28 October 2020- 18 min read
28 October 2020- 18 min read
While focusing on churn rate can be seen as a negative, with many SaaS companies instead looking to focus on the positive aspects of their retention rate, putting a focus on this metric can have a huge impact on your business growth.
Churn or churn rate is a metric describing the number of customers or subscribers who have unsubscribed from your SaaS platform during a given time period.
Providing exceptional service alongside building and maintaining customer relationships is crucial for your subscription business, especially if this is what your business model is built upon and is your main or exclusive revenue stream. Knowing your churn rate can help you to take action to improve your customer relationships by inspiring you to investigate why customers are unsubscribing, or more worryingly, why they believe one of your competitors offers a better deal than you do.
If your business has a low churn rate, you’ll be benefiting in several ways.
The obvious benefit is that if your churn rate is low, your revenues are more stable. While you will always have on-going business development activity if you’re looking to grow your business, a low churn rate will reduce the stress on sales teams to close deals and find new clients. This itself also protects your revenue, as you won’t be potentially offering discounts in order to get clients onboard. Your profitability also benefits, as you won’t necessarily be needing to invest more in marketing in order to attract new business.
A low churn rate also means a higher retention rate. This increases the likelihood that your clients are going to become brand evangelists, giving your SaaS platform powerful social proof and the potential to enjoy the massive benefits of word of mouth marketing.
There are several metrics you can use in conjunction with customer churn in order to get an overall view of your business health and to aid strategy and growth decisions.
As a SaaS business your target Churn rate is always going to be 0%. However, you should accept that this is unlikely to happen, even the very best businesses can’t make everyone happy all the time. What you can do is maximise how you manage churn to both maintain current business while growing new business.
Churn rate is usually given as a percentage, but you can also report this as the real number of customers lost in the time period you are looking at. You can even express it as the value of recurring billing retained versus the value lost.
How you calculate churn rate is up to you. Just ensure that everyone in your business is clear on how you are measuring it so that analysis and action based on your churn rate is consistent.
Churn Rate % = ( X # of customers - Y # of customers ) / X # of customers * 100
X # of customers: the number of customers at the beginning of a time period.
Y # of customers: the number of customers at the end of a time period.
Let’s say your company starts the year with 500 customers and ends it with 450. The churn rate is 10%, since your company lost 10% of the customers.
Within this you can then choose whether to analyse which of those 450 customers were actually with you at the start of the year, and other metrics as we described earlier.
When a client unsubscribes, make sure you find out why. Sending all your clients an “exit interview” when they leave is a great way to accrue valuable data.
You can do this on a qualitative basis; however, it is always better to acquire some quantitative data so that you can make changes accordingly. If 70% of your churned clients say they didn’t like a specific element or feature of either your SaaS platform or your service, you have a great indicator for something you need to fix.
Once you know the reasons why churn happens, you can turn to customer churn prevention. You could even look at user data via your analytics platforms and look for common patterns in usage prior to a customer leaving. This could help you to develop an internal customer churn prediction model. If you can use data to predict when a customer might be about to leave, you can contact the specific customer prior to you anticipating them doing so, or even better, proactively address the issues in your business that leads to the behaviour pattern that ends in a customer churning. In this context an internal churn model can be a fantastic “early warning system” of where you need to focus to prevent churn.
While it is understandable that you want to focus on the customers that are churning, let’s say you have a very small churn rate of 3%. That means you have 97% of your customers that are consistently happy with what you’re doing.
As well as surveying your churned customers, remember to speak to the huge numbers of your existing customers who are happy with your service. You can still ask these customers similar questions on the basis that you want to make them even happier.
This will make your customers feel valued and as if they are a part of your growth and success journey and is a powerful way to minimise your churn rate.
If you spend a lot of time on minimising customer churn by engaging with those that unsubscribe, or show common usage patterns consistent with what happens prior to a churn, you will build up a picture of how successful you are at preventing churn or getting customers to re-subscribe.
If, despite significant efforts, you find that your churn rate remains consistent, reconsider pooling your resources elsewhere, and focusing more on new customer acquisition. As much as you want to minimise churn rate, ultimately you will have customers who plan to leave no matter what, and you could be wasting resources by spending too much time on trying to keep these.
The marketplace is filled with great tools to aid your SaaS business with customer churn analysis. Let’s end by looking at six of them.
Optimove is a useful tool not just for churn analysis but for managing your whole business. Whether you want to learn about your best performing promotions or discover how you can personalise your offer for each and every customer, Optimise will give you all the data you need to maximise your customer base and reduce the numbers who leave.
The One Question is a little different when it comes to churn analysis, because as the name of the tool suggests, it only asks one question! While you don’t get a wealth of data for you to deep dive into, you do get a fantastic top line overview of customer satisfaction in real time. Remember that businesses can overcomplicate things, so keeping your churn analysis simple could be a gamechanger for your internal operations.
As one of the world’s biggest IT businesses, it’s not a surprise that IBM are prominent when it comes to churn analysis. IBM’s SPSS Modeler is available as a standalone service or as part of it’s IBM Watson Studio offer. This tool uses machine learning to predict customer churn and give you actionable insights so that you can proactively address the issues that may be leading to customers unsubscribing from your SaaS tool and minimise your churn.
Trifacta is a tool that describes its purpose as “data wrangling”, taking complex datasets and presenting them in a simple, accessible way. Trifacta can save you crucial time and money in helping you get the analysis you want quicker, enabling you to make decisions and take action to minimise customer churn.
Alteryx is a great business intelligence platform that can help you to both predict customer churn as well as deploy strategic solutions to manage and prevent churn. Alteryx is a “self-service” tool, allowing you to plug in as much or as little data as you want to gain insights that will help you grow your business.
Remember what we said earlier about looking after your existing customers to effectively manage and reduce churn? Pay Wizard helps your business to drive engagement with customers, while also providing you with actionable data and insights that will help with customer acquisition and business growth.
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Jakob knows a lot about a lot of things. Including (not excluding) fundraising, subscription based business models, IPA's and IPO's plantbased foods and barefoot running.
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