Churn Prevention in SaaS: 15 Proactive Strategies to Reduce Customer Churn
Are you struggling to retain customers for long? The churn prevention strategies discussed in this article will help with your product engagement strategy.
In addition, you’ll also learn how to calculate churn for your SaaS and see the three main reasons why SaaS customers stop interacting with your product and what you can do to prevent that.
- Churn happens when a customer stops using a company’s products or services after a certain period of time.
- There are two types of churn you should be tracking: User/customer churn and net MRR churn as one tracks the number of users you are losing and the other, the impact that has on your revenue.
- Churn prevention is all about creating strategies to proactively reduce churn.
- Customer attrition (or churn) prevention will reduce the LTV: CAC ratio for your SaaS, making you gain more from each acquired customer.
- Three main reasons for churn: lack of product-market-fit, lack of customer-market-fit, and bad product experiences.
- PMF surveys help you determine if you’ve reached product-market fit. A score of 40% and above shows you’re there.
- Examine your best users. Notice the features they use the most and what their personas have in common, then use this information to draft your ideal customer profiles and the features that will appeal to them the most.
- Checklists, modals, and interactive walkthroughs help you guide new users through your product.
- User satisfaction and sentiment surveys (like NPS) are effective for revealing what customers think about your tool and areas that you need to work on.
- Don’t just lose trial users like that. Send reminders when their trial is almost over and offer incentives to upgrade or help if needed.
- Send re-engagement emails to your inactive users to find out why they’re lagging and offer incentives to resume using your product.
- In-app resource centers help improve the user experience which in turn increases the likelihood of customers sticking with your tool.
- Exit surveys are great for finding out why customers are leaving your tool. The survey is also your last opportunity to gain the user back by offering alternatives to canceling the account.
- Looking to engage your users in-app and prevent churn by helping users get value out of your product? Get a Userpilot demo and see how in-app experiences can help with churn prevention.
Churn happens when a customer stops using a company’s products or services after a certain period of time. Common examples include people canceling their Netflix or Amazon subscription.
If your product offers a freemium subscription, churn is when the users become inactive and stop using the product.
How do you calculate churn?
While churn applies to other businesses, this article is particular about the SaaS industry. That said, let’s consider how to calculate churn for SaaS.
There are essentially two types of churn and you should be tracking both:
- User/customer churn: Measured by how many customers you lose over a specific period. This is calculated by dividing the number of customers lost by the number of customers you had at the start of the period. Multiply that figure by 100 to get the customer churn rate.
Let’s imagine you had 1200 paying customers in Feb 2022, but that number reduced to 1,000 in March 2022 with no new customers added. It means you’ve lost 200 customers, hence your customer churn rate is: 1200-1000/1200 * 100.
That’s 16.67% churn for the month.
- Net MRR churn: You’ve lost X number of customers, but what does that mean business-wise? To find that, we have to calculate how much each lost customer is worth. For instance, losing 10 customers who pay $10/month is not the same as losing another 10 that pay you $100/month.
So how do you calculate your Net MRR churn? It’s simple.
You extract the expansion MRR from the churn MRR, then divide the figure by your starting MRR and multiply by 100.
You can save yourself the headache of manual calculation by using analytics tools that track these.
What is churn prevention?
This involves coming up with proactive strategies to keep customers for as long as possible. Executed well, churn prevention strategies will increase the lifetime of customers, marginally reducing customer churn rates.
Churn prevention vs. churn reduction
Churn prevention is proactive, while churn reduction is reactive. The former involves considering the factors that lead to churn and addressing them before they come up.
The latter is about reacting to churn; it’s the action you take after customers have started leaving.
Since every company experiences churn at a level, it means SaaS businesses will always need both approaches.
Why is churn prevention important for a SaaS business?
SaaS companies rely on monthly or annual recurring revenue to stay afloat, hence the need to always reconcile the customer acquisition cost with a good LTV.
When churn is prevented, more customers will be retained for the long term, increasing LTV. This will greatly impact the company’s net revenue.
Another added advantage is the increase in customer loyalty and advocacy.
People who stay longer with your company do so because you’re treating them well. These people won’t have a problem spreading the word about you.
Why do SaaS customers churn?
Customers churn when a product doesn’t deliver the expected experience. Specifically, here are the three main reasons customers may churn:
- The product didn’t help them get their job done. This happens because the SaaS tool doesn’t have product-market fit, or there are just some missing functionalities.
- The value received didn’t match customer expectations. This happens when a false image of the product has been projected to the customer knowingly or unknowingly.
- Customers didn’t get to experience value. This could be because they find your product hard to use, or you didn’t shorten the time-to-value, and they left at the first experience of friction.
Let’s consider these three points in more detail.
Lack of product-market fit (PMF)
To achieve PMF, you need to begin by deciding what your product does and defining the target market. Next, research the market to know what functionalities they need and the product experiences they crave, then deliver these and more.
For instance, if you’re building an email automation tool, you need to make sure your users can store and update their email list, create and customize emails, schedule emails, and access basic data. These are essential functionalities that your ideal users will expect.
They will churn when your product doesn’t provide these, at least, because that will mean it can’t help get their job done.
Bad customer product fit
The second reason customers churn is when they’re not the right fit for your tool. Again, this could be because your messaging was off, so they came expecting something else.
You can solve this by understanding user needs/pain points and refining your messaging accordingly. Choosing the right customer acquisition channel is also critical.
Poor user experience and a long time to value
The user experience plays a huge role in how long a customer sticks with your tool.
Start optimizing this from the first encounter users have with your product because the first-time experience is where customers size up your tool to determine if it will help them or not.
What you can do: Make the product intuitive, provide proper in-app guidance, and cut out any friction points.
How do you stop SaaS users from churning? 15 churn prevention tactics.
A churn prevention strategy is all about being proactive and making sure users continuously experience value. Here are the main tactics you can apply:
- Make sure you have product-market fit using PMF surveys
- Confirm you are attracting the right user persona using welcome screens
- Understand what’s driving value from existing customers
- Drive users to the activation point using checklists
- Improve first-time user experience using in-app guidance
- Use customer satisfaction surveys during the onboarding process
- Reach out to users before the trial expires
- Make it easy for freemium users to upgrade
- Help users discover new features relevant to them
- Track customer health scores and identify at-risk customers
- Monitor user sentiment with NPS surveys
- Use micro surveys to collect customer feedback
- Re-engage inactive users with emails
- Offer proactive customer service with an in-app resource center
- Offer alternatives to canceling using exit surveys
1. Make sure you have product-market fit using PMF surveys
Before trying to retain users, ensure your product satisfies needs and has sufficient functionality to help the user get their job done.
This can be tested using a PMF survey.
The PMF survey consists of a single line that asks users how they will feel if they no longer have access to your product. The number of users who answer “very disappointed” is measured.
A score of 40% or above indicates you’ve achieved product-market fit.
Below is a simple way to do this with a microsurvey in addition to modal or a slideout.
2. Confirm you are attracting the right user persona using welcome screens
First, you need to understand who your ideal user persona is. Do this by examining your best users and continuously improving your persona templates based.
This will enable you to refine your messaging and attract only the fittest audience for your product.
To ensure the right users are signing up, you can use a welcome screen and ask them a simple question to reveal what they’re trying to achieve with your product.
The answer will help you identify if they’re the right persona and under which category. This information can then be used to personalize the user onboarding and get users to experience value fast.
In SaaS, a user persona focuses more on the jobs to be done and pains more than demographics. For example, here’s what a user persona of a product marketing manager would look like for a product growth platform like Userpilot.
3. Understand what’s driving value from existing customers
Take a look at your most loyal customers, aiming to learn which features they’re engaging with the most and how often.
Your goal is to replicate this with new users.
Userpilot’s feature tagging helps you to understand which features drive value so you can help new users discover them during primary onboarding.
It’s not just about value, though. Also, check what’s creating friction with UX analytics (screen recordings, heatmaps, etc.) and work on removing it.
4. Drive users to the activation point using checklists
Now that you have the data, use different checklists for each user segment to ensure they engage with the key features relevant to their need. Your goal here is to help them reach the activation point quickly.
See this example from Kommunicate. They segmented their users and used checklists to drive feature adoption relevant to the user segments. This single action increased their adoption rate by 4% and counting.
5. Improve first-time user experience using in-app guidance
Don’t walk users through your tool with bland product tours. You’ll lose their attention along the way.
Use interactive walkthroughs to guide them step-by-step through engaging with a feature for the first time. Here’s the walkthrough Kommunicate created to guide users through customizing their chat widget for the first time.
6. Use customer satisfaction surveys during the onboarding process
Continuously collect feedback across all customer journey stages to understand if a user is frustrated. This will help you anticipate churn.
Ask users if they are satisfied with their experience and as how the perceived effort was in achieving their goals after engaging with a feature, talking to support, etc.
7. Reach out to users before their trial expires and prevent churn
Don’t wait for the trial to be over and then try to get the customer back.
Instead, be proactive by reminding users they’re running out of time and asking what’s stopping them from upgrading.
Then offer options as in the image below.
Perhaps they need more time or are being held back by the price. If the user hasn’t been active in-app, send this using email.
8. Make it easy for freemium users to upgrade
You might have active users that use the product monthly/daily but are not on the paid plan.
Nudge them to upgrade by showcasing the value of premium features contextually and making it easy to upgrade on the spot with value-driven CTAs.
This is a good approach because it’s generally harder to leave a product when you’re paying for it than when on the free plan.
Loom uses a modal to remind you of the benefits of an upgrade, right after your video is interrupted due to hitting the 5-minute recording limit.
9. Help users discover new features relevant to them
As users get used to using your product in a certain way, there’s a high chance that they’ll miss it when you roll new features.
Don’t rely on hope to discover your feature upgrades and new releases. It’s your job to announce what’s new in the first place.
Consider this example from Asana. They used a modal to announce a new feature for me.
10. Track customer health scores and identify at-risk customers
The customer health score is a product engagement metric used to understand the likelihood of a user sticking with your product.
It’s important to proactively reach out to users when their health score is going down rather than wait for them to become inactive.
11. Monitor user sentiment with NPS surveys
NPS surveys use a 10-point scale to ask users how likely they are to recommend your product. This is usually followed by a qualitative question to know the reason for the chosen score.
Together, these quantitative and qualitative questions will reveal user sentiment and provide insights for your next course of action.
With Userpilot, you can tag NPS responses and check for patterns that are causing low NPS scores.
12. Use micro surveys to collect customer feedback
You can use these to understand customer satisfaction and gather relevant feedback on the product and improve.
Collecting user feedback in real-time helps uncover insights that might make their life easier and add more value, leading to higher customer retention rates.
One effective way to achieve this is to have an always-on feedback widget like the one below:
Aim to trigger a custom microsurvey with relevant questions.
Take inspiration from Jira. They have different surveys based on the page/features the user was using when interacting with the feedback widget.
13. Re-engage inactive users with emails
What if you use all the strategies above and still have a backlog of inactive users?
There are things you can do to re-engage them since they’re still technically your users.
The first step is to use segmentation to identify the inactive group.
Reach out to those users through a carefully crafted email. Don’t forget to welcome them back once they sign in again.
14. Offer proactive customer service with an in-app resource center
Self-service support is the preferred customer service method. Nobody wants to wait in line with support or customer success agents for simple questions.
Build an in-app resource center and add multiple helpful resources (guides, tutorials, documentation, chatbot, etc.) to help users fast when they get stuck.
This will significantly improve the overall user experience.
15. Offer alternatives to canceling using exit surveys
Churn happens, and you can’t always avoid it, but you can learn from it at least.
Then offer personalized alternatives based on the answer.
This can help regain some users. Also, your exit surveys will help you identify areas for improvement to retain existing and incoming users.
Churn is a problem that all SaaS businesses deal with at different levels. And as seen in this article, there are two ways to approach churn: be proactive or reactive.
It’s best to be both. The proactive approach will help you prevent customer churn before it happens, while the latter will be reserved for when customers churn nonetheless, indicating the need to change methods.
We’ve discussed 15 proactive methods for preventing future churn, go ahead and implement the strategies that stood out to you.
You can also get a demo today to see how Userpilot can help with churn prevention.