April 20, 2020

User Retention 101: How SaaS Founders Can Cut Churn to Zero

User Retention 101

User Retention 101: When you run a SaaS company, you should expect to experience some customer turnover or churn. Even some of the major SaaS companies experience churn. In fact, SaaS giant Buffer recently self-reported an annual churn of 46%. So for every 100 customers, Buffer gained over the course of a year, 46 of them left before the year was over.

Losing 46 out of 100 customers over the course of a year seems like a pretty big deal. And it is.

If your company has a similar churn rate, you’ll need to spend nearly twice as much time getting new customers just to keep up. On top of the time it takes to get new customers, there’s a monetary investment. Businesses spend 5 – 25 percent more getting a new customer than they spend retaining a customer. 

No matter what stage your company is in, that’s going to catch up to you.

Most SaaS businesses view customer turnover as just a normal part of business, knowing that customers will stop using their software for one reason or another. It could be that their needs have changed over time, or maybe they have found another solution to solve their problem. 

This way of thinking isn’t going to get you to zero churn because it assumes that you don’t have any say in finding ways to keep your customers interested in your SaaS product when, in fact, the opposite is true.

The larger your organization is and the higher your sales volume, the more important it is to actively take steps to retain your current customers and reduce your churn rate. You can take steps to reduce churn, even down to zero, by understanding your customers and determining what your company needs to deliver in order to keep them around. 

Churn can kill a SaaS company that overlooks it. Here’s how to improve your user retention rate and cut churn before it gets out of hand.

What is SaaS Churn?

In SaaS, churn refers to the percentage rate at which customers cancel their recurring revenue subscriptions. You can figure out SaaS churn over a period of time (usually monthly or annually) using a simple formula. Multiply the number of customers who canceled over a period of time by the time interval. Then, divide that total by the total number of customers you had at the beginning of the time interval.

There are a lot of different ideas out there about what an ideal churn rate is for a SaaS company. Experts seem to have settled on the fact that a five percent churn rate is normal for SaaS businesses of all sizes, ranging from small startups to enterprises.

How User Retention Impacts Churn Rate

Another way to think about reducing churn is to consider customer retention. Basically, instead of losing customers to churn, you keep customers around through active retention planning. 

Customer retention is a core component of any SaaS business model. Because SaaS models are subscription-based, they rely on having a certain number of customers every month in order to hit their revenue targets. Without customers, you don’t have a business.

How to Reduce SaaS Churn

The best way to reduce churn for your SaaS product is by keeping customers engaged. That’s it.

Simple, right?

Maybe not. 

The concept of user engagement is more complex than it may seem on the surface. Obviously, if customers aren’t engaging with your product, they aren’t using it. And if they aren’t using it, well, eventually they’re going to stop paying for it. 

On the other hand, the more your customers actively engage with your product, the harder it will be for them to let it go. Once your SaaS product has become an integral part of their daily life, they’ll need an extremely compelling reason to stop using it.

Some ways to keep users engaged with your SaaS product include making improvements on the features that matter the most to your customers, actively talking to customers at risk of churning, staying engaged on social media, and creating personalized experiences for your customers. 

Make improvements that matter

To know what features matter the most to your customers, you’ll need to rely on data. You can track the features that are used the most and spend your time working on ways to improve those. This can help you determine where to spend your product and development time so you can make sure your efforts are rewarding for your customers. 

Actively talk to at-risk customers

It’s relatively easy to track customers’ engagement and determine who is most at-risk of churning. One of the best metrics to use for this is login regularity. You can track logins over time. The period of time may vary from company to company. It could be three days or three weeks. Use the data you have collected from other customers to determine how often users are logging in on average to determine the point at which a customer becomes a churn risk. 

Once you determine that a customer is a churn risk, send personal communication through email, social media, or a personal phone call. It’s amazing what a personal approach can do for customer retention.

Stay engaged on social media

Your customers are likely tuned into social media. The specific channels they frequent could vary depending on your product. If you’re a B2B SaaS company, your customers might be hanging out on LinkedIn. If your product is B2C, they’re probably on Instagram or Facebook.

Figure out where your customers are and focus on those social media channels. Don’t just have a presence, though. Be actively engaged with customers by creating posts that will help them solve their problems and remind them of all the ways your product can help them. Make sure to respond to comments, questions, and reviews in a timely manner. 

Create personalized experiences

It’s easy to forget that customers are interested in both the software and service part of your business model. SaaS founders often get caught up in the technical side of things and forget about the service side, which can quickly lead to churn.

See, your customers aren’t just in it for the cool software (though sure, that’s part of it). They’re invested in the entire experience of using your service. This includes everything from how the login page looks to the support customers receive when they have a question about the software. Keeping your focus as much on the service and experience that you provide as you do on the software will help you retain customers and reduce churn.

The main thing to focus on when you’re trying to reduce churn is keeping your customers happy and engaged with your product. Every time you make an update or change to your SaaS product, think about how it will impact the customer’s experience. And, if you still can’t figure out why people are churning, ask them! People will generally open up to you when you ask them what you can do differently to make your product more valuable to them.

For more ideas on how you can reduce churn for your SaaS business, contact us today.

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