Reducing churn is important for businesses in the software-as-a-service (SaaS) industry. In SaaS businesses, where subscription services are often billed monthly or annually, churn affects a business’s revenue and prospects for growth.
Churn, in the context of SaaS, refers to the rate at which customers stop using a service or product. It’s a measure of customer attrition (loss) over a specific period. For example, if a SaaS business has 100 customers at the start of the month and five of those customers cancel their subscription before the end of the month, its churn rate is 5%.
Churn affects a business beyond losing a customer—it represents a loss of the investment made in acquiring that customer, including marketing and sales efforts. In SaaS recurring revenue models, maintaining customer satisfaction and engagement drives stability and growth.
SaaS businesses must understand why customers leave and use this information to improve their services. This might mean enhancing customer support, making the product more user-friendly, or adjusting pricing models.
Addressing churn is cost-effective compared with acquiring new customers. Existing customers are generally less costly to retain and can contribute more to revenue over time through additional purchases or upgrades. Loyal customers can also grow the business through word-of-mouth promotion.
Here is an in-depth guide to how SaaS businesses can reduce churn.
What’s in this article?
- Why is churn important for SaaS businesses?
- Ways to reduce churn for SaaS businesses
Why is churn important for SaaS businesses?
Churn is widely considered to be one of the most important SaaS metrics. Here are some reasons why:
It indicates lost revenue: Lost revenue is the most direct impact of churn. When customers leave, the recurring income a SaaS business relies on decreases. This can have a ripple effect, affecting its ability to invest in new initiatives, marketing, and other growth areas. The cost of acquiring a new customer to replace the lost one can often be higher than the cost of retaining an existing customer, making churn a significant financial concern.
It reflects product quality and service: High churn rates can indicate issues with the product or service. This could include bugs in the software, a lack of necessary features, a poor user experience, or inadequate customer support. Businesses experiencing an increasing churn rate should thoroughly investigate each of these areas to identify and rectify any problems.
It signals market position and competition: If churn rates are high, it can suggest competitors are offering better features, pricing, or service. Understanding churn in this context helps a SaaS business stay competitive by adapting to market demands and trends.
It measures customer loyalty and satisfaction: Churn is also a measure of customer satisfaction and loyalty. If customers are happy with a product, they’re less likely to leave. This makes churn a valuable metric for assessing how well the product meets customers’ needs and expectations.
It can guide improvement and innovation: By understanding why customers are leaving, a SaaS business can focus on specific areas for improvement. This might involve refining existing features, introducing new functionalities, or redesigning the user interface. Feedback from departing customers can provide insight into how the product can evolve to meet user needs better.
It can affect a business’s valuation: For SaaS businesses seeking investment, churn rate is a key metric investors consider. A high churn rate can deter investors because it suggests a more volatile revenue stream and potentially broader issues within the business. Conversely, a low churn rate can be attractive, signaling a healthy, sustainable business model.
It influences long-term customer relationships: Reducing churn isn’t just about retaining any one customer; it’s about keeping the right customers who find real value in the product. This nurtures long-term relationships, which are more profitable over time. These customers often also become advocates for the product, referring new users and contributing to organic growth.
Managing churn effectively requires building a responsive, customer-centric business that continually adapts and improves. A low churn rate is a strong indicator of a SaaS business that understands and fulfills its customers’ needs, paving the way for sustainable expansion and success.
Ways to reduce churn for SaaS businesses
Create exceptional onboarding
Onboarding is the first real interaction customers have with a product, and it sets the tone for their entire experience. A thoughtful, well-structured onboarding process can significantly reduce churn by helping customers understand and find value in the product from the start. Here’s how to approach onboarding:
Make the process clear and simple: Onboarding should be straightforward and intuitive. Avoid overwhelming new users with too much information at once. Use guided tours, tooltips, and interactive tutorials to help users explore the initial setup and key features.
Set expectations: Ensure customers know what to expect from the product. Clearly communicate its benefits and how it addresses their needs. Establish milestones for the customer to achieve during the early stages of using the product to begin building satisfaction.
Make it personal: Personalize the onboarding experience based on the customer’s business size, industry, or role. This makes the process feel more relevant and engaging for the user. Offer customized onboarding paths or content that caters to different user segments. According to Gartner’s 2022 Global Software Buyer Trends Survey, access to customer support and personalized training are the top two elements business-to-business (B2B) software purchasers value the most in onboarding processes.
Create openings for feedback: Incorporate opportunities for feedback during and after onboarding. This shows customers their opinions are valuable and helps the business identify and fix any issues early on. Use surveys or direct communication channels to gather and respond to feedback.
Provide ongoing education and support: Onboarding shouldn’t end after the initial setup. Provide continuing education and resources to help customers fully use the product. Offer webinars, knowledge bases, and regular tips to keep customers engaged and informed.
Monitor and optimize: Continuously monitor the effectiveness of the onboarding process. Track metrics such as engagement, time to first key action, and customer feedback. Regularly update and fine-tune the onboarding process based on these insights.
Improving how new users get started with your service can help them realize its worth and integrate it into their daily routine. Investing in a smooth start can keep new customers from leaving too soon and foster happy, long-term users.
Elevate your customer support
Exceptional customer support is not just about resolving issues. Customer support representatives should build a relationship with customers, making them feel heard. According to Gartner research, 84% of B2B software buyers look for excellent customer support when they’re renewing their subscription. When done right, strong customer support can turn negative experiences into positive ones, creating loyalty and reducing churn.
Aim for accessibility and responsiveness: Ensure customers can easily access support through several channels, such as email, chat, phone, and social media. Aim for quick response times. The faster that support addresses a customer’s issue, the more valued they feel.
Build a knowledgeable and empathetic support team: Invest in training your support team to have deep product knowledge and strong problem-solving skills. Encourage a culture of empathy and understanding. Customers should feel that the support team genuinely cares about their issues and is committed to solving them.
Provide proactive support: Don’t wait for customers to encounter problems. Use data analytics to identify common issues and proactively offer guidance. Share tips and best practices with customers based on their usage patterns.
Offer resources for self-service support: Provide comprehensive FAQs, knowledge bases, and tutorial videos. Many customers prefer to solve problems on their own, with access to the right resources. These resources should be up to date, be easy to use, and cover a wide range of topics.
Personalize customer support: Customize the support experience to individual customer needs. Remembering past interactions and preferences can make customers feel appreciated. Segment customers based on their business size, industry, or usage patterns to provide more relevant support.
Make continual improvements: Regularly collect feedback on the customer support experience and use it to make improvements. Track support-related metrics such as resolution time, customer satisfaction scores, and repeat issue rates to gauge its effectiveness.
Delivering standout customer support can turn a tricky situation into a win for your software service. Great support makes customers feel good about choosing you, and they remember their support experience long after their issue is solved.
Use customer feedback effectively
Actively seeking out and thoughtfully responding to customer feedback demonstrates a commitment to meeting customer needs and improving the product. This approach can significantly improve customer satisfaction and loyalty, reducing churn. Here’s how to do it:
Collect feedback systematically: Use several feedback collection methods, such as surveys, in-app feedback forms, social listening, and direct customer interviews. Encourage feedback at different stages of the customer journey, not just after a support interaction or at renewal time.
Analyze feedback for insights: Use tools and techniques to analyze feedback data for trends. Look for common themes or repeat issues customers are facing. Pay attention to qualitative and quantitative feedback to get a comprehensive understanding of customer sentiment.
Act on feedback: Prioritize which feedback to take action on based on its impact on customer satisfaction and the feasibility of implementing the changes. Develop a clear plan for addressing the feedback, whether it involves fixing bugs, adding features, or modifying processes.
Communicate back to customers: Tell customers you’ve heard their feedback and which actions you are taking. This can be done through personalized emails, newsletters, or in-app notifications. Being transparent about the feedback process and how it’s used builds trust and shows customers their input is important.
Close the feedback loop: Follow up with customers who offered feedback, especially if you made specific changes in response to their suggestions. This shows appreciation for their input and encourages them to provide more feedback.
Create a feedback-driven culture: Foster a company culture that values customer feedback and sees it as an opportunity for growth and improvement. Ensure all teams, from product development to customer support, understand the importance of customer feedback and are engaged in the process.
Effectively implementing customer feedback is a powerful strategy for reducing churn. It helps SaaS businesses stay aligned with customer needs, anticipate market changes, and refine their offerings. When customers see their feedback leads to tangible improvements, they are more likely to remain engaged and loyal to the product.
Build customer success programs
Unlike traditional customer support, which is reactive, customer success programs proactively help customers achieve their desired outcomes with the product. This approach solves problems and guides customers to make the most out of the service, which reduces the likelihood of customer attrition. Here’s how to create an effective customer success program:
Define goals for customer success: Identify what success looks like for your customers. This will vary depending on the product and the customer’s business. Set clear, achievable goals for the customer success program that align with customer objectives and business outcomes.
Build a dedicated customer success team: Assemble a team that focuses solely on customer success. This team’s mandate is to understand customers’ needs to help them use the product effectively and achieve their goals. Train the team to address issues and advise customers, offering insights and recommendations.
Develop a customer success plan: Create a structured plan for each customer or segment that outlines the steps they need to take to hit their milestones with your product. Regularly review and update these plans to reflect any changes in the customer’s objectives or usage patterns.
Regularly check in with customers: Schedule regular check-ins with customers to discuss their progress, challenges, and feedback. Use these sessions to provide personalized advice, updates about new features, and tips for using the software more effectively.
Track and measure success: To gauge the effectiveness of the customer success program, monitor customer usage data to understand whether they’re achieving their goals and how satisfied they are overall. Use metrics such as customer health scores, which factor in usage patterns, engagement levels, and feedback to identify customers who might be at risk of churning.
Adapt to customers’ needs: Be flexible and ready to shift your strategy based on feedback and changing needs. Look for ways to improve the program and attune it to customer expectations.
Focusing on customer success means ensuring your customers really benefit from what you offer. This kind of focus strengthens relationships, and they’ll be more inclined to keep using your product.
Focus on personalization and customization
Personalization and customization involve tailoring the user experience and the product to meet the needs and preferences of each customer. When customers feel as though the product is specifically designed for them, they’re more likely to stay engaged and less likely to seek out alternatives. Here is how to approach this strategy:
Understand individual customer needs: Collect data on customer behavior and preferences to understand what each customer values most in your product. This information can come from various sources, including usage patterns, support interactions, and direct customer surveys.
Tailor the user experience: Use the data you collect to customize the user experience. This could entail changing the user interface, providing relevant content, or offering personalized product recommendations. The goal is to make each customer feel as though their interaction with the product is unique and specifically catered to their needs.
Feature your options for personalization: Allow customers to personalize product features or settings. This could include customizable dashboards, adjustable notifications, or modifiable workflows. Giving customers control over how they interact with your product can greatly enhance their sense of ownership and satisfaction.
Target your communications: Send communications that are relevant to each customer’s usage and interests. This includes emails, in-app messages, and notifications. Avoid sharing generic messages; customers respond better to communication that feels personally addressed and most relevant to them.
Provide regular updates based on feedback: Continually update and improve the product based on customer feedback. Show customers their input helps shape product development. This improves the product and strengthens your relationship with customers as they see their suggestions being implemented.
Continue to monitor and adjust: Regularly assess how effective your personalization and customization efforts are. Look at metrics such as engagement levels, feature usage, and feedback. Be prepared to adjust your strategies based on these insights to better meet customer needs.
Through personalization and customization, SaaS businesses can create a more engaging and satisfying experience for their customers. This tailored approach makes customers feel valued and understood, which can build loyalty and reduce the likelihood they will leave for a competitor.
Offer competitive pricing and flexible plans
This approach involves understanding what customers are willing to pay and how they want to pay and then adapting your pricing structure accordingly. Gartner’s Global Software Buyer Trends Survey found nearly 10% of customers churn away from subscriptions because of pricing. A well-thought-out pricing strategy can make your service more attractive and accessible, encouraging customers to stay. Here’s what you should do:
Conduct market research on pricing: Do thorough research to understand market rates for similar services. Know what your competitors are charging and what features they offer at those price points. Use this research to set a price that customers perceive as fair and competitive.
Implement value-based pricing: Set prices based on the value customers get from your product rather than the cost of producing it. Understand the features or services your customers value the most and consider how these can be reflected in your pricing.
Consider flexible subscription models: Offer a variety of subscription models to cater to different customers’ needs. This can include monthly, yearly, or usage-based plans. Flexibility allows customers to choose a plan that best fits their budget and usage patterns, reducing the likelihood they will leave because of cost concerns.
Use tiered pricing: Implement a tiered pricing structure with different levels of service or feature sets. Each tier should cater to a different segment of your customer base. This approach allows small businesses or individuals to access your service at a lower cost, while larger businesses can opt for more comprehensive plans.
Be transparent about pricing: Be clear about your pricing up front. Hidden fees or unexpected charges can cause customer dissatisfaction and churn. Transparent pricing builds trust and sets clear expectations with your customers.
Regularly review and adjust: Continuously monitor the performance of your pricing strategy. Pay attention to customer feedback, churn rates, and how changes in pricing affect new sign-ups and renewals. Be ready to adjust your pricing and plans as needed to stay competitive.
When you provide plans that reflect what customers value most, you make it easier for them to purchase and stay with your service. Fine-tuning your prices helps keep customers content and connected to your service.
Optimize your billing practices
Optimizing your billing practices for transparency, flexibility, and advanced billing features can increase customer satisfaction and retention. Here’s how you can achieve this using Stripe Billing:
Transparent billing cycles: Establish clear and predictable billing cycles to avoid surprising customers with unexpected charges. Provide detailed invoices that explain each charge, and send reminders before each billing cycle closes.
Flexible payment options: Allow customers to choose their preferred payment method and billing frequency. Providing more flexibility can help customers manage their expenses better.
Smart Retries: Stripe Billing uses Smart Retries, which use machine learning to determine the optimal time to retry failed payments, increasing the chances of successful charges without bothering customers.
Prorated charges: Offer prorated charges for upgrades and downgrades so customers feel they are getting a fair deal if they decide to change their subscription level.
Subscription pausing: Provide an option to pause subscriptions rather than cancel them. This flexibility can be appealing to customers facing temporary financial constraints or those who are considering ending use of the service.
Proactive payment method updates: Stripe’s automatic collection feature helps manage and recover revenue—for example, sending emails when a payment fails or a card is about to expire, prompting customers to update their payment information. This means a lower chance of missed payments and more peace of mind for you and your customers.
Custom discounts and coupons: Create custom discounts and coupons with Stripe to incentivize continued use or to win back customers who may be considering leaving.
Dunning management: Set up a dunning process with Stripe to handle failed payments. This can include letting Stripe execute custom retry policies for failed charges, marking invoices as unpaid or uncollectible, and sending targeted communication to teams and customers. This allows you to communicate with customers about payment failures in a helpful, nonconfrontational way.
Tracking performance: Monitor key metrics related to billing, such as payment success rates, average revenue per user (ARPU), and churn rate. Use Stripe’s reporting tools to identify trends and areas for improvement.
Cultivate community around your products and services
A strong, engaged community supports users and fosters a sense of belonging and loyalty toward your product. When customers feel they are part of a group that values their input and offers support, they’re more likely to keep using your product. This often involves these tactics:
Build online forums and platforms: Develop online spaces such as forums, social media groups, or other dedicated platforms where customers can interact, share ideas, and ask questions. These spaces should be welcoming and easy to use. Actively moderate these forums to maintain a positive, productive, and respectful environment.
Encourage user interaction: Stimulate conversations and interactions within the community. This can involve initiating discussions, posing questions, or sharing useful content related to your product. Recognize and highlight active community members to encourage even more participation.
Organize events and webinars: Host events, webinars, or online meetups that bring users together. These can be educational, focusing on how to get the most out of your product, or they can be more social, building connections among users. Events can also be a platform for users to provide feedback or ideas directly to the team.
Feature user-generated content: Encourage users to create and share their own content, such as how-to guides, case studies, or tips. User-generated content can be a powerful tool for helping others see the practical benefits of your product from another point of view. Featuring this content shows appreciation for your customers and validates their expertise and experiences.
Provide exclusive benefits to community members: Offer exclusive content, early access to new features, or special support to community members. This can increase engagement and give users more reasons to remain active in the community—and with your product.
Stay engaged: Regularly engage with your community of users to show you value their input. You can also rely on the community as a source of feedback.
Your community will become a shared space where customers can exchange ideas, help each other, and improve. This makes using your service better, and it forges a sense of belonging and teamwork that can keep customers around long term. When customers feel connected, they’re more likely to advocate for your service and feel as though they are active partners contributing to your success.
Provide regular updates
Regularly introduce new features, improvements, and updates to keep the product fresh, relevant, and aligned with the evolving needs of customers. Keeping your product at the forefront of technological advancements and market trends can significantly improve customer satisfaction and loyalty, making customers less likely to look for alternatives. You can accomplish this by:
Staying updated with market trends: Keep track of the latest trends and advancements in your industry. Understand what competitors are doing and what customers expect in terms of new features and technologies. This awareness helps in making informed decisions about which updates and innovations to bring to your product.
Involving customers in the development process: Encourage customer involvement in the product development process. This could be through feedback surveys, beta testing new features, or customer advisory boards. When customers feel as though they have a say in the product’s evolution, they’re more likely to stay engaged and satisfied.
Balancing new features with usability: Though adding features is important, it’s equally important to maintain the core usability and simplicity of the product. Avoid overcomplicating the product with unnecessary additions. Regularly review the user interface and experience to ensure updates enhance rather than hinder the user experience.
Communicating updates effectively: Keep your customers informed about updates and how they can benefit from them. Use emails, in-app notifications, or blog posts to announce and explain these changes. Effectively communicating about updates shows customers the product is evolving and keeps them excited about what’s next.
Monitoring feedback post-update: After releasing an update, closely monitor customer feedback to gauge its impact. Look for responses about the added features, any issues, or suggestions for further improvement. This feedback is key for making necessary adjustments and for planning more updates.
Fostering a culture of improvement: Build a company culture that prioritizes continual improvement and innovation. Encourage your team to think creatively and to always strive to make the product better. This mindset ensures your product will never become stagnant and will continue to meet the changing needs of your customers.
When you keep refining your software service, it shows you’re focused on delivering quality and value to your customers. It keeps your service fresh and interesting, which keeps your customers happy and loyal, helping your business thrive for years. To learn more about how Stripe Billing can help, go here.