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Navigating Churn in the SaaS World

What is Churn?

 

The Software as a Service (SaaS) revenue model has fundamentally transformed the software industry. SaaS offers customers the convenience of easily adopting or discontinuing a tool, a boon for users but a challenge for businesses. When customers choose to discontinue their usage of a SaaS tool, it's referred to as "churn” and often, it's seen as the end of the customer relationship.  However, this post will shed light on how churned customers can still play a valuable role in your business.

 

Churn rates are of paramount importance for CSMs as they directly impact a SaaS company's revenue and their overall success. CSM teams are tasked with the primary goal of reducing churn, and ideally, achieving negative revenue churn rates. To reduce churn, companies focus on improving customer satisfaction, enhancing product features, providing excellent customer support, and identifying and addressing churn reasons. These rates, which can reach remarkable lows of 0.5% for customer churn &  -130% for revenue churn , are pivotal metrics for CSMs, often measured as percentages in two main categories as below:

 

  1. Customer Churn Rate = ( Number of Customers Lost During a Period / Total Number of Customers at the Start of the Period ) × 100 

  2. Revenue Churn Rate (GRR)  = (Lost MRR (Monthly Recurring Revenue) from Existing Customers / MRR at the Beginning of the Period) x 100 

 

The ultimate aspiration for CSMs is to achieve zero (0%) customer churn and negative revenue churn.  The actual targets for any CSM teams should be decided based on the industry average and last performance. 

 

While customer churn usually comes in one form, there are multiple revenue churn metrics.  Let’s have a quick look at them.

 

Revenue Churn Metrics

 

Churn rate helps SaaS companies understand how much money they are losing due to customer attrition or downgrades. Reducing churn is a top priority for SaaS companies because acquiring new customers can be more costly and time-consuming than retaining existing ones.  Companies observe a lot of revenue metrics but, the most common ones and directly impacting CSMs are 

 

  1. GRR -  Gross Revenue Retention is a revenue churn metric that calculates retention percentage excluding upsells and cross-sells.

  2. NRR -  Net Revenue Retention is a revenue churn metric that calculates retention percentage Including upsells and cross-sells.

  3. CLTV - Customer Lifetime value calculates the total revenue from a customer in its lifetime.

  4. CAC - Cost of Acquisition is the total amount spent to acquire a customer.

 

Read more about CLTV & CAC.

While there are several other essential revenue metrics such as ARPA (Average Revenue Per Account), NRG (Net Revenue Growth), Expansion Rate, Months to Recover CAC (Customer Acquisition Cost), ACV (Annual Contract Value), and ASP (Average Selling Price), it's crucial to note that the four mentioned above are fundamental and necessary for the context of this post.

Why Customers Churn?

 

Customers churn when they don’t see value in the product/services you are providing.  While this is the most common and simple reason for churn, this definitely is not the only reason.  Customers also churn due to price wars, regional policies, language issues or their experience with your support team, success team, a long pending feature etc.

 

Customers can churn for a lot of reasons, CSM teams need to learn from these reasons and adapt their strategies and processes accordingly. 

 

Analysing customer feedback and usage behaviour can provide valuable insights into churn causes, allowing companies to take proactive measures to forecast and mitigate such churn in future.  This exercise shall help you improve your processes and improve your retention rates. Since this is an ongoing exercise, businesses can set up a separate team for this or the Team heads can also lead this process.  Our team would be glad to assist you with this process so feel free to reach out.

 

How to Prevent Churn?

 

  • Build a customer centric CS strategy to reduce churn and grow revenue. Learn more about Success with Strategy to understand about Customer journey mapping, goals definition, plans and objectives and ongoing process improvement.

  • Use Customer Engagement Data (calls, trainings, product usage etc.) to understand your customers and bring agility to your value addition processes and product.

  • Build a list of Red Flags in customer data and interactions and alerts for it in your playbook & dashboards.  You can further add SLAs and assign such cases to retention experts or the team manager for CS to keep a close watch on them. 

  • Incentivize your team and create step-by-step playbooks for better onboarding, adoption and upsell practices. 

  • Help your CS Team do better by introducing CS Tools but, ensure proper onboarding for the tools else, it can have a negative impact on the team’s motivation and reduce the efficiency.

  • Stay ahead of your competition through innovation and customer feedback. 

  • Price your product right.  Understand your strength and the most valuable features of your tool and accordingly create balanced packages. Adding all the important features in your premium package does not help either. 

  • Listen to the experts (meet your customers, industry veterans, attend events, keep an open mind towards increasing customer demands, industry changes).  

  • Incentivize customers to stay loyal and make them feel valued.  

  • Accept churn graciously.  Customer churning is not the final step in your relationship with customers, it may just be a temporary break, so accept it and learn from it.  

 

Sometimes, churn is inevitable due to reasons such as wrong customers, price wars, economic policies, or business closures. While the goal is to minimize churn, some reasons may be acceptable. Businesses can learn from churn by analysing the data and using it to improve processes and efficiency through automation and other means. However, a long list of churn reasons can be detrimental to automation efforts, so it's essential to continually refine strategies.

 

Post-Churn Strategies

 

  • Accept churn and help your customers with the change management.  A lot of SaaS tools have customer data that clients need for their continuous growth.  Don’t blackmail your client into staying because of the data.  

  • Build a database for churned accounts with reason, c-sat survey results and usage patterns. Introduce exit interviews for clients as part of your usual post churn process. You should consider setting up a separate team or outsourcing this activity to avoid any bias.

  • Read between the lines, segment your accounts based on churn reasons, dollar value, industry etc. then link them to the NPS surveys and usage patterns to understand the changes you need to make in your CS strategy. 

  • Stay connected with your customers on social platforms like Linkedin and keep them updated on your progress. 

  • Personalise your reachout attempts to churned customers. If you have built a feature they wanted, let them know that you remember they wanted it and they have helped you improve.

  • Incentivize your team to bring old customers back. 

  • Incentivize your customers to come back.

From a CSM perspective, churn reduction is not only a key performance indicator but also a critical element of ensuring customer satisfaction and long-term business success. By implementing strategies to mitigate churn and actively learning from customer departures, CSMs can enhance customer loyalty and drive sustained growth. Remember, while minimising churn is the goal, understanding and adapting to acceptable churn reasons is essential for a holistic customer success strategy.

 

We're eager to support you in your journey and gain insights into your CS processes and strategies. Don't hesitate to reach out, and let's have a conversation.

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