Customer churn might be one of the most important metrics for any growing business to analyze.
In short, customer churn is the percentage of customers that stopped using your service for a certain time frame. To calculate the churn rate, you just divide the number of customers lost during a time period by the total number of customers you had at the beginning of the same time period.
As an example, let’s say you started a quarter with 500 customers. By the end, you were left with 450 customers. What’s your churn rate?
Your customer churn rate for this quarter would be 10% since you lost 10% of customer base. Churn rate can also be calculated as the value of recurring business lost and the percentage of recurring value lost.
So why does churn rate matter?
While it might be harsh, it’s important to understand why customers leave your company. In the SaaS world, every customer matters as it helps determine revenue predictability and business growth. A high churn rate might indicate you have a problem with your support structure, your onboarding, pricing, or something else! The more you learn about churn, the better you can serve your customers and improve your churn retention.
To best know how to stop churn, it’s first imperative to know why customers churn in the first place.
Here are the 5 top reasons why SaaS customers churn:
The most common churn reason for SaaS customers, in particular, is due to your onboarding process. Customers may be very excited to try your software, they quickly sign up, and then they realize they’re not sure how to use it properly or they can’t make it work for them.
This is an onboarding problem.
Realize that people pay for SaaS products because they want to solve a problem. And if you can’t help a customer quickly reach success while solving this problem, they’re likely to jump ship.
A great example of this is Applicant Tracking Systems. This platform with different SaaS products is designed for businesses that need help hiring. By focusing on how to implement these new, automated hiring practices quickly, each of the software can drive their customers to success faster.
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- Low Engagement
Another common issue for SaaS businesses is low engagement.
A startling 31% of SaaS licenses go unused. Think about that for a second.
One out of every three people that sign up for (and likely pay for that software) don’t even use it.
It’s hard to manage all of your software licenses as a company, and it’s your job as a marketer to help your users engage with your service. The only way to know if you’re struggling with user engagement is to track it yourself.
What features are users flocking to?
What features are being ignored?
Are users logging infrequently?
Are users opening your email sequences?
Once you know what areas of your business need more development, it’s time to narrow your focus. You might invest in more education, monitoring, or customer support to drive up your engagement.
3. Software Bugs
It hurts to admit, but a large reason for churn in the SaaS world is software bugs.
When products don’t work properly, customers head out to the competition, especially when there aren’t high costs to switching to a rival. For instance, if your live chat software is being buggy, it’d be easy to switch to Intercom or LiveChat.
Software bugs are a fact of life, but that doesn’t mean they need to be severe or frequent. Put a member of your dev team on bug duty — and reemphasize to your team the importance of solving bugs for customers.
Your users likely depend on your product. They might need it to run their business or even just their day-to-day lives. When bugs happen, they stop progress.
Learning how to reduce your number of bugs while also communicating what’s going on with customers is key.
4. Lack of Support
Customer support is more important than ever.
If you don’t have a strong support team both on the sales end and the technical end, you’re losing out on business. Bad experiences with support teams will sour customers to your brand, no matter how good of a product you provide. Zendesk is one of the good examples of how customer support services can be automatized and led by a professional, through purchasing their SaaS software.
A positive customer support experience is not only a way to encourage positive reviews and referrals, but it builds real brand loyalty. Offering customer support in a proactive way will help you overcome problems and create relationships with your users.
5. Disconnect Between Customers and Product
Finally, one of the last reasons you customers might churn has nothing to do with your software at all — but it has everything to do with your marketing. If you’re marketing your products to the wrong fit businesses or individuals, you’ll be left with a high churn rate.
You can’t close the wrong deal.
There should be no disconnect between what the customer thinks your product can do and what it can do. If there is, you’re attracting the wrong customers to your product. As soon as they realize this isn’t for them, they’ll leave.
If you’re serious about identifying the top reasons for customer churn, take this list seriously.
It can feel frustrating to see your customers leave but don’t take it personally. As long as you’re proactive about identifying the issues above and thinking of solutions, you have nothing to worry about.
Customers leave when they’re not hitting milestones or when they’ve found the wrong-fit product. In the SaaS world, competition is so fierce you can’t afford to let these customers go. Investing in reducing your churn rate will help you turn your business into a powerhouse.
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