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Churn isn’t unique to SaaS companies, but the impact it has on their business might be.
Unlike businesses that offer time-bound contracts, most SaaS products depend on recurring revenue and utilize subscription pricing.
It’s often easy and cheap for customers to switch to a competing tool. Plus, there’s no shortage of competitors, many of whom offer similar features or functionality.
And if your company follows a product-led growth model like we do at Databox, it makes it even harder to identify the causes of churn. Many customers sign up and leave without talking to you, making it incredibly hard to know why they registered in the first place, what their experience was like, and why they left.
The truth is, a SaaS company’s churn is impacted by a multitude of factors:
Onboarding: how quickly can users get value out of your product?
Ease of use: how difficult is it to use and get value out of your product?
Features & functionality: do you offer the features users are looking for?
Customer support: if users need help or have questions, how quickly can they get answers?
Their pain: how well does your product solve the pain they feel? And is their pain temporary (a one-time use), or ongoing?
We recently surveyed SaaS companies to learn about their churn and retention challenges and summarized the data in our latest article.
Here are some of the insights:
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When you look for advice on reducing churn, the answer is often, “It depends”.
But Asia Orangio shared a step-by-step framework that just about any B2B company can apply to help them identify what’s causing their churn, and how they might be able to address it.
It’s the best, most practical framework I’ve ever seen on the matter, and I’m excited to share it with you.
First, you need to distinguish between “qualified” and “unqualified” churn. Not all churn is created equal.“Qualified churn” is churn that’s happening among your target customer. “Unqualified churn” is happening among users who aren’t your target customer.
If you’re a product-led company, especially if you have a free plan, you’re bound to get users signing up for your product who you never intended to serve. You didn’t build the product for them, and they aren’t ever going to be your primary customers. So your focus should only be on addressing churn among your target customers: “qualified churn”.The next distinction to make is between “voluntary churn” (where users intended to cancel their accounts) and “involuntary churn” (where users didn’t intend to cancel).
Involuntary churn occurs when the customer misses something and the account lapses. Their card expires. Their team forgets to renew the contract. They didn’t mean to cancel, it just happened due to some oversight.
Addressing unqualified churn is fairly straightforward. It might be as simple as receiving a Slack alert when a card fails to charge, or when the account is x days from expiration and hasn’t been renewed.
Addressing voluntary churn is much harder. These are target customers who have decided they don’t need you anymore, or that the solution you offer isn’t worth the cost.
Asia says there are 3 categories of voluntary churn:
1) Perceived value = “I thought I was going to get x, but instead, I got y.” The user isn’t getting the value they thought they would.
2) Realized value = “Now that I’ve gotten what I intended, it’s different than what I was expecting”. Your product/service doesn’t meet their needs or expectations.
3) Ongoing value = “This worked well for a while, but I don’t need, or value it anymore.” Their needs have changed over time, and they no longer get the value they used to.
The goal is to reduce causes of voluntary, qualified churn. And in order to do that, you need to determine which of these three you’re dealing with.
This means you’ll need to talk to customers and gather some data. Set up a survey that users fill out when canceling their service, that asks why they’re leaving.Next, conduct exit interviews (usually in exchange for a gift card to increase response rate) where you ask four questions:“What was the job you were hoping to hire the product/service for?”
“What led you to use this product?”
“What did you get out of it?”
“What went wrong?”The answers from these questions will help you identify which type of churn you’re facing, and therefore, what steps you can take to mitigate it.
For example…If they hired your business to do something you don’t do (perceived churn), you may have a messaging or targeting problem at the top of your funnel. Your ad or website messaging may be promising something the product doesn’t deliver.If they say your product/service “didn’t work like they wanted” (realized churn), you might need to improve it. Or you might need to do a better job of describing how the product/service works, to set expectations before they sign up.If they don’t get ongoing value from it (ongoing churn), you might need to add new features to solve other problems they face. Or, you might need to adjust your pricing & packaging to account for this dropoff.You can combine these qualitative insights with quantitative ones (like company size, revenue amount, job title, etc.) to get a better picture of what types of companies tend to churn the most, and when they tend to do it.Unfortunately, dealing with churn is complicated, and there’s no quick fix. But following this framework will help you identify what’s causing the most churn among your target customers, and give you ideas to fix it.
If you want to hear Asia share the full framework, listen to the interview:
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