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Unpacking SaaS Churn

Ventures Platform

August 9, 2021

For most SaaS company founders, the ability to source, retain new clients, and increase the spending of current customers is essential to success. Every month companies gain and lose customers — this is a natural part of the business growth process. For early-stage companies, Churn has make-or-break effects and is an active part of the SaaS experience. However, losing more clients than you gain can signal an inferior product or an inability to define your target market. Founders, particularly at the early stages, need to be obsessed with acquiring and retaining customers.

When looking into churn, SaaS companies may have to peer a little deeper than the simple churn calculation covered in our last edition of Series V. Founders can look at churn from a subscription, revenue, and customer perspective. From the customer angle, look at the customers who leave your product or cancel their subscription entirely. The loss of 5 customers might seem inconsequential, but for B2B SaaS companies, those customers might be your most significant contracts, and that loss in revenue can damage your company. Keeping track of your customer churn can help you better understand revenue changes.

You are trying to determine the percentage of customers who move from one subscription level to another from the subscription level. Understanding why customers upgrade or downgrade their subscription plans can help you understand the value of more expensive subscription plans compared to more affordable options. You want to look at the revenue lost from users switching subscription levels or cancelling their subscriptions from the revenue perspective. These factors work in tandem to give you a clearer picture of how customers react to your product. For example, your company could lose 50% of its customers and not lose any significant revenue. This could be tied to subscription level shifts or free user declines. Looking at customer loss without nuance might cloud your judgment and force you to solve a problem that doesn’t exist.

Regardless of how well your company tracks churn, the real work requires using the data gathered to create products users love and reducing churn. Here are some ways you can reduce churn for your SaaS startup:

Product updates: Always be talking to your customers, you can’t provide a solution to every customer problem, but you can focus on the issues users care about. If a sizable number of customers face a problem your company can solve, consider adding this feature to your update pipeline. If the benefits of adding this feature to the product outweigh the development costs, then it is a worthwhile endeavour. By consistently listening to your users and meeting their requests, you can create an exceptional product.

Review supporting factors: If your customer base is diverse, look into the unique characteristics that promote churn for each group. Do customers in a specific industry, vertical, or country have a higher churn tendency? If a pattern is forming, look into product modifications that can improve their experience and secure continued use for users in that segment.

Long-term partnerships: Most SaaS companies work with clients through a monthly payment agreement. Another option would be to secure long-term contracts ranging from 6 -18 months. In this time frame, the companies that take advantage of this offer will get familiar with your product and incorporate it into their operations. This familiarity with your product will reduce the likelihood of churn.

‘Sticky” Factor: Build features around user needs that can become a part of their everyday process. Once your product becomes an integral part of a client’s operations, you can achieve “stickiness”. The more embedded your product is in your client’s operations, the less likely they will leave your product. Always aim to make the switching cost from your product high.

Best foot forward: Working with corporate clients takes skill. If you have a customer about to churn, having your best representative manage conversations with this client might be valuable. Having an expert manage and maintain high-value partnerships can go a long way.

Survivor Bias: Survivor Bias in this context is the misconception that you should only focus on and learn from the customers that continue to use your product. But there is a lot to learn from the customers you lost along the way. The issues that forced those customers to leave might be you need to solve to ensure future customers remain satisfied. Consider creating a list of customers and compare their activity today from a year ago. Were there any changes in user behaviour before they stopped using your service? Taking into their fluctuations might give a more accurate picture of how users interact with your product. You might also benefit from surveying this group to find out what issues they faced.

Churn is inevitable, but the goal is to get to a point where your customer base is growing faster than it’s churning. Managing churn for your company takes time, effort, and a user-focused approach. If you focus on improving your product and customer satisfaction, you can reduce your churn rates.

Series V will continue to cover how churn impacts other business types and relevant topics to support founders on their entrepreneurial journey.