For your SaaS business to succeed, you need to retain customers even as you acquire new ones. With high customer retention, there are more opportunities to enjoy economies of scale, gain new customers through referrals, and upsell or cross sell new offerings.
Minimal churn can help set up a business to be highly profitable. Churn is the loss of customers or subscribers.
High churn is a big threat to any SaaS since it significantly reduces recurring revenue. When there’s a high churn rate within the first few months of subscription, the business won’t even recoup customer acquisition costs.
It is unrealistic to expect zero churn, because companies may change operations, merge with others, fold, or develop in-house solutions. Also, some customers might find out that the product is not the right fit, and so they look for other options.
There are two main types of churn; voluntary churn and involuntary churn
Voluntary churn is when a customer makes the decision not to renew their subscription. In many cases, it is because they do not realize the value they hoped to get from the Saas solution.
There are other possible reasons for churn. For instance when customers have short term needs, e.g event marketing campaigns, a construction project and other such initiatives.
Involuntary churn is when a customer unknowingly fails to renew their subscription. It can happen if their cards run out of money, or expire. It is easy to combat involuntary churn through communication, especially where customers felt they were getting indispensable value from the product.
A good way to identify at risk accounts is to track a number of factors that will define customer health.
Customer Health and Churn
Customer health is simply how customers are experiencing your product and company. Poor health means the product or experience is below their expectations.
SaaS companies need to track customer health scores in real time, and so a customer success tool that tracks these metrics in real time is essential.
Identifying at Risk Customers
Dissatisfied customers seldom complain, and by the time you hear complaints, the customer can be on their way out. Also, waiting for customers to complain is a reactive approach that can hinder product and service improvement.
To create a framework for measuring your churn risk, look at customer health data and ask these questions;
- What do customers often do and say before they churn?
- What do customers fail to do before they churn?
- What are warning signs of impending churn?
- How does usage of specific product features correlate with churn?
- Are there features that customers pay for but do not use?
Most Saas products are tiered with different features available at different pricing levels. So when you think about predicting churn, begin by segmenting users based on plans plus other factors such as industry.
You also need to segment customer health scores by the stages they're at in your customer lifecycle. Some actions, such as watching tutorials are key at the onboarding stage. A longtime customer at the retention stage might never watch tutorials because they understand the product in and out.
The company can then target specific customer health goals and scores for the different stages.
Segmentation by industry is useful where different types of customers find different uses of the same product. For instance, an ecommerce store will use a CRM differently than an educational institution.
Some red flags to look out for include;
Low Number of Logins
The number of logins can give a good idea of app usage. When users are often logging in to use the product, it is usually a positive sign. If a user logs in to the app very few times, they might not be getting as much out of it. This can be a predictor of impending churn.
But there’s a caveat; if the application is accessed via a web page and users log in but don’t log out, it can appear that they don’t log in often. Besides the number of logins, check metrics about length of sessions for more context.
Abnormal Session Durations
Longer or shorter than average sessions can be a good or bad thing. Long sessions might mean the users are struggling to carry out tasks. Shorter sessions (with incomplete tasks) can indicate that users don't know how to use the app. Or, they don't really understand or value the full capabilities of the application and how it can help them.
Expert product users might also log short sessions because they have set up the tool optimally and automated tasks. This would be a positive rather than negative signal.
Look at sessions within the context of tasks done/not completed and the ideal average session duration for the different tasks.
Low Depth of Usage
A normal Saas product will often have many features. Track core features that a customer is using and the tasks they are performing using the app. You can also look at how they export reports and how they integrate the app with their other work processes and software.
Customers who do few tasks, use minimal features, or fail to integrate apps with other tools can be at risk.
“Deactivate” / Cancel Page Visits
Track the instances when customers visit the cancellation section of the app and reach out promptly. In case the app has no such section, monitor user queries like “how to cancel subscription,” “how to deactivate” and any other query that shows intent to end the service.
Open and closed tickets can tell a lot about how customers are experiencing the product. To gain deeper insights here are some tips;
- Segment support requests
- Count the number of overall tickets
- If working with a diverse customer base, segment requests based on the nature of the request as well as type of customer
- Collect user feedback about the quality of customer support for closed tickets
When there are too many tickets it can indicate issues with the product or a suboptimal onboarding process. If customers felt they had a poor experience with how their tickets were handled, there is a high risk they'll churn.
Negative User Sentiment
Users will invariably talk about your product in online forums. Track mentions, reviews, and other conversations. Users who express dissatisfaction with the product or aspects of the product are likely to churn.
Below Average Value Creation Metrics
The customer success team needs to identify value creation metrics that they can track. Some metrics may be specific to different products. For instance, a tool such as Proposify would track the number of accepted proposals. This is because one of their key goals is to help service providers send better proposals. If the tool doesn’t help customers improve their success rate with proposals, then there is no justification for them to renew their subscription.
There are some common value creation metrics that you can track using surveys, feedback forms, and reviews. These include star ratings, customer satisfaction scores, customer effort scores, and net promoter scores.
Also it is important to track;
- Growth and duration of the account
- Number of renewals and licences over time
- Marketing participation (if they participate in a referral program or they agree to be part of testimonials and case studies)
There are many more metrics you can add to these, depending on the nature of your product.
Using Customer Health Scores to Minimize Churn
Prioritize customer health improvement tasks based on their significance so that resources work optimally to drive retention.
Poor health scores usually point to ;
- Shortcomings of the product
- Insufficient onboarding
- Poor customer experience
- Poor product fit
The customer success team needs to identify the key elements that cause low health scores and then fix the issues. Fixes fall into the following categories;
Improve the Product
Saas products are always improving, whether through bug fixes, feature improvements, or additional functionality. The customer success and product teams need to collaborate so that when significant flaws are identified, they are promptly prioritized and fixed.
Optimize the Onboarding Process
Analyse tickets and other customer feedback to find out what to incorporate and refine in the onboarding process. Robust onboarding processes bring multiple benefits such as;
- More intelligent customers who can use the app to get optimal value
- Less tickets raised because users know how to use the software
- Less churn
- Higher retention and with that referrals, upsells, and cross sells
The customer success team can set up events that trigger specific onboarding prompts. For instance, send an automated email asking a user to schedule an onboarding session if they have not started using the application within a set time after purchase.
When the customer accesses a feature for the first time, they can be shown feature or process mini-walkthroughs/tutorials.
A simple email asking new users if they need help can help increase retention during onboarding.
Improve Customer Support
Sometimes poor customer experience is tied to the quality and availability of support. You can proactively minimize users' need for support through onboarding.
Automation via chatbots and knowledge bank can also help improve customer support. Or if a person has left a bad review it might trigger a customer service representative to reach out.
You can also set the customer success tool so that specific actions, behaviors, or health scores will;
- Send handoff reminders and alerts
- Create customer health alerts
- Create new tasks or new workflows
- Trigger different types of surveys
Refine Marketing Communications
Sometimes customers may end up buying a software that is not ideal for their needs. This can be because of a breakdown in communications or changes in the product. Always update marketing communications to reflect improvements and changes to the software.
Educate and Engage Customers
Even when customers have been with you for long, they still need to learn more about getting the best value from your product. Today's customers expect continuous evolution. Build communities or send newsletters informing them about the latest updates to your product. And with every new feature or improvement, add a mini onboarding experience.
You can automate these communications for instance, send case studies every few months. Sometimes it helps to have community specialists in professional groups where your users engage, for instance Slack Groups, Facebook communities, and other online forums.
Today, software solutions exist to help Saas companies understand their customers and customer health with a high level of accuracy. It is easier to prevent churn and improve the overall product and customer service thanks to the precise data. Using a customer success management solution can provide a clear understanding of your customers. That way, you can engage in high impact retention activities, and track the performance of such activities.