How to Calculate Customer Attrition Rate for SaaS? [+Tactics to Lower it]

Customer attrition is unavoidable because all businesses lose customers from time to time. But how can you keep the customer attrition rate at a healthy level?

SaaS companies usually follow a subscription-based business model. So it is crucial to retain long-term customers and increase renewal rates.

Let’s see how you can calculate the customer attrition rate and the strategies you can use to reduce it.

TL;DR

• Customer attrition, also known as customer churn, customer defection, or customer turnover, is the loss of customers from your business.
• To calculate the customer attrition rate, divide the number of customers lost during a given period by the total number of customers at the start of that period.
• Most SaaS businesses have an average monthly customer attrition rate of around 1%. All SaaS companies should keep the churn rate under 5%.
• Welcome screens let you collect data for customer segmentation and then provide personalized solutions, such as tooltips and interactive walkthroughs, to improve product adoption.
• In-app messages allow you to provide customized training and webinars to familiarize users with new features or identify improvement opportunities.
• Secondary onboarding drives continuous value to convert customers into power users and brand advocates.
• Analyzing product usage patterns lets you identify potential sources of turnover.
• Funnel analysis, heatmaps, and session recordings reveal the stage of the user journey at which customers churn the most.
• In-app self-service support lets users solve several problems easily by themselves and prevents frustration and, thus, churn.
• Customer feedback from customer satisfaction surveys provides deeper insights.
• Cancellation flows let you persuade customers not to churn or at least use churn surveys to improve your product to prevent churn.
• Userpilot is a no-code platform that offers advanced segmentation, rich product analytics, and feedback collection functionalities to reduce the number of churned customers.
• Try out the Userpilot demo to learn how to reduce customer churn rates.

What is customer attrition?

Customer attrition, also known as customer churn or customer turnover, is the loss of customers from your business. It refers to the process when customers stop using your product or service after they start using it.

Customer attrition rate vs. Customer churn rate

The customer attrition rate and customer churn rate refer to the same metric and are interchangeable terms.

A few other terms share the same meaning, namely the customer turnover rate and customer defection rate.

How to calculate customer attrition rate?

The customer attrition rate is the percentage of customers you lose in a specific period. To calculate the rate, divide the number of customers lost during a given period by the total number of existing customers at the beginning of that period.

Suppose that you started the month of November with 1,000 customers but found that the number had fallen to 950 by the end of the month. Thus, your churn rate for the period would be:

Customer churn rate = (50/1,000)x100% = 5%

You can track the churn rate weekly, monthly, or annually. Most SaaS businesses do it monthly or annually. However, you should track the churn rate regularly to discover changing trends and manage the rate within an acceptable range.

Now what would that acceptable range be?

What is a good customer attrition rate?

Most SaaS businesses have an average monthly customer attrition rate of around 1%. However, startups and small and medium-sized companies should keep the churn rate under 5%. Moreover, large SaaS businesses should maintain a churn rate of 1-2% to sustain growth.

Note that there’s no universally accepted ‘good’ churn rate. The average churn rate varies considerably across different companies and industries.

Therefore, you need to keep track of your industry’s average churn rate and decide on which attrition rate is a suitable benchmark for your company.

Tactics to reduce customer attrition and retain existing customers

Now let’s look at the 9 tactics you can use to reduce customer attrition and improve your customer retention rate.

Use welcome surveys to collect data for in-app personalization

A welcome screen serves a greater purpose than simply greeting customers. It’s the perfect tool for collecting basic information about your new customers.

A welcome survey asks customers about their user roles, company, jobs to be done, etc. The data allows you to segment customers based on their common characteristics. You can then personalize their in-app onboarding experience with contextual guides or messages and thus help users reach the activation milestone faster.

By implementing Userpilot, Kontentino used the information gathered from welcome surveys to segment customers and then created customized checklists and interactive walkthroughs for them.

These guided users in completing activities that allowed them to reach the activation point more easily. This led to a 10% increase in activation in the first month.

Trigger tooltips to encourage feature engagement

Customers may leave your product if they find it difficult to use a key feature. Thus, you should increase feature engagement by offering in-time help as customers engage with a feature.

You can offer in-time help by implementing tooltips. Tooltips are small text sections that explain how a specific product element works. You can use a single tooltip for showing how a specific feature works.

You can even use multiple tooltips to create an interactive walkthrough. A walkthrough provides step-by-step visual guidance on completing a series of activities that would help customers complete key events and thus experience value faster.

The example below shows how the next step in the walkthrough for chat widget styling is triggered only if customers have completed the previous step.

Use in-app messages to offer personalized training and webinars

You can segment customers based on their in-app behavior and collect data and then send in-app messages to each segment to offer personalized training and webinars.

This helps prevent feature blindness. That is, you can invite active users to a webinar for advanced features, especially during secondary onboarding. This will drive user adoption and retention.

Moreover, webinars let you interact one-on-one with customers about what improvements they want to see in your product and take feature requests.

If you have a segment that shows poor feature engagement, you can offer training on product use cases and show how it helps solve their jobs to be done. This re-engages customers and prevents churn.

Turn users into power users and advocates using secondary onboarding

Secondary onboarding is a continuous process by which you onboard your activated customers onto secondary features, converting them into power users and loyal advocates.

The infographic below shows how secondary onboarding maps into the customer journey and fulfills your product growth goals.

Secondary features provide more use cases and, thus, generate more value for your customers. You should also segment customers to offer personalized onboarding experiences at this stage.

Native tooltips, appended to selected UI elements, provide more information about less obvious features when customers hover above these elements. You can also use checklists, as you did in primary onboarding, to make them complete key events.

Secondary onboarding thus increases customer loyalty and helps convert both inactive and active customers into power users. This drives retention and increases the customer lifetime value.

Analyze usage patterns to identify potential customer turnover

Analyzing product usage will help you discover which aspects of your product are highly engaging to different customer segments.

Maybe your users interact with your product at different times of the day or are seasonal customers. This and other product usage patterns will let you crafter better strategies to enhance the user experience.

If important features are neglected, you should trigger relevant in-app guidance, like walkthroughs or tooltips, to drive feature engagement.

Conduct funnel analysis to uncover friction

A user funnel draws the pathway users take when going from leads to paying customers and beyond. It helps you understand how to convert more customers into brand advocates and generate more monthly recurring revenue. Therefore, funnel analysis reveals important touchpoints that map the customer journey.

You can use a funnel to uncover friction and drop-off points in the customer journey. This enables you to fix issues before users get too dissatisfied and leave. You can use in-app guides to remove friction and prevent churn, even from the biggest drop-off areas.

Here’s a glimpse into Userpilot’s funnel analytics, available in Q2.

Furthermore, you can use funnel analysis alongside heatmaps and session recordings to get more actionable insights, i.e., the stage at which customers frequently churn. The insights help you understand where you should put more effort into increasing conversion rates.

For example, you can see pages/events where customers drop off and see heatmaps and session recordings of that page. This will reveal areas with dead clicks or rage clicks that increase frustration and point out the features/page sections with low engagement.

Use a self-serve resource center to provide in-time support

One incidence of poor customer service, such as long waiting periods, may be enough to make customers churn. This is where self-service support plays a critical role.

You can build an in-app resource center with various self-serve support options, including help articles, live chat, FAQs, video tutorials, request submissions, quick bug fixes, etc.

This provides on-demand support, especially for frequently-occurring issues when the support team is busy dealing with more pressing matters. It prevents frustration and hence reduces customer attrition.

Send surveys to measure customer satisfaction

Direct feedback from customers adds greater credibility to your user data pool. Thus, you should trigger in-app customer satisfaction surveys at different touchpoints across the customer journey to know exactly how customers feel about your product.

Customer feedback can provide more improvement opportunities that previously went unnoticed or help you understand the problems better.

You can close the feedback loop by proactively offering customers personalized solutions, such as improved in-app guidance.

Here’s an example of a passive customer satisfaction survey. It uses emoticons to measure users’ reactions to their onboarding experience.

Implement a cancellation flow to reduce customer attrition

Cancellation flows are automated flows that users must take to leave your product. This provides another opportunity to prevent attrition.

You should send churn surveys to know why customers want to leave. This shows them that you’re willing to improve your product based on their feedback and may sway them to stay. Even if they leave, you can use the data to improve half-baked features or release new ones to prevent other customers from churning.

Moreover, you can use an in-app message to suggest alternative options to stay instead of leaving. For example, you can offer them to downgrade or contact a customer support agent.

How to prevent attrition and improve retention with Userpilot?

Userpilot is a no-code product growth platform that offers a wide range of functionalities to drive product adoption and improve user retention. So let’s see how Userpilot can help you reduce customer churn.

Provide personalized in-app experiences with advanced segmentation

Userpilot allows advanced customer segmentation using various attributes, including user ID, events, feature usage, NPS scores, etc. You can trigger customized in-app guides for each segment based on their use case.

Thus, you can personalize your onboarding process and drive continuous value for customers. From creating tooltips and walkthroughs to offering self-service support, you can optimize their onboarding experience to maximize value.

Conduct customer attrition analysis with rich product analytics

Userpilot comes with a powerful product analytics feature. Along with tracking feature usage, you can use feature heat maps to find accurate trends in feature engagement.

Event-based analytics lets you track and analyze any user interactions at multiple touchpoints across the customer journey.

In addition, Userpilot is set to launch funnel and path analytics in Q2, which will provide deeper insights into churn reduction.

Send in-app surveys to collect and act on customer feedback

With Userpilot, you can send highly customizable in-app surveys. You can trigger surveys at different touchpoints for different customer segments. For example, you can send a customer effort survey only to new users to know how easily they can reach the activation point.

Then, you can analyze the feedback and improve your product accordingly, without any coding. You can even proactively reach out to dissatisfied customers with personalized solutions and improve customer retention.

Conclusion

Now that you know how to calculate customer attrition rates and the strategies you can use to fight churn, find a suitable range of customer attrition rates for your business. You should track customer churn regularly and determine the most effective strategies accordingly.

Want to reduce your customer churn rate? Book a Userpilot demo and get started now.