Dear Databox: 6 Ways to Reduce SaaS Customer Churn by Up to 40%

Author's avatar Marketing UPDATED Jul 19, 2023 PUBLISHED Jul 20, 2023 22 minutes read

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    Peter Caputa

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    Are you seeing too many customers discontinuing their business relationship with you despite your efforts to increase customer retention and ensure a positive experience?

    We know how frustrating churn can be. Lost revenue, increased customer acquisition costs, tarnished brand reputation, competitive disadvantages, reduced customer lifetime value, and missed opportunities for feedback and improvement.

    We also know you’re not the only one because we received the following question from a user:

    “We’re an early-stage SaaS company doing less than $10m ARR. Like a lot of companies at our level, we’re trying to lower our churn. In March, we lost 144 customers (out of 2,670), putting our customer churn rate at 5.39%.

    Churn feels like an especially hard problem to solve because so many factors can play into it. We could be attracting the wrong customers, have the wrong pricing/packaging, or be missing core features users are looking for. More than likely, it’s a combination of multiple factors. All this is made even harder to discern because we’ve adopted a PLG model.

    My question is: what have other SaaS leaders done to address churn issues? How did you uncover the root causes and actually fix them? And how much improvement did you see?”

    To answer this question and help companies like yours implement successful strategies to reduce churn, we’ve collected the best expert tips and are sharing them in this article.

    This article is part of our Dear Databox series where you can send an anonymous question via your benchmark group and get valuable tips from the industry’s leading experts.

    Stripe (MRR & Churn) Dashboard Template

    Stripe Benchmarks for SaaS Companies

    Thanks to the Benchmark Groups, we have access to benchmarking data that can help you understand your performance compared to your peers and competitors.

    Based on the data from 121 contributors in the Stripe Benchmarks for SaaS Companies group, customer churn in May 2023 was 21 (median value).

    Stripe Churn

    When it comes to revenue churn, our data from 94 contributors from the same group shows that in May 2023, it was $909.73 (median value).

    Stripe Revenue Churn

    Our contributor who asked about addressing churn also shared their underperforming metrics.

    As you can see in the graphs below, the user had:

    • 2.6k customers in May, compared to the 4.87k median value for their benchmark group
    Stripe customers metric
    • lost 144 customers in May, compared to the 69.5 median value for their benchmark group
    Stripe churn metric

    So, why does churn happen, and what can companies do to keep it under control?

    Top Causes of Customer Churn

    We surveyed nearly 40 companies to learn more about what causes churn in their case and what strategies they implement to reduce it.

    Over 67% of surveyed SaaS companies have stated they have dealt with a high churn rate.

    SaaS churn rate

    When we asked the survey participants to share what they believe are the main causes of customer churn, they shared the following:

    Not Monitoring Customer Usage and Behavior

    Over 20% of respondents say the main reason for their high churn rate in the past was not monitoring customer usage and behavior.

    High churn rate

    Without real-time insights into how your customers engage with your product, you miss out on gaining a deeper understanding of what features are the most valuable to them or if they’re encountering any obstacles.

    Without this information, you can’t:

    • Proactively address customer needs to improve their user experience
    • Identify upselling or cross-selling opportunities
    • Personalize your interaction with a customer
    • Nurture customer success

    Finally, you won’t be able to timely recognize warning signs that a customer may be a churn risk.

    Poor Customer Support

    Just below 60% of our survey participants believe excellent customer support is the best way to increase customer retention and loyalty. McKinsey found that customers spend 20%-40% more on companies that quickly solve their requests via social media.

    Increased customer loyalty

    Around 45% of surveyed companies also rely on customer support to improve customer retention in a highly competitive market.

    Customer retention

    When customers wait too long to get your response to their queries, they may get frustrated and dissatisfied, which can erode the trust they have in you and your ability to meet their needs. Inconsistent support across different channels (phone, email, chat, social media) can also lead to customer frustration as they don’t feel understood or that they’re your priority.

    Lack of timely and effective customer support contributes to an overall negative customer experience, causing negative word-of-mouth, reputation damage, and, finally, customer churn.

    Competition

    For less than 15% of companies, competitors are one of the main reasons for customer churn. This can happen for several reasons.

    Your competitors may have an offering that’s perceived as better by your target audience, whether in terms of pricing, features, or overall value. Maybe they prioritize customer experience, delivering exceptional service that can attract customers from other businesses and make them more likely to switch.

    Sometimes, it even comes down to executing better-targeted marketing campaigns and messaging that addresses the customers’ pain points and needs better. With the latest advances in AI technology, the reason for churn may also be that your competitors are quicker to adapt to emerging trends and integrate new tech into their offerings.

    It’s critical to be vigilant and monitor competitors regularly to retain customers and remain competitive in the market.

    Pricing

    Almost 80% of our survey respondents believe other factors have a more relevant role in their churn rate compared to pricing.

    The role of pricing

    If your prices:

    • Are too high compared to the value of your product perceived by the customer
    • Are too high compared to competitor pricing without a significant difference in offering
    • Don’t include flexible pricing models for different customers’ needs
    • Involve hidden fees, additional charges, or unexpected price increases
    • Lack differentiation, not offering pricing tiers
    • Never include any promotions or discounts

    Your customers may become a churn risk and start researching competitor offerings.

    Onboarding Issues

    For over 10% of Databox survey respondents, the main cause for customer churn has been the onboarding process—or the lack of one.

    An exceptional customer experience starts with onboarding. If customers face difficulties in getting started with your product, they may think about what other issues they may stumble upon further down the road. If they lack proper guidance at the beginning of their journey with you, they won’t have trust in your ability to deliver a smooth experience.

    The lack of proper training and education on how to best use your product can lead to unmet expectations. If your time-to-value is too long, it’s likely that your customer will seek an alternative with a better onboarding and customer experience.

    Combined with a company failing to address a customer’s specific requirements and trying to squeeze them into a generic approach, this can quickly turn an enthusiastic new customer into a churn risk.

    Inadequate Product Features

    Just below 10% of our survey participants listed inadequate product features as one of the top reasons for customer churn.

    When customers find that the product does not meet their requirements or fails to perform necessary tasks, they may perceive it as inadequate and seek alternatives that offer a more comprehensive solution.

    Similarly, if your product is unable to provide enough customization options or specific workflows that a customer needs, they may feel that your offering isn’t tailored to their situation. Poor user experience, lack of innovation, or limited scalability can also make the customer feel constrained, as your product wouldn’t be able to support their evolving needs.

    Our respondents listed a few more reasons they identified as culprits for customer churn:

    • Not identifying the right customer segments
    • Not being able to constantly show the value of the product during the cycle of a customer being a subscriber

    Analyze your SaaS MRR performance with the Databox free dashboard template.

    How to Identify Customer Churn

    More than half of our survey respondents analyze their churn rates to identify patterns and trends on a monthly basis.

    Customer churn directly impacts your revenue and growth potential, so it’s critical to identify increased churn or risk for churn timely. That will allow you to act proactively and implement a strategy to improve customer retention.

    Churn rate patterns and trends

    To prevent customers from churning, you need to stay on top of customer satisfaction indicators. Most companies track customer satisfaction by:

    • Analyzing customer support interactions, such as response times, resolution rates, customer feedback, etc.: 67.57%
    • Monitoring user behavior, like tracking feature usage, user engagement, login frequency, etc.: 54.05%
    Customer satisfaction

    See what other metrics every SaaS company should track.

    Dan Sirk, experienced CMO, product marketer, and consultant, shared his framework for “understanding the root cause of why customers are churning”. Sirk explains that a business needs to have clarity on three key customer data points:

    1. Why the customer signed up for the free trial
    2. Why the customer bought your product after the trial
    3. Why they left

    “Analyzing these factors and the variance between them will define the underlying root causes for churn,” says Sirk.

    “It’s hard to collect the data after the customer churned (10% response rate max). If you want a more robust dataset, you’ll need to gather the input as you go.

    This means:

    Changing your free trial sign-up: When folks sign up for the free trial, ask them why they did it. Make it a free text field with character length requirements. Have human eyes look at the responses, categorize them and follow-up if needed

    Changing your free trial to purchase process

    Changing your cancellation process”

    You’ll also want to look at usage data at the user level. How did this person use the product? Did they submit help tickets? Aligning these elements will tell the story.

    Dan Sirk

    Dan Sirk

    CMO at Go2Marketing Consulting

    Want to get highlighted in our next report? Become a contributor now

    Get the Databox free SaaS churn dashboard template to start tracking churn risk.

    Best Ways to Communicate with Customers at Risk of Churning

    We also asked our survey participants about the best way to communicate with customers deemed at risk of churning.

    Customers at risk of churning

    There is no clear winner when it comes to what has proven to be the most effective method. Almost 25% of respondents voted for “Sending personalized emails”, while around 22% voted for a mix of methods.

    Some of the best practices for communicating with customers you identify as churn risk include:

    • Personalized communication, using customer data and insights to address this customer’s specific situation
    • Being proactive instead of waiting for the customer to reach out first
    • Choosing the best channel to communicate based on the customer’s preferences
    • Providing a clear and compelling message that emphasizes the benefits they can experience from continuing their relationship with you
    • Offering personalized incentives or discounts
    • Simply listening and demonstrating that you understand the customer’s concerns and issues
    • Following up and staying engaged to help the customer derive maximum value from your product

    How to Reduce Customer Churn: 6 Expert Strategies

    More than half of our survey respondents stated that the most effective strategy for lowering their churn rate is providing personalized onboarding support. For 24.32%, the most effective strategy is updating/improving the product. None of the respondents selected updated pricing/packaging.

    Strategies for lower churn rate

    When asked which are the best indicators that their churn reduction strategies work, most companies selected:

    • Higher customer retention rate (75.68%)
    • Reduction in churn rate (64.86%)
    • Revenue growth (54.05%)
    Churn reduction strategies success indicators

    High customer churn can cost your business thousands of dollars. Luckily, it can be reduced—with the following six strategies we compiled by talking to today’s leading experts.

    • Provide Personalized Onboarding Support
    • Update or Improve the Product
    • Offer or Extend the Free Trial Period
    • Offer Discounts or Incentives
    • Refine, Change, or Expand Your Ideal Customer Profile (ICP)
    • Update Pricing or Packaging

    Provide Personalized Onboarding Support

    Personalized customer onboarding and adequate support during this process reduce customer churn because it ensures a smooth transition from the initial signup to the full usage of a product. It promotes product adoption, demonstrates its value, and builds a strong relationship with the customer, resolving issues early and providing tailored training and resources.

    “Venntive is a comprehensive solution, so onboarding is essential and critical to success. But, we’ve also always let out customers know they come first and have established genuine relationships with them,” agrees Lydia Sugarman of Venntive.

    By investing in personalized onboarding, businesses can set the stage for long-term customer success and retention and enable ongoing customer engagement.

    “We have onboarding managers that chat to customers to make sure they are making the best out of the product,” explains Tom Hamilton Stubber of TutorCruncher. “Having someone on the end of a phone or chat support line that a customer can talk to really helps highlight why our product is the best.”

    Onboarding new customers is also a learning opportunity for your business because you get to understand which part of setting up your users have the most trouble with. Then, you can work on preventing those issues in the future.

    “We have identified that the customers had trouble configuring TrackMage for their store, so we started offering the done-for-you configuration,” shares Irina Poddubnaia of TrackMage. “This way, we not only were able to get to meet with customers but also got a lot of new feature ideas. We have also used behavior monitoring tools like PostHog session recording to identify what the users struggled with.”

    Nahla Ibrahim of Kotobee shares how personalized onboarding support helped her team “understand and address individual customer needs, leading to improved customer retention and eventually less customer churn. It didn’t work right from the start, but rather after a few months right after we better understood how our customers expected this personalized approach to go and what where their needs were from it. We’re still seeing some good results, so hopefully, it’s a long-lasting technique,” concludes Ibrahim.

    Read more: How Unstack Reduced Involuntary Churn by More Than 50%

    Update or Improve the Product

    Customer needs and expectations change over time. You’ll stay aligned with these evolving needs by continuously updating or improving the product. This strategy ensures that the product remains relevant and valuable to customers, reducing the likelihood of churn.

    When customers see that the product is regularly updated to address their changing requirements, they are more likely to continue using it.

    You can collect valuable data about what needs to be updated or improved by gathering and analyzing customer feedback and using social listening tools, according to Aygul Mehdiyeva of Planly.

    “Tracking customer feedback helps us gain insights on how to get improvement on churn rate. But, it’s also important to consider that achieving sustainable growth takes time and ongoing effort. So, we are working continuously to maintain and improve growth for the long term.”

    We noticed if users had at least 1-2 interactions with the platform they were more likely to continue using the service. To address this, we created a simple module that provides a sample & preview of the output users can expect when they use our core tool. Initially, we offered one sample option and then incorporated 3 additional options to address different industries that users were most interested in. We saw both an immediate and short-term impact in driving user engagement and retention and in turn reducing the number of churned users.

    Jered Martin

    Jered Martin

    Co-Founder & COO at OnePitch

    Want to get highlighted in our next report? Become a contributor now

    Offer or Extend the Free Trial Period

    Do you offer a free trial of your product?

    In many cases, a hands-on experience gives the customer a clear image of whether the product fits them, especially if you provide customer support during the trial. If you decide to offer an extended period of trial, you may allow your potential customers enough time to fully explore the product or service and boost their engagement. At the same time, you’ll demonstrate confidence in your product and remove the sense of pressure on the customer, giving them enough time to determine if the product meets their requirements.

    Alan Jones of Locklizard Limited agrees: “Offering a free trial period allowed us to attract more potential customers who were interested in trying our product or service without any risk or commitment. This increased our sign-up rate and our customer base,” Jones says.

    “During the free trial period, we were able to demonstrate the value and benefits of our product or service to the users and convince them to upgrade to a paid plan or subscription. We also provided them with excellent customer support, feedback, and education to help them get the most out of their experience. This increased our conversion rate and our customer loyalty,” explains Jones and confirms that a free trial brought the desired results to his team.

    “By offering a free trial period, we were able to reduce our churn rate, which is the percentage of customers who stop using our product or service within a given time period. We measured our churn rate before and after implementing the free trial period, and we found that it decreased by 25% in the first month, and by 40% in the first quarter. This improvement was long-lasting, as we continued to monitor our churn rate and found that it remained stable and low over time.”

    Offer Discounts or Incentives

    Offering discounts or incentives can be a successful strategy for reducing customer churn for several reasons.

    By offering a price reduction or additional benefits, you can enhance the perceived value of their product or service, making your customers feel that they are getting a better deal and increasing their satisfaction with the purchase.

    Given that price is a significant factor in customer decision-making, offering discounts or incentives addresses customers’ price sensitivity and provides them with a financial incentive to remain engaged with the product or service.

    Different incentives can also be used as part of a proactive customer retention strategy. By offering these promotions to existing customers who are at risk of churning, businesses can incentivize them to stay and continue their relationship. This strategy acknowledges and rewards customer loyalty, demonstrating that the business values their ongoing commitment.

    The perception of receiving special treatment can foster loyalty and reduce the likelihood of churn. Exclusive deals, personalized offers, or rewards for loyalty help you show your appreciation and commitment to customer satisfaction, which is a proven way to reduce customer churn:

    “Offering rewards and incentives provokes excitement in customers. When you offer a discount upon signing up or making your first purchase, it develops loyalty among customers. This strategy has proven great for my business, as it has reduced churn rates,” says Donnie Rand of the American Association of Owner Operators, LLC.

    Refine, Changed or Expand Your Ideal Customer Profile (ICP)

    Your ideal customer profile (ICP) isn’t set in stone. Your business grows, your goals change, and so will your ideal customer. Revisiting your ideal persona is a good opportunity to think about who you want to work with and make sure your marketing, sales, and product are all focused on that very profile.

    Refining your ICP will help you target customers who are more likely to have a positive experience with your offering, align with your value proposition, and have higher retention rates. By attracting the right customers from the start, you can reduce churn by avoiding customers who may not be a good fit and are more likely to churn.

    At the same time, you will be able to align your product or service more closely with the needs and preferences of your target customers. By understanding your ideal customer’s pain points, goals, and requirements, you can make adjustments to your offering to better address their specific needs. This improved product-market fit increases the likelihood that customers will find value in your product.

    Here’s an example from Nityananda Rao of ACTouch Technologies Pvt Ltd.

    “We sell Cloud ERP Software to Mid-market Manufacturing companies and compete with SAP B1, NetSuite, and Local ERP Vendors,” Rao starts the story. “One of the major problems during the early days was that we didn’t define the right ICP. We had a mixture of customers on board and many didn’t renew the contract after a year or two.”

    How did ACTouch Technologies approach this issue? “We did multiple pivots to improve revenue and reduce churns,” says Rao. “We moved into ‘Niche and Verticalised ICP’ that helped us improve the revenue and reduced the churns.”

    But, Rao’s team also needed to learn how to say no to many prospects to make sure those who moved down the pipeline were indeed qualified and a good fit.

    Update Pricing or Packaging

    For most companies that participated in our survey, up to 50% of their clients pay annually upfront: for 37.84% of participants, 25-50% of clients pay annually upfront, and for 35.14% of respondents, under 25% of clients pay annually upfront.

    Annual customer upfront payment

    Sales teams are also usually incentivized to collect payments upfront, especially if the payment is for a longer period. Our survey showed that more than half of the companies incent or reward their sales team to collect quarterly, annual or longer payments upfront.

    Collecting upfront payments

    But, sometimes, upfront payments aren’t the right approach from the customer’s side, especially for expensive services and products that represent a significant investment for the customer. In that case, if it turned out that the product didn’t meet the customer’s requirements after a short period, it’d be a big loss of resources.

    Providing a range of options through different pricing models, such as monthly or annual billing, volume-based pricing, or usage-based pricing, allows your customers the flexibility to choose the pricing structure that suits their budget and usage patterns, reducing the risk of overpaying or feeling constrained by rigid pricing plans.

    When customers have options that align with their needs, they are more likely to remain engaged and less likely to churn. Also, by introducing new pricing tiers or packages with additional features or higher service levels, businesses can encourage customers to upgrade or add-on to their existing plans. This increases customer engagement, expands the relationship with customers, and reduces churn by providing customers with more comprehensive solutions that meet their evolving needs.

    Stripe (MRR & Churn) Dashboard Template

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    Article by
    Stefana Zaric

    Stefana Zarić is a freelance writer & content marketer. Other than writing for SaaS and fintech clients, she educates future writers who want to build a career in marketing. When not working, Stefana loves to read books, play with her kid, travel, and dance.

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