7 Ways to Reduce Customer Churn and 2X your Profitability in 2021
By: Surabhi Asthana
Tags: Marketing Strategies, Churn, Small Business Marketing, Customer Experience, Saas Startup

7 Ways to Reduce Customer Churn and 2X your Profitability in 2021 Surabhi Asthana Sep 3·19 min read

In the modern marketplace, keeping customers happy is tough.

They will abandon your business when their needs are not fulfilled.

In the struggle to acquire new customers, many SaaS businesses fail to retain customers whom they had so painstakingly acquired. It’s downright frustrating to see your business, like a leaky bucket, lose your customers to the competition.

Do you ever wish there was a formula to keep customers forever?

Well, there’s no magic formula for keeping customers forever but there are time-tested strategies to reduce customer churn and keep customers happy.

In this guide, you’re going to learn exactly how you can do that. Ready to get started?

What is the Meaning of Customer Churn?

Ever wonder why SaaS businesses are obsessed with reducing customer churn?

It is because customer churn is one of the most important metrics for any SaaS business that directly affects its growth and profitability.

So, what is customer churn, really?

Also called rate of attrition, customer churn is defined as the number of customers who discontinue using your product in a given time period.

Typically, it includes different things, depending on the nature of your business, like:

Subscription cancellation

Account closure

Non-renewal of subscription or contract

Consumers’ preference for using other businesses for their needs

Controlling customer churn leads to increased revenue and profitability in the long run but if allowed to increase, it can crush your revenue.

As a business owner or a marketer, you constantly have to keep a tab on the health and stickiness of your business and controlling customer churn can put you way ahead of your competitors.

Churn Rate: How to Define and Calculate Customer Churn?

Churn Rate Defined:

Churn rate is expressed as the percentage of customers who discontinue, cancel or fail to renew their subscription plans in a certain time period which may be a month, quarter or year.

In simple terms, the lower customer churn rate is, the better it is for your business because you retain more customers. A high churn indicates that customers are not happy and that’s why they stop buying from your business.

For instance: Let’s say your monthly customer churn rate is 8%. This means each month 8 out of 100 customers are leaving your business.

Churn Rate Formula:

As a business owner, reducing churn should be a high-priority item for you because churn suppresses growth and impacts key business metrics like customer lifetime value and increases customer retention rate.

Ask yourself: How are you going to measure business success if you fail to measure the factors that hinder growth? Measuring the churn rate of your business shows you how successful you are at keeping customers.

Here’s a straightforward formula for calculating churn:

Customer Churn Rate % = number of customers lost/total number of customers *100

Let’s take a customer churn example — if a company has 1000 customers at the beginning of the month but by the month-end, only 800 remain, then the churn rate would be 20%.

Customer Churn Vs Revenue Churn: Differences Explained

In addition to customer churn which measures the number of customers a business lost over a certain time period, you might also come across the term ‘revenue churn.’

Revenue churn is the amount of revenue you are losing in a timeframe because of downgrades or cancellations of their subscriptions.

The rate at which a company loses revenue as a result of churned customers or downgraded subscriptions is the revenue churn rate.

Why should you measure revenue churn? Because customer churn doesn’t show you how much you lost in terms of revenue.

In SaaS subscriptions, your revenue churn can be massive while customer churn hardly shows any change. The reason? Subscription downgrades, discounts, credits, refunds etc. can significantly shrink revenue without affecting customer churn.

The reverse can also happen — you can grow your revenue without new customer acquisition because of upsells, cross-sells or higher usage.

To get the correct picture, you should know how much revenue new customers bring and how much revenue you generate from existing accounts. The metric you should measure for this is ARPA (Average Revenue per Account) for new customers and for existing customers.

Always measure both customer and revenue churn for your business because you are ultimately striving for profit, right?

Consider this — if your business just has one customer who gives you a gross profit margin of 30%, you’re profitable. But relying on this sole customer for revenue would be downright foolish. You should have a larger customer base also to feel secure.

….and that’s why you should worry about both customer and revenue churn.

Why you should do Customer Churn Analysis:

If you’re a SaaS company, you must have faced the harsh reality of customers who stop using your products and services. It is frustrating to see customers whom you had painstakingly acquired, abandoning your business.

You cannot afford this.

This is why you should do a customer churn analysis.

It uses data to find out the reasons why your customers are leaving your business. Doing a customer churn analysis will help you to measure the failures and take data-backed business decisions to control it.

Striving to retain 100% of your customers is wishful thinking, even if you have taken every step to stop churn.

Why? Because no matter how hard you try, there will be some customers who will leave, even if you have an awesome product or service.

While doing a churn analysis, you cannot strive for a standard churn rate benchmark because customer churn rates vary across industries. According to a survey by Smartkarrot, around 31% of companies experience a churn rate of 5% and the rest have churn rates higher than that.

It is advisable to do a periodic churn analysis to spot the problems before much damage has been done. This will also help you to do customer churn prediction and strategize accordingly.

Nailing Down the Causes Of Customer Churn

Churn can start with a slow increase in the churn rate that might cause a few customers to leave each month. But gradually it might snowball into a significant increase in customers leaving you and taking their subscription dollars to your competitors.

You and your team want to get into the root causes of customer churn but don’t know what they are? Not a problem. To keep your churn rate low, you need to tackle its most common causes.

Take a look at the graph below for the most common causes of customer churn. Poor onboarding occupies a whopping 26% of the reasons for churn.

Typically, the main causes of customer churn are:

1. Poor Client Onboarding Strategy

Most companies face high attrition or churn within the first few days of the customers signing-up. This is mostly because of poor client onboarding that leads to customers becoming frustrated or disengaged with your product.

In SaaS products, there is a huge learning curve due to lots of features. Because of poor client onboarding, customers never understand how to use the most important product features.

A good onboarding strategy helps customers reach their goals with your product.

2. Customer Experience

You might have awesome product features but if at any customer touchpoint, the customer experience is bad, it will alienate them. Customers expect seamless experiences across all the devices like websites, apps, in customer support interactions, with sales teams etc. Customer expectations have increased manifold.

If you aren’t able to provide great experiences, they might be lured by your competitors. This will undo all of your hard work of acquiring them.

3. Lack Of Good Customer Support

During the customer life cycle, you should ensure that all their questions and grievances are resolved in the best possible way. So build good customer support. The sad part is that many companies don’t realise the importance of good customer support.

If subscribers don’t get their issues addressed to their satisfaction, disappointment builds up. Lousy customer service will compel subscribers to cut ties with your company.

4. Price

One of the key reasons for customer churn is a company’s pricing strategy. When your customers see your product as expensive for the benefits or value it is providing, it gives them a strong reason to find other businesses.

With so much price sensitivity around, you also have a great opportunity to retain customers and considerably lower your churn rate. Consider this: a 1% price improvement results in 11% profit increase.

You have to create an effective pricing strategy that completely justifies the value your product provides. This includes price optimization to a price range at which the maximum number of customers are willing to pay.

5. Product-Market Fit

Your marketing has done a fine job of increasing your customer acquisition and your business seems in good shape….The only problem is that your churn rate starts increasing and gradually becomes unstoppable. What you are experiencing is churn caused by poor product-market fit.

Your sales and marketing might be misunderstanding your customers’ needs and closing customers through high-pressure sales tactics. Customers might be tempted to try out your offer but if your product is unable to solve their needs or remove their pain points, then they will leave sooner rather than later.

Your sales and marketing teams should make an earnest effort to identify and attract the right buyer persona with the right messaging to achieve a perfect product-market fit.

6. Low-Quality Product

This is a no-brainer! If your product quality is poor, no matter what you do, ultimately customers will leave you for competitors. A product that has glitches, bugs or frequent downtime impacts customers badly and many would churn.

Customer Churn Prediction: How To Identify Churn Problem?

This one seems to be tricky. But it is simple enough if you approach customer churn prediction in a systematic way. There are many indicators of customer churn, including:

Decreased product usage Frequent Missed payments Increase of customers opting for subscription or product downgrades A shuffle or change of customer account managers Customer acquisition is lower than customer churn Customer lifetime value (LTV) is shrinking

It’s not difficult to spot these trends, provided you are alert. It will help you take timely action and minimise churn.

Why is reducing churn important?

Reducing churn is important if you want to scale your business and be profitable in the long run……all businesses want this, right?

In the beginning, SaaS churn rates might be low and not much significant as a KPI of growth, but after a certain threshold, they hinder your overall growth.

If churn goes out of hand, it can have adverse effects on your business….sometimes leading to the closure of startups.

Just take a look at these stats:

Companies need to work on their customer retention strategies to offset the increasing churn rate.

Secondly, who doesn’t like more customers? More customers means more revenue.

Unfortunately, most SaaS companies are busy in customer acquisition rather than customer retention and this costs them a lot.

It is impossible to reduce churn completely but analysing it can give critical insights into your business and keep it under control.

7 Proven Strategies To Reduce Customer Churn

Now let’s get into the real strategies for reducing customer churn and saving your bottomline.

1. Find Out Why Your Customers Are Cancelling

There are lots of reasons why your customers click that CANCEL button. Before you accept the account as ‘closed,’ and do nothing or send a general “sorry to see you go” email, you should do something else:

Cancellation Surveys: One of the first steps in finding out why customers are cancelling is to ask them. Whenever a customer cancels, send them a short survey to gather information about the reasons for doing so. Do include these questions in your survey:

Q1. The reason/s that made them cancel their subscription

Q2. What the company could have done differently to make them stay

Q3. Which areas or product features could be improved upon

This will give you valuable insights into why customers are churning and customers too will be able to voice their opinions. You can take appropriate actions based on their feedback and this can do miracles for your business.

Instead of sending out a pre-filled survey to gather quantifiable data, you could also send a simple personalized email to those who cancel. This is what Groove did and their response rate soared to 10.2%.

It is also an excellent idea to just call the customers when they cancel and find out their reasons for doing so. This good old fashioned way can be your saviour and you can:

* Get their immediate feedback and take action

* Turn many of them into lifelong customers.

* Sometimes you might get insights to customise your product or introduce new features.

Whichever way you choose to communicate, you’re likely to get better responses if you have communicated with them earlier, especially during onboarding. If you are communicating with them for the first time at the time of cancellation, then they are unlikely to give any responses.

This brings us to the next point…

2. Optimize Your Customer Onboarding Plan

Do you have a process in place to align new sign-ups and customers to your company and build a lasting relationship with them?

A seamless customer onboarding plan is critical — and here’s why…

It increases customer lifetime value (LTV), keeps churn under control and turns them into loyal customers and raving fans. Customer churn happens between two most important junctures — the time between signing up for your product and achieving their first major milestone (read: success) with your product.

Between these two junctures, if the customers aren’t able to understand your product or don’t derive any benefit, they lose interest in your product. A good onboarding experience makes them more informed and comfortable using your product. It is the secret sauce of your business growth and keeps users hooked to your product.

This is what a typical customer onboarding process looks like.

Here are a few tips to make smooth onboarding happen:

Provide enough educational support material for them to know about your product. Help them understand each feature and benefit through product demos, webinars, documentation videos and FAQs.

Have an onboarding email sequence that educates new customers about your product features which they are most likely to use first.

SaaS onboarding personalization to individual user’s needs, goals, behaviour action and use case makes it even more effective. You can do this by creating onboarding elements that are triggered when the user has completed a certain action or selected a particular option. Interactive walkthroughs of the product are both contextual and interactive. Here, each step is triggered by the previous action that the user chooses.

People derive satisfaction when they see a completed progress bar or a ticked checklist. Use this natural instinct to make users complete milestone product activation points. The idea is to make users try out key features of the product and derive benefits, so that product adoption is easier.

Provide them 24/7 assistance in case they get stuck or need help. They should have hassle-free customer support available.

Remember to take feedback and act on it to incorporate any product or process improvements.

A good onboarding experience makes customers more comfortable using your product and get full value from them. A good experience paves the way for long-term association with your business.

3. Provide Excellent Customer Support

Top notch customer support not only keeps customers happy and their grievances addressed, it also reduces churn. A massive 96% of customers will abandon your business because of lousy customer service — does that leave you with any choice of not providing uber customer support?

You might have a world-class product or service offering but the incompetence or rudeness of the salesperson or customer support staff can spoil the experience.

Here’s how you can provide cutting-edge customer support that can do wonders for your business:

24/7 customer support: Your customers should have ready help available at all times. You shouldn’t keep them waiting for the weekday to start if they need help on a weekend. In today’s digital world, you have various channels of customer support: live chat, emails, phone calls, on-page support widgets, social listening, you name it! Personalised support: Different customers have their own unique needs and questions that need attention. While providing FAQs, product educational videos etc. is definitely helpful, you should also provide online troubleshooting, video chat and personalised on-phone assistance. Customer Engagement: Engage with your customers by providing them regular updates, live demos, training and teach them the functional benefits of those products. You’ll get more customer engagement effortlessly. Great Customer Experience: A great customer experience will show your customers the real value of using your products and will become an essential part of their daily workflow. During the customer journey, there are going to be multiple touchpoints and interactions of customers with your business. You should ensure that these interactions build positive experiences that keep them happy and reduce churn.

The graph below depicts the most important elements of an ideal customer experience which is no more limited to attending to complaints or enquiries. It has assumed a larger role of meeting and exceeding customer expectations.

5. Social Media Listening: A lot of conversations about your brand are happening on social media. Customers are vocal about their grievances on social platforms and if they don’t get adequate responses, they stop doing business with you.

Companies who don’t respond to social media messages can see an increase in churn of up to 15%, according to a study by Gartner.

Today’s customers want their needs delivered in an instant and are twice as likely to share a poor customer service experience on social media. Power is surely in their hands and they want you to respond in their preferred medium.

The need of the hour is using social media listening to tap into the vast pool of social conversations on social channels for your brand mentions, relevant business keywords and hashtags. It goes beyond social monitoring to gauge the mood behind the data and draw valuable insights.

4. Identify and Save At-Risk Customers

Your at-risk customers haven’t left you just yet…which means there’s a good chance that if you identify them and take appropriate action, you can actually save them.

Have you ever tried to identify your at-risk for churn customers and where they are in their customer journey?

It is not such a difficult task to identify customers who are likely to leave. You should:

Identify customers who haven’t been contacted in a long time or with whom there has not been any communication for a long time. Such customers might feel alienated from your business. Customers who have approached or contacted the company with some issue but that hasn’t been handled to full satisfaction or has been overlooked. Perhaps they have raised support tickets that haven’t been closed to their satisfaction. Customers who have suddenly reduced interactions with you or have lowered the product usage. Customers whose email open rates have reduced or are low and who haven’t responded to your emails. Customers who have given you negative reviews and direct feedback or complained to you are most likely in the ‘risk’ zone. They clearly have a problem with your product or organization, even though they haven’t mentioned this as yet. Dissatisfied customers will not always tell you that they are not happy with your brand. Instead, they may choose to vent their frustration on social channels. So it’s important to leverage their online behaviour and immediately reach out to them in case of red flags. Browsing activity on your website can be a strong indicator of customers thinking about leaving. If you have tools to track web activity, you’ll instantly know which customers explored cancellation pages. Customers might explore the pages talking about downloading their data from your product. These are strong enough clues about customers who are considering leaving.

Identifying such customers, initiating communication with them and taking the necessary steps can stop them from leaving and may turn them into satisfied loyal brand advocates.

5. Offer A Dedicated Success Manager

Once you’ve identified the customers likely to churn, let your best salespersons and customer support people make efforts in retaining them.

Prompt handling of customer complaints and deep-diving into the reasons for cancellations can turn angry customers into happy ones….

…and we all know the basic formula for business success:

Happy Customers = More Revenue

Rather than appointing the best customer support people to deal with cancellations as a knee-jerk reaction, why not appoint customer success managers (CSM) who work with them throughout the customer journey and provide timely support?

A customer-first strategy is essential for customer success….and customer success is the enemy of churn. So it makes total sense to appoint dedicated customer success managers for at least high-value customers because you want to retain them.

The many differences between customer service and customer success managers are in their approaches… Customer service people generally come into the picture when there is a problem or a cancellation but the customer success managers are there to pre-empt and fix issues before they crop up.

A customer success manager is responsible for all the post-sales experiences of the customer, right from onboarding, activation, product adoption to all the other aspects in the customer journey.

Additionally, they can have the responsibility of identifying customers who are likely to deflect — and then build strong trust and gain their loyalty so they remain with the business.

It is their job to ensure that customers receive value from the SaaS product.

This role requires the person to have many skills to do justice to the job.

CSMs often work with the same customers throughout their association with the company because this work involves building long-term client relationships.

6. Collect Customer Feedback Regularly

Collecting customer feedback in SaaS is crucial if you want to go in-depth into the real issues your customers are facing or to gather insights on the value your product is providing. There might also be other reasons why you need feedback from customers:

You need advice on product improvement

You want to seek suggestions from users for building new features

You might want to have a thorough understanding of customer complaints regarding your product or organization

You want to avoid problems and keep an open communication to prevent future problems or bugs in your platform.

You want to find out the reasons for subscription downgrades or cancellations

You need to (and should) take timely action before dissatisfied customers spread the negative word about your brand on social media and in their social circles.

Nailing down your reasons for collecting feedback will help you in tailoring the process that best fits your needs.

A general feedback loop includes your ask, categorization of the feedback into buckets, taking action on the feedback and finally following-up with the customers who gave you the feedback. It can be depicted as below:

Rather than trying to collect feedback through a templated feedback loop, personalise the experience. You’ll be surprised with the authentic information you get directly from the horse’s mouth.

Have you thought about how you can collect feedback?

You can collect feedback through live chat, in-app messages, customer surveys, helpdesk systems, emails and phone calls. Social listening is also an important channel to garner such feedback.

It feels great to receive positive feedback but it won’t help you much. When you get negative feedback and complaints, they may just be the tip of the iceberg and a bigger problem might be hidden from view. Negative feedback helps you monitor your own performance and shows you where you need to focus.

7. Develop A Loyalty Program To Reduce Customer Churn Rate

Many SaaS businesses are taking to building a loyalty program for their businesses.

But why build a loyalty program in the first place? There are long-lasting benefits of a well-designed and properly executed loyalty program.

First and foremost, it reduces churn and retains customers. Retained customers have a 60–70% chance of making another purchase. You will be able to increase your SaaS business visibility considerably because it creates interest or buzz around your product.

Loyal customers have a longer lifetime value that directly boosts revenue.

Loyalty programs incentivize future purchases and create good advocates of your products in their social circles. They will likely recommend you to others and aid in your efforts of customer acquisition. According to a case study by Nielson, 92% of consumers respond positively to recommendations from friends.

When customers feel more connected with the company, customer engagement shoots through the roof and aids in customer success.

Do you have a loyalty program for your SaaS? Are you thinking of building one? It appears simple to create a loyalty program and build loyal customers. But the problem arises in identifying where to start.

Think carefully about what type of program will best suit your business and customers while fulfilling your objectives.

Don’t make the offer too complicated because that confuses the customers more. Keep it simple and easily achievable. This will give them instant gratification and keep them motivated. It will also encourage more customer participation.

A good idea is to personalise the loyalty program by keeping specific names to various terms you use in your program.

You could even think of gamifying your program.

Finally, having a referral program that is a part of loyalty program will also garner customer acquisition.

Your loyalty program can create loyal customers and brand advocates who are ready to go the extra mile.

The right kind of program will not only keep customers happily engaged, it will also encourage them to buy more or upgrade their products and even recommend them in their social circles.

Now is the Time to TAKE ACTION and Reduce Customer Churn

Always be asking yourself, “how can my product provide the maximum value to my customers so they don’t have any reason to leave? How can I provide them a stellar experience so they become loyal fans of my product?”

If they see value in continuing with your business, by all means, you will reduce customer churn. Instead of finding alternative products that help them achieve their goals, your customers will be the greatest advocates of your product.

You now have the major reasons why customers leave and the strategies to reduce customer churn. Once you start implementing them, you’ll be rewarded with customers not only staying with your company but also upgrading their subscriptions.

So start implementing the churn reduction strategies and take control of your business.