How to Identify Churn Risk Factors in SaaS
The key to increased retention is identifying churn risk early and acting on it.
However, this can be tricky if you’re new. You’ll be trying to answer many questions at once:
- How do I find critical data points?
- What parts of the process can be automated?
- Are there any special tools I can use?
This article is for you if the above describes your situation. Read on to find practical answers.
- Churn risk is the possibility that a customer will stop doing business with you. The main way SaaS companies determine this risk is through in-app activities.
Identifying churn helps to:
- Improve retention and increase your base of loyal customers.
- Proactively act on data sources to reduce churn.
- Prevent negative reviews.
How to identify churn risk signs hiding in your product:
- Talk to your customer success team. You can also consider involving your support or sales team in the conversation.
- Identify decreasing product usage data. A decline in customer engagement is almost always a cause for alarm, even if it was just one customer account that stopped engaging.
- Collect user feedback at every stage of the customer lifecycle. Analyze the feedback to pinpoint patterns that could lead to churn.
- Proactively monitor customer satisfaction. NPS and CSAT surveys come in handy here.
- Investigate low NPS responses and find personalized solutions.
- Identify patterns in customer behavior.
- Conduct customer churn analysis.
- Take a look at the support tickets. Use the queries to identify customers at risk of churn and the reasons for their dissatisfaction. Additionally, your customer support team should try to resolve tickets quickly to keep customers from churning.
Churn metrics you should be tracking and how to calculate them:
- Customer churn rate: the ratio of the customers you lost during a specific time frame to the customers you had at the start of the period, multiplied by 100.
- Net MRR churn rate: subtract the expansion MRR from the churned MRR; divide the result by the starting MRR and multiply by 100.
- Revenue churn: divide the revenue lost from existing customers by your total revenue at the start of the period. Multiply it by 100 to get the percentage.
- Best tools for identifying churn: Userpilot, Hotjar, and Baremetrics.
What is customer churn risk?
It’s the possibility that a customer will stop doing business with you. SaaS companies determine churn risk mainly through in-app activities.
Why identifying churn risk is important?
Identifying and preventing churn can sometimes be arduous, particularly when you have a handful of customers. Here are three reasons why it’s worth the effort:
Improve customer retention
Some customers will invariably churn, no matter what you do. That’s just the reality of running a business.
But here’s where it gets interesting: unless your product is particularly bad or you haven’t hit PMF, the majority of your customers are churning for avoidable reasons.
Identifying churn risk helps you prevent customer attrition due to factors under your control. Your retention rates and net revenue will rise as a result.
Proactively act on data sources to reduce churn
The churn reduction process involves analyzing customer data to predict attrition effectively. With these valuable data points at your disposal, it becomes easy to proactively act on them and retain customers.
For example, you might notice a particular user segment has been inactive for a while. You could reach out through tooltips, guides, or other communication channels to reengage and turn them into active users.
Prevent negative reviews
When customers churn, they are more likely to tell others about their bad experience with your product or service. Knowing that SaaS buyers actively research a product before signing up, the last thing you want is to have negative reviews all over the place.
You can turn the table on its head: prevent churn from happening and focus on increasing customer satisfaction. With this, you won’t even have to ask before customers leave positive reviews on social media and review sites.
How to identify churn risk factors
Now that you’ve seen the value of churn prevention, it’s time to get to the meat of this article. Use the strategies below to identify churn risk in your product.
Talk to your customer success team
If there’s any department in your company that can correctly predict churn and suggest ways to prevent it, it’s your customer success team. Not because they’re magicians but because they regularly interact with customers. They understand customer pain points and can see whether or not users are getting value from your product.
The CS team can enhance retention by promoting a continual realization of value among your client base. They should also suggest changes when they notice customers aren’t getting enough value from the product.
Identify decreasing product usage data
Tools like Userpilot allow you to tag pages and view customer activity. By analyzing the product usage data, you can find important pages with reduced or no visits and examine them further.
After deciding there’s a likelihood of churn because users are not getting optimal value, you can reach out via a tooltip to help them discover that page and improve their productivity.
Collect customer feedback at every stage of the customer lifecycle
Reach out to your customers to learn about their experience. Behavioral data can show you trends, but hearing from the horse’s mouth provides a special kind of insight.
Send your feedback surveys regularly, and try to include open-ended questions so customers can speak their minds. Don’t ask, “Our XYZ feature is good, yes or no?”.
Okay, that was a joke, but you get the idea.
Also, be responsible and act on collected data by closing the feedback loop. There’s no point in gathering customer opinions when you don’t act on them.
Proactively monitor customer satisfaction
Use CSAT and NPS surveys to measure customer satisfaction. The trick is to run the surveys regularly and keep track of customer responses to analyze trends.
For better results, you can trigger satisfaction surveys in-app after the user interacts with a specific feature. If you notice user satisfaction drops over time, it can be a sign of churn. Investigate to learn more and find ways to improve it.
Investigate low NPS responses
After using NPS to measure user satisfaction and loyalty, segment the responses so you can better act on them.
Your focus should be on detractors—customers that gave you low NPS scores. Analyze their responses to determine the reasons for churn, and reach out to learn more about their dissatisfaction.
Identify patterns in customer behavior
User behavior tracking allows you to examine behavioral patterns among your churned customers. You can then search for those patterns among existing customers and reach out before they churn.
Unless your platform has in-built analytics, you’ll need third-party tools like Userpilot for this.
Our platform allows you to tag features and create events to measure how customers interact with your features. You’ll have access to historical data, which you can use for better decision-making.
Conduct customer churn analysis
Churn analysis is a comprehensive process that helps identify and address churn risk. How to perform churn analysis:
- Collect customer churn data through exit surveys.
- Divide your customers into different groups and examine them closely. This is to identify the kind of customers that are most prone to churn.
- Use the data obtained from the points above to proactively prevent attrition in existing customers.
Take a look at the support tickets
The next thing customers do after encountering problems is open a support ticket—especially when there’s no self-serve resource they can visit.
Look into your support tickets to find recurring customer complaints, as they’re often pointers of attrition. Also, ensure customer issues are resolved quickly, and tickets closed before customers churn.
Metrics you should be tracking to identify churn risk factors
It’s not just enough to identify churn risk; you need a holistic way of knowing how successful your churn reduction strategies are.
Below are three important churn metrics to help you keep track of product health.
Customer churn rate
The customer churn rate is the ratio of customers you lost during a specific time frame to customers you had at the start of the period, multiplied by 100.
For example, imagine you began the last quarter with 600 customers, and the figure dropped to 520 by the end of the period. You’ve lost 80 users, so your customer churn rate is 80/600 x 100＝13.33%
Churn rates vary for many reasons, but around 5-7% is considered okay for SaaS. Of course, aim to have lower rates as your company grows.
Net MRR churn rate
Net Monthly Recurring Revenue (MRR) churn shows you how much you’re losing monthly due to churn.
It’s a more accurate indicator of your growth than customer churn because Net MRR includes both cancellations and downgrades.
To calculate your Net MRR rate, subtract the expansion MRR from the churned MRR. Then divide the result by the starting MRR and multiply by 100.
Let’s consider an example to give you some clarity:
If your MRR for the month is $70,000 and you recorded churn of $5000 with account expansion of $1200, your Net MRR churn rate is:
$5000-$1200/$70,000 X 100 = 5.43%
The revenue churn figure is how much money you lost over a specific period because of your churned customers.
It’s calculated by dividing the revenue lost from existing customers by your total revenue at the start of the period. Multiply it by 100 to get the percentage.
If you had $500K in recurring revenue at the start of the year and lost $120K due to churn from existing customers, your revenue churn is:
120K/500K X 100 = 24%
Best tools for identifying at-risk customers
As earlier mentioned, unless specially coded into your product, you’ll need third-party tools to effectively identify churn risk.
If you do a Google search right now, you’ll see many tools that claim to help you reduce churn. However, it’s always best to go with vetted products with all the features you need.
Below are some of the best tools to consider:
Userpilot is a no-code product growth platform with extensive features to help you predict and reduce churn.
How our platform can help:
- Customer segmentation: Segment your customers based on as many characteristics as possible. Get granular with it so you can know at-risk customers and find ways to win them back.
- In-app surveys: Userpilot allows you to send different in-app surveys to collect user feedback and know what’s causing churn. You’ll have access to customizable survey templates you can use to create quick quantitative and qualitative questions.
- NPS survey and response tagging: Interested in collecting customer sentiment data? Userpilot got you covered. After using our software to roll out NPS surveys, you’ll have an intuitive results dashboard that tells you, at a glance, what customers think about your tool. With this dashboard and the response tagging feature, you no longer have to spend so much time grouping your responses to identify patterns. Userpilot does that for you!
- Analytics: Our platform allows you to generate comprehensive customer behavior data through feature and events tracking, page activity tracking, etc.
This platform is excellent for heatmaps and session recordings to identify friction.
Hotjar works both on web pages and inside the app. You can use its session recordings to see pages customers visit the most on your platform, features they love engaging with, etc. It can also show you rage clicks that result from bad UX or the customer not being on the happy path.
How can all these help to reduce churn?
By identifying friction points in your product, you’ll know how to create proactive solutions to prevent customers from churning. Also, you can use session recordings to see if a particular user segment is interacting well with specific features needed for their productivity.
Baremetrics is one tool you should consider if you want to go deep with churn analysis.
Among its many features, the platform allows you to group your churned users into two: the users who actively canceled their subscriptions and those who didn’t pay and got canceled.
This will enable you to dig deeper and find reasons for churn. If you had exit surveys, you’d have access to customers who stopped using your tool.
But for the unpaid group, it could be that they forgot to renew their subscriptions, didn’t update their card information, etc. You can reach out through personalized messages to know the real reasons and help them get reactivated.
Every company should be intentional about reducing churn. It doesn’t matter how many customers you can attract if you constantly lose them for avoidable reasons.
Hopefully, this article has shown you different strategies for identifying and reducing churn. What are you waiting for?
Go ahead and implement the lessons that apply most to you! And remember, Userpilot can make the process easier. Begin by booking a demo to chat with our team about your needs.