We’re trying to drive the point home how important it is to properly understand churn.
Not only understand it at a high level but also at a detailed level.
There’s a ton of things to worry about when building a subscription company but you can only put off a high churn rate for so long.
As much as SaaS founders, startups and organizations don’t want to admit it, churn is actually the symptom of a much deeper issue.
Customers are canceling for a variety of reasons that connect to this root concern.
It could be something as simple as your price point or onboarding confusing them (early life churn).
On the flip side, it could be something more complicated. For example, your product isn’t delivering enough value at month 9 because your customers outgrow your set of features. Or your support team isn’t aligned with your product team.
It could be a million reasons but the simple truth is…
Churn is a symptom of something bigger.
Subscription businesses come with a big responsibility.
Subscription-based platforms have quickly become one of the most popular means to sell consumer goods and products. From everything from enterprise software, to music, to market-fresh produce.
As any SaaS company grows larger, so will the size of its subscription base.
And therein lies the big responsibility.
You have a responsibility to take care of your existing customers. People that chose you or your service or your product, count on you to deliver what was promised.
As your renewal base of customers develops, you’ll want to eliminate “positive churn” or, at the very least, mitigate it.
But, on the other hand, “negative churn” actually helps bolster bottom lines. (Less than helpful names, we know.)
Keen on learning more on how churn can affect a SaaS company’s profit margins, reputation, and more?
Let’s dive in to explore industry insights on the matter.
What is Churn Rate, anyways?
Churn rate in its most digestible definition, is used to understand how many customers cancel their subscription in a certin time frame.
In other words if you started the month of January with 100 customers and you ended the month with 95, your churn rate would be 5%.
It plays a vital role in SaaS companies for a litany of reasons.
Generally speaking, the churn rate is always associated with the amount of your subscription base that’s leaving and not renewing, creating what business analyst’s call positive churn.
See our beginners guide on SaaS Churn if you want to a deep dive into the various types of SaaS churn.
Why is Churn so Bad?
In a ‘positive churn’ rate model, lost revenue can only be recovered with more subscriptions and more customer acquisition.
All of this legwork is just simply to replace those who chose to unsubscribe and not renew.
Growth at this rate would be considered slow moving and poor for business reputation, to boot.
Essentially, you’re creating an ever-revolving wheel of new customers who will never build any connection or repertoire with your company.
Which would also be the start of a PR and marketing nightmare.
Customers, now more than ever, are buying products and services that they feel a connection with. Which can only be established over time.
In a SaaS company with a high-churn rate, this level of brand relationship with customers is virtually impossible to achieve.
Get a handle on your churn, embrace your subscriber base, and you’ll avoid experiencing those hellacious, profit-losing night terrors.
Is there such a thing as good churn?
Surprisingly, there is.
Here’s one of the few times few times negative numbers correlate to better business.
In a ‘negative churn’ scenario, your expansion revenue from current customers totals more than your lost revenue from existing customers. Admittedly, it’s a bit more complicated to figure out than your run-of-the-mill churn rate.
So, how do you achieve negative churn?
In principle, it’s easy.
But in practice? Not so much.
Above all else, you’ll want to keep your current customer base happy, subscribed, and wanting to spend on various one-time deals, specials, etc.
Stop fixing the leaky bucket with new customers.
In general, SaaS companies are enamored with the idea with the vertical acquisition, constantly growing their subscription bases at whatever costs.
But placing priority only on new customers is, in the long run, detrimental to growth. It will ulitimately lead to a loss to your bottom line.
In most cases, focusing on maintaining and nurturing your already healthy subscribe base is far more economical (and profitable), rather than trying to consistently grow a temporary consumer base.
Focusing only on new customers is detrimental to growth.
Consider doing the following things to help achieve negative churn rate:
- Ask for regular feedback regarding how your company is doing from your subscribers’ standpoints.
- Offer incentives to long-time subscribers. Rewarding loyalty never hurts.
- Use email marketing tools to gauge engagement and performance levels.
- Implement exit tools and surveys for customers who wish to leave, to help possibly make things right, and understand what changed.
Doing the above will not only help with customer retention, but your overall brand reputation.
How do I cure my churn Rate problem?
At this point, you may be asking the obvious question.
How do I fix the root issue rather than the symptoms.
You have to shift your mindset from simply thinking about just “saving” your customers. We see a lot of companies that are very reactive when it comes to save tactics.
It usually goes something like this.
Customers are calling, chatting or emailing to cancel. You offer them a reason to stay, usually, cost savings. Or worse, customers can ONLY call to cancel and are cornered into an aggressive offer to stick with the service.
You see what’s wrong with this strategy?
You’re just putting a band-aid on the larger issue.
Customers are making a conscious choice to cancel and not only are you solving the issue with duct tape, but you’re also leaving a bad taste in the customer’s mouth.
This isn’t customer success. This isn’t how to solve your churn rate problem.
Solving your churn issues starts with why.
To address your churn issue head-on, you can start with something basic.
Like we said above, even simply getting on the phone and talking to your customers, implementing a feedback survey when customers (freely) cancel.
You’ll begin to understand “WHY” customers are canceling.
And as you continue to learn why, you’ll start uncovering the real issue at hand.
Typically what you’ll see is these problems tie directly to your customer’s success.
If they’re not being successful in the problem they were trying to solve with your product, they don’t care what the price is.
They’ll want to move on.
The same works the other way, if you’re solving their problems effectively, they’ll gladly keep paying, no matter what the price.
The best part is, when you start fixing the problems you’re customers are facing, you also fixing your problems.
Some Final Thoughts on Churn Rate and SaaS Success
If it isn’t abundantly clear already — churn rate is crucial to your SaaS success in the age of subscriptions.
While any service will inevitably have customers cancel on them, it’s imperative you cusotmer retention is taken seriously.
Who knows, by giving your SaaS services a thorough look-over to help maintain subscribers, you might very well be able to “churn” the tables around for the better.
See what we did there?