In today’s fast-paced business world, retaining customers is key to long-term success. During our 20+ years of building and selling SaaS products, we’ve seen the challenges of customer churn first hand. In this article, we want to share our experience and provide some actionable steps for reducing customer churn rate.
Whether you’re a small business, a startup, or have been in it for years, we believe that these tips can help you improve customer satisfaction, boost loyalty, and increase your revenue. So, let’s dive in and tackle the issue of customer churn head-on.
Customer churn, also known as customer attrition, is one of the most important metrics used to calculate the loss of paying customers over a given period.
Your customer churn rate provides insights into the success of your client retention efforts and the overall health of your business. Monitoring and identifying anomalies in your data can help you find suitable measures to prevent churn from happening.
Every user that doesn’t renew a subscription or doesn’t repeat a purchase is a churned customer. The best way to deal with churn is by preventing it from happening in the first place.
Unfortunately, not all churns can be prevented. For some industries, churn is a natural part of the customer journey. For example, for B2C e-commerce stores, repeat purchases are irregular. Monthly e-commerce customer retention values are estimated at only around 25%–26%.
It’s an entirely different story though for SaaS and subscription-based services, where a good monthly customer retention rate sits at around 92-97%. This means that the average monthly churn rate for this industry should be somewhere between 3%–5%.
In this guide, we focus on churn in SaaS and subscription-based services. To identify potential churning customers for your business, you must first look at their usage patterns.
Look over your existing customer data and answer the following questions:
Use these parameters to set your baseline values and correctly flag customers that have a risk of churning.
Customer Churn Rate = (Customers lost during the time period ÷ Total customers at the start of the time period) × 100
You can use our calculator to estimate your churn rate instantly. The calculator also shows you how much revenue you could recover by lowering churn by a given percentage.
Let’s say you had 1000 customers at the beginning of the month, and by the end of it, you have only 800 of these 1000 left. That means you lost 200 customers during that period, so you divide 200 by 1000 and then multiply by 100. Your result is at 20% churn rate, which is quite high.
Depending on your business model, you need to determine the right time frame for which you wish to calculate the churn rate, such as monthly, quarterly, yearly, or all-time.
Case-study:
Although TextMagic is a SaaS solution, we offer pay-as-you-go pricing. Our customers do not load credit every month; but rather every two to three months. Therefore, our time period for churn calculation will always be set according to the customers’ usage patterns.
A good churn rate can vary considerably based on the sector, industry, and target customers (B2B or B2C).
To accurately assess a churn rate, it is important to compare it against the same industry or market and consider other factors such as your target audience, pricing, services, and customer satisfaction. A lower churn rate is often seen as a sign of customer satisfaction and loyalty.
If we think about SaaS companies, as we mentioned earlier, a typical “good” monthly churn rate could range from 3% to 5%, which implies an annual churn rate calculation of between 30% and 50%.
Churn is an essential metric to monitor so that you can plan and make adjustments to improve customer retention and cut costs. A high churn rate may also indicate that there might be some issues with your product or customer service.
Customers won’t always stick with you, and there are many reasons for this. Sometimes, it may have nothing to do with your product or service at all but rather the external factors might have played the main role in their decision to leave.
Understanding the reasons that led to customer churn can help you determine which customers are most likely to leave so that you can focus efforts on retaining them before it’s too late.
Whether you’re a direct or indirect threat to your competitors, they will do everything they can to win over your customer base. It’s therefore essential to understand what sets your company apart from the competition regarding your value proposition, price point, and brand perception.
Proper onboarding can be a significant contributor to reducing client churn. Test your onboarding experience yourself constantly and check user recordings to see if there is any friction.
Each onboarding experience should be personalized based on the users’ role, experience, and needs. Make use of in-app guidance tools and product tours to share basic information about each capability without overwhelming the user.
A lack of personalization and poor communication are among the most frequent causes of client churn. Keep your messaging consistent and avoid providing unhelpful communication links. With Touchpoint, you can bring all your customer contact channels together and provide context to every client interaction.
If you’re not providing the best possible product experience, your customers will find someone who does. Too many call-to-action buttons or difficult-to-use features can immediately drive customers away.
According to Bloomberg, there is a 7-in-10 chance that the US economy will enter a recession in 2023. With this threat looming, customers may be more likely to switch to cheaper products or services since they may be more cautious about their expenses.
The best way to avoid this is by constantly innovating and anticipating your customer needs and staying ahead of new industry developments.
You might be having trouble delivering your brand values effectively – which could eventually cause your customer numbers to dwindle.
Here are a few helpful strategies to help you keep customers coming back to your business:
The common causes of churn may not apply to your business. If so, to identify the ones that are affecting you specifically, you will need to take a closer look at your customers:
Also, look at the leading causes of customer churn and spot which are compatible with your industry and type of business. Once you identify what has been causing your customers to churn, you can tailor your approach and adopt practical measures to improve outcomes.
Assessing the CLV (customer lifetime value) and usage data can help you identify the most loyal customers. You can then individually customize your services and offers for them. This will not only help you win their loyalty but will also help you acquire new customers.
Once you have narrowed down your most valuable customers, focus on strengthening your relationship with them. Loyal customers are already invested in your brand, so they may be willing to participate in focus groups, answer surveys, and interact with you.
Empathetic customer interactions will provide valuable insights into potential clients’ expectations and needs.
It is cheaper to retain a customer than to attract a brand-new one. That is why customer retention is a vital element of long-term business success. For instance, in financial services, a 5% increase in customer retention can produce more than a 25% increase in profit.
Everyone likes to be rewarded and recognized. Don’t forget to incentivize your loyal customers to retain a thriving customer base. Invest in retargeting campaigns to remind your customers of available offers, whether that’s discounts, giveaways, or referral programs.
There are ways to prevent losing customers by detecting customer churn risks early on and engaging with them before it’s too late. Here are some indicators that may show your customers are at risk of leaving:
If the answer is yes to any of these questions, you should create an actionable plan and monitor your customer behavior.
Case study:
Several years ago, we implemented a calculator inside our customer database to flag churn risks early on. This helped us identify customers that were likely to churn based on their monthly usage patterns. We compared these patterns to their average life-time spend.
High-risk customers are automatically flagged by our system, alerting the support team. For each customer that is about to churn, we take appropriate steps, either by reaching out to them, personalizing their offer, or sending a nurturing email series. As a result, our monthly churn rate dropped to 3.56% (monthly), and the average order value (AOV) increased by $30.
Below is a sample of churn risk calculator template that you can use to predict attrition probability:
You can find out about your customers’ experiences and what you can do to make it better by asking for feedback. There are many ways to do that, such as through emails, surveys, or phone calls.
Customer feedback will help you understand what’s working well with the business and where there are opportunities for improvement. Implement a loop to consistently request feedback for your business.
This information can then be used to improve your products or services over time as well as to spot potential churned users so that they can be targeted properly before they leave.
As a concept, focusing on customers is nothing new. But the way we interact with them must evolve to bring them closer to us not only as consumers but also as people.
This means that you must be carefully tuned into your customers’ needs and desires. It’s not about what customers can do for your business but what you can do for them.
Here are a few steps to help you build a customer-centric business:
Customer service is a key factor in reducing the risk of churn. According to Salesforce research, 89% of consumers are more likely to consider making another purchase with a company after a positive customer service experience with them.
Respond to customer inquiries quickly and keep the same response time frame consistent across all channels (email, phone calls, social media). Provide a helpful and genuine response to customers who contact you with questions or concerns. Lastly, use customer satisfaction surveys such as NPS or CSAT to measure the quality of your support.
Brand awareness involves focusing on customer engagement through meaningful interactions. Engage your customers so they feel valued and connected. This can be done through online forums, social media groups, or other platforms where customers spend their time.
By consistently demonstrating that you value your customers and their opinions, you can build trust and create better connections among your customer base. Educating and engaging your customers will make them more likely to stick with your brand and can help you improve your client retention rate.
If you’ve tried the strategies above, but your churn rate continues to be high, it might be time to take a step back and re-evaluate your approach. Here are a few long-term strategies that can not only result in less churn, but increase the overall value of your business:
Churned customers might be willing to return to your business since they have already shown interest in the first place.
Your win-back strategies should be tailored around the reason they churned in the first place.
Consider incentives or special discounts, personalize your email nurturing campaigns, and create retargeting ads for your churned audience. Make significant improvements to your products and let them know.
A competitive advantage can be anything from providing superior customer service or quality products or services to having lower prices than your competitors.
To identify your key unique attributes and build your competitive advantage, you must first ensure that your product positioning is solid. It will be harder to retain customers with a product that is mispositioned. We used April Dunford’s framework to find Touchpoint’s position on the market.
Once you’ve nailed down your positioning, find your USP (unique selling proposition). Find whatever sets you apart from the competition, highlight that as much as possible so that customers know they’re getting something special every time they purchase from you.
You don’t have to create something completely original or reinvent the wheel. There are many ways to find your competitive advantage – either by niching down or by capitalizing on your competitors’ weaknesses. Also, keep in mind that positioning is an iterative process. You should constantly re-evaluate your USP and adjust your product strategy to remain relevant.
This goes hand in hand with proper positioning. If you don’t understand what your product is about, neither will your potential customers.
Creating a customer profile is essential for learning more about your present and potential consumers. Include their age, gender, and other demographic and psychological details (personality traits).
Additionally, you might incorporate information about their online interactions with your company or past purchases. By understanding who your ideal customer is, it will be easier for you to reach them with relevant messaging that speaks directly to their needs and goals.
Reducing the customer churn rate requires a proactive approach and addressing the issue’s root causes. Some churn reduction strategies, like creating a community or developing a churn risk system, are more challenging. That’s why it’s essential to focus on low-effort, high-impact initiatives.
By prioritizing initiatives, you will also empower your team without overwhelming them. Remember, every effort you make to improve customer satisfaction and retain customers will help you scale your business in the long run.
Marketing manager for TextMagic. I like figuring out how things work. Passionate about fitness and video games.
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