November 28, 2016
New software-as-a-service (SaaS) companies focus strongly on customer acquisition, and for a good reason—new customers are the bread and butter a startup needs for growth.
Attracting those new customers is expensive, as are the marketing costs that come with them. The trick to balancing the scales towards growth, especially for SaaS companies focusing on their services, is getting your money back with the ability to reduce churn rate.
The first step to reducing your churn rate is knowing where you currently stand in retaining your customers. Calculate your churn rate by dividing your number of starting clients with your number of clients lost.
Example: 5 clients lost / 100 starting clients = 5% churn rate
Your churn rate is important to understanding your customer lifetime value (CLV)—how much you can expect to make from each new customer, from purchase to cancellation. Tracking your churn rate consistently helps you identify the success of your marketing initiatives, and whether or not your efforts to improving your CLV are working.
For SaaS companies, churn rate is important, especially when customers can be won and lost with the click of a button. Below are seven actionable steps towards a reduction in churn rate that you can start making today.
The first thing on your list to reducing churn rate is the most obvious - if there’s a flaw in your product that is driving your customers away, you need to fix it.
Not only will it reduce churn rate, but it will reduce the potential for your product to be overpowered by competitors who might already be in the process of fixing it for you.
The popular SaaS company Myspace is a great example.
Myspace was buggy, had banner ads, and didn’t make obvious improvements. When Facebook came around, it solved a lot of these problems with a cleaner layout, a higher sense of security, and the ability to make status updates.
Because it didn’t make improvements to its weaknesses, Myspace lost it’s place on the internet as the ‘king of social media.’
Environmental changes will inevitably affect your SaaS platform, and your churn rate, without you being able to control them.
One common example is a change in compliance laws—a problem of which healthcare and HR software are often victims. If your SaaS product’s success relies on compliance in a certain industry, this change can increase your churn rate unexpectedly.
Other environment changes might include disgruntled customers on social media, changes in the financial market, or a change in your brand’s public opinion—possibly because of a sour PR or marketing opportunity.
While you can’t predict an outside environmental change, you can keep your finger on the pulse of these factors that could change at any minute, so you can react to them as quickly as possible, before they become damaging.
To reduce your churn rate, you need to hook your customers from the start with a great introduction campaign. SaaS customers are purchasing a relationship first, and a product second. Use this opportunity to make your best first impression.
Impactful introduction campaigns come in many forms—either with a series of emails, videos, or sometimes even online introduction classes.
Some of the best introduction campaigns were done by PayPal, Zipcar and Litmus. They’re secret—they keep introductory emails short and easy to understand, provide clear instructions for their new customers, and most importantly, they use conversational tones.
The best way to reduce your churn rate is to hear feedback straight from the customers who’ve decided to stop using your SaaS product. Only they know why they weren’t satisfied. It could be anything from the price, to the user interface, but you won’t know until you ask them.
Consider using several common platforms for generating user feedback—customer surveys, an internal feedback bar, social media use and allowing email replies to product messages are all effective.
It’s tempting when evaluating user feedback to try to fix every problem your SaaS product might be facing at once.
While this seems like the most logical step to reduce churn rate, it can lead to chaos. Focus on what’s causing the largest amount of customers to leave first, and then work your way down the list from there.
One of the biggest mistakes new SaaS companies make when developing relationships with their customers is not talking about their competitors.
While you shouldn’t obsess over their activities, acknowledging them gives you a chance to highlight why your customers should stick with your product over a competitor.
In addition, paying attention to their movements will allow you to improve your competitive advantages, and stay prepared when others in your market release new products, services or updates.
Customers want to feel valued - reduce your churn rate by building a customer loyalty program that reminds your customers how awesome you think they are, in a big way.
Some customer loyalty programs include giveaways, personally written emails from your staff, and the accessibility of business leaders to certain high-valued customers.
The best customer loyalty programs turn current customers into brand ambassadors - customers that talk about your product to your wider audience, simply because they like it so much.
One great example of this is the daily newsletter theSkimm. Each day, readers have the opportunity to become Skimm’bassadors—publicly noted readers—and win prizes, all by sharing that day’s newsletter with their audience.
Once you’ve isolated the factors behind your churn rate, and implemented marketing and product campaigns in order to combat that churn, you can track the success of these efforts.
This allows you to flag at risk customers, and focus on keeping them.
Assign each of your customers a customer satisfaction score—work out the average satisfaction rating across all customers, and flag those below average.
If you’re having trouble figuring out whether or not to flag certain customers, start with a survey asking if they would recommend your product to others. If they respond negatively, it’s an accurate indicator that they’re unhappy.
A successful startup must focus on boosting your CLV through improving your churn rate. Apply these seven tactics discussed today, and and you’ll see major improvement in increasing customer satisfaction.
The goal—creating happy, loyal customers that will keep doing business with you for years to come.