practice. Requiring that customers call to cancel or unsubscribe is a strong deterrent for multiple reasons. For one, it preys on the human tendency towards laziness. Many people will just be too lazy to pick up the phone and call to cancel a subscription. Others will be uncomfortable with telling another person that they are withdrawing. Both of these factors will keep customers that may have otherwise churned. When a customer does call to cancel it provides an opportunity to understand why they are churning. While other churned customers may neglect a follow-up call after they have churned, a customer in this circumstance has no choice but to talk to a customer service representative. It also provides an opportunity to resell the customer on their subscription. There may be a new feature the customer was unaware of, and some may be convinced to stay. Again, this is not the most practical way to retain customers and prevent churn, but it is a strong deterrent and bears mentioning.
In Action: Baremetrics
Baremetrics handles SaaS analytics for Stripe, and the company was experiencing a double-digit churn rate themselves. They realized how big of an issue this was and were determined to turn things around. One of the major steps they took in combating the problem was to disable the user-cancellation feature. While this is generally frowned-upon (many experts suggest the exact opposite; that a company should provide little to no road blocks to cancelation) it worked for Baremetrics. They saw that their “why are you leaving?” text box was usually left empty so they required the customer to call when they needed to cancel. What they experienced was the ability to eliminate 15% of cancellations from this method. They were able to explain certain areas of their platform that the customers weren’t aware of and inform them about new features that would soon be available.
They don’t recommend this method for B2C products, but have had a positive experience with their B2B product. They report that they have had only one person get irritated with the impediments to cancelation, but have generally experienced satisfied customers, even if they do inevitably cancel. From these they are able to get solid feedback as to why a customer is leaving and improve in the future.
Something else that Baremetrics did was increase the amount of time customer support spends on education. When they received feedback from exit interviews, the company realized that many of their customers didn’t have a full grasp on how to fully optimize the service. In response, they ramped up their educational efforts in the form of expanding the help desk, providing webinars, and contacting customers to make sure that they weren’t missing anything. This clarified some of the issues that customers were having and helped to reduce the overall churn rate of the company.