Product Churn: A Quick Guide For Product Managers To Reduce Churn In SaaS
Are you looking to reduce product churn for your SaaS business?
If speaking realistically, product churn is inevitable for SaaS companies but decreasing churn by just 5% can cause your profit to rise as much as 25-125%.
That means you shouldn’t aim for zero churn but to drive revenue up to a point where it surpasses the amount you lose due to churn.
So let’s see how you, as a product manager, can reduce product churn and drive growth in your company.
TL;DR
- Product churn is a metric that measures how many customers leave your product over a specific period.
- To calculate the customer churn rate, divide the number of customers lost during the given period by the number of customers present at the start of that period, and multiply the result by 100.
- Whether a churn rate is good depends on the size of the SaaS business. Small SaaS businesses typically go for a 5-7% rate, while enterprise businesses maintain churn rates of less than 5%.
- Customer acquisition costs 5-25 times more than customer retention. Thus, it’s crucial to track your churn rate to develop strategies to improve engagement and reduce churn.
- Customer and revenue churn are the 2 types of product churn. Customer churn refers to the number of customers you lose, and revenue churn measures the amount of revenue loss due to the churn.
- Churn impacts SaaS companies in a number of ways, including the spread of bad reviews, reduction in the overall market, and poor brand image.
- Customers churn due to product-market fit failure, high prices, poor user experience, and bad customer support.
- In-app self-service support lets users solve repetitive problems themselves, thus taking the pressure off your support team.
- Secondary onboarding introduces users to secondary features, boosts engagement, and turns customers into loyal power users.
- Follow-up questions to NPS surveys allow you to understand the reason behind dissatisfaction and take actions to improve customer experience.
- In-app churn surveys are micro surveys that are automatically sent to users who are about to leave. They help you learn why users leave and sometimes even convince them to remain with your product.
What is product churn in SaaS?
Churn measures how many users stopped using your product over a specific period of time. It includes users who have either downgraded or canceled their subscription plan.
Churn occurs when users stop receiving value from your product either because they are getting better value from your competitor or simply don’t need the service anymore.
How to calculate the product churn rate?
Product churn is measured using the customer churn rate. It’s the percentage of users who churn over a given period.
To calculate the churn rate, divide the number of customers lost during the given period by the number of customers present at the start of that period, then multiply the result by 100.
Usually, companies calculate customer churn rates on a monthly, quarterly, or annual basis to get a bird’s eye view of what’s going on in the business.
Moreover, calculating churn at various time periods can explain how different strategies implemented over time can help you reduce churn.
What is a good churn rate?
There’s no universally good churn rate for all SaaS businesses. Typically, a good churn rate for small SaaS businesses is 5-7% annually. The rate is much lower for enterprise businesses since they primarily deal with big companies, long-term contracts, and high-volume profits.
The figures below show the year-on-year rise in revenue for each of the 3 different types of companies.
- Low growth: less than 25%
- Medium growth: 25% to 75%
- High growth: more than 75%.
According to Totango, the annual churn rates vary across the 3 types.
As you can see, most high-growth companies maintain churn rates below 5%. In contrast, most low-growth companies can afford to have churn rates greater than 10%, although it’s safer for SaaS companies to stay within 5-7%. Medium growth companies usually go for churn rates between 5% and 10%.
Why is tracking customer churn important?
Churn is one of the key growth metrics for SaaS companies because they depend on customer retention to make profits.
It’s 5-25 times more expensive to gain new customers than to retain existing ones, making it essential to track churn regularly.
Analyzing customer churn enables you to identify critical stages in the user journey where users are dropping off. This lets you develop specific strategies to induce more positive user interactions with your brand, improve customer loyalty, and increase customer lifetime value.
Furthermore, you can learn why your users are leaving and where in the funnel it’s happening so that you can create meaningful product experiences to increase your retention rate.
What are the different types of churn?
Customer and revenue churn are the 2 types of product churn you need to be aware of.
Customer churn tells you how many customers left your product during a particular period. On the other hand, revenue churn is a measure of the amount of revenue lost due to the churned customers.
Whereas customer churn merely lets you know how many users you’ve lost, you need revenue churn to know its impact on your company’s revenue.
To illustrate this, suppose you have 2 subscription plans where the basic plan costs $10/month and the pro plan costs $80/month. Clearly, losing 1 customer from the pro plan is more expensive than losing 5 customers from the basic one.
How product churn impacts your SaaS business
Let’s look at the 3 major impacts that product churn has on your SaaS business.
Customer feedback
Customers tend to leave because they’re dissatisfied with your product. Thus when they leave, at least some of them are likely to leave behind negative reviews that will harm your brand reputation.
On the flip side, positive feedback from existing customers can act as a weapon against negative ones. Churned customers will keep circulating bad reviews, but you can use feedback from your loyal customers to counterbalance them.
Too much emphasis on churn reduction
Even the fear of churning can curtail the growth of your company. If you are always worried about losing users to your competitors, you might be tempted to become risk-averse and let go of profitable opportunities.
This can potentially reduce your chances of expanding your monthly recurring revenue via upsells.
Moreover, the decline in the number of customers reduces the size of your overall market, which also harms your brand image.
The higher the churn rate, the more significant problems
An increase in the customer churn rate suggests that your company has failed to secure strong relationships with your customers.
Are you unable to meet customer expectations? Or, are your competitors’ product features simply better than yours?
If your churn rate keeps rising, you have to focus more on reducing churn to prevent bankruptcy.
Why do customers churn?
Your customers leave when your product fails to help them reach their desired goals. There are multiple reasons why that might happen.
- Product-market fit failure
- Bad user experience
- Product price
- Bad customer support.
Product-market fit failure
It’s difficult to achieve product-market fit. One of the causes of product churn is that you fail to understand your customers’ needs and wants, so customers didn’t get the value they expected from you.
Let’s look at the curve below for a B2B product.
When users don’t get value from your product, they are unable to connect with you. Where there should have been word-of-mouth marketing, the users tend to leave behind bad reviews.
Consequently, product usage falters. At this point, if you can’t achieve product-market fit, users would leave.
Product price
Price is one of the most important factors when buying a new SaaS product. You need to educate your users properly so that they understand how your product is worth the money. Otherwise, they would shift to competitors who provide more cost-effective subscription plans.
Bad user experience
Users want to have meaningful experiences with your product that they benefit from. If you don’t update your product regularly or if the product is buggy, users will have a hard time engaging with it. Poor experience would most likely cause them to leave and post bad reviews.
Bad customer support
A customer-centric approach to business is the key to unlocking the hearts of customers. Even if your product is superior to that of your competitors, users wouldn’t stick around if they don’t get the required support or are poorly treated by your support team.
4 strategies for product managers to reduce churn
Now that you know what causes product churn and its impacts on your business, let’s dive into 4 strategies that would help you reduce churn.
- Educate your customers with in-app self-service
- User secondary onboarding to deepen customer engagement
- Follow up on negative NPS scores
- Use churn surveys to understand why your customers want to leave.
Educate your customers with in-app self-service
In-app self-service involves providing users with the tools they need to resolve their issues themselves without having to contact your support staff. This usually includes elements such as help/resource centers, interactive walkthroughs, chatbots, and knowledge bases.
A good help center generally consists of:
- Best practices
- FAQs
- Troubleshooting
- Video guides
- How-tos
- Bug fixes
- And more!
Self-service means users can get problems solved quickly, so they don’t get frustrated with your product.
As we previously discussed, you should educate your users on the product to make their purchase worth the money. Using self-service support, you can continuously educate your customers throughout their user journey.
From using walkthroughs to guide new customers to using help centers to let users familiarize themselves with new features, self-service support maximizes engagement. It’s both affordable and practical to allow users to solve their own repetitive issues.
Furthermore, the results are the best when humans and self-service elements work together. Self-service support takes the pressure off human agents so they can shift their attention to more pressing tickets.
This decreases staff attrition as employees don’t have to answer the same questions time and again.
Moreover, when you need to hire support agents only for solving unusual and more serious problems, you need a much smaller customer support team. This keeps your agents engaged with interesting work activities and reduces your support costs without hampering support quality.
User secondary onboarding to deepen customer engagement
Initial onboarding isn’t enough to keep customers engaged. Onboarding should be a continuous process so that your users reach all Aha! Moments and adopt all features along the way.
This is why there are 3 different types of onboarding for the different stages of the user journey.
Secondary onboarding is crucial for helping your customer base reach the stage where they become loyal brand advocates. Your goal is to provide value to customers by showing them more and more ways of benefiting from your product via continuous onboarding experiences.
Secondary onboarding is where you showcase your secondary features to users and try to meet or even exceed their expectations. Secondary features give you more use cases that help make your product more sticky, and this, in turn, improves retention.
The UI elements below are very useful for onboarding processes, and you can build each of these using Userpilot.
Native tooltips are especially handy during secondary onboarding. They are small icons (‘?’ or ‘i’) appended to certain elements on your UI. When users hover over these icons, they trigger a tooltip with more information about a less-obvious feature.
This allows users to find out new features in context without hindering their natural workflows at all. Thus, you can let them choose their journey themselves without micromanaging them.
In addition, you need to start focusing on user behavior analytics at this stage to build your secondary onboarding process properly. In this stage, you can encourage good customer habits and get rid of the bad ones by seeing what users really do inside the app.
Good habits refer to positively correlated behavior with high customer satisfaction, low product churn, and high retention.
On the other hand, bad habits are app usage patterns that positively correlate with low customer satisfaction, high churn rate, and a high support ticket volume.
To understand these user behaviors, you have to create different customer segments based on their use cases and user persona and employ analytics tools to do cohort analysis.
Follow up on negative NPS scores
Net Promoter Score (NPS) measures the likelihood of customers recommending your product to others.
The infographic below shows the average NPS by industry, which shows that software & apps have an average NPS of 41 – the 6th highest. Dept & Specialty Stores have the highest average of 56, while internet service has the lowest of -3.
When you know the average NPS of similar businesses, you can set realistic goals for improving your NPS.
An NPS survey, such as the one below, gives qualitative customer feedback. The NPS score is the difference between the percentage of detractors and the percentage of promoters, with the scores ranging between -100 and 100.
Promoters give a rating of 9-10, whereas detractors give a rating of 6 or less. Detractors are unhappy customers who experience friction and get poor value from you. So they are at high risk of revenue churn and spreading negative word-of-mouth.
There are also the passives who rate you 6 or 7. They are indifferent about your product and can be converted to promoters.
Here comes the follow-up question in NPS surveys, which gather qualitative feedback to help you understand why users gave you a particular rating.
Build in-app NPS surveys and then collect and analyze the results using Userpilot.
When you know what engages promoters, you can build on your strengths to keep them loyal for the long term. You can also get some insights into passives to decide how you can improve your product or onboarding experiences to turn them into promoters.
Moreover, you can even turn detractors into promoters by learning about their pain points and addressing them. Take their negative feedback as constructive criticism to improve your product and user experiences. This would help you reduce product churn and boost revenue.
Use churn surveys to understand why your customers want to leave
Churn surveys are one kind of micro survey that contain short questions sent to customers after they downgrade or cancel their subscriptions.
You can use churn surveys to collect user feedback and find insights into why customers stop using a subscription plan. Then you can use these insights to take actions to reduce customer churn.
There are 2 main ways of sending churn surveys: email and in-app.
While you can trigger both of them automatically, in-app churn surveys are much more useful as they are contextual. In other ways, in-app surveys appear just after a user clicks the cancellation button.
This increases both the:
- Completion rate: User can’t miss in-app churn surveys. However, emails can get lost in the customer’s inbox.
- Chance of customers changing their minds: Automatic personalized in-app responses can be sent to users based on their responses to show what users will miss out on if they leave. Conversely, email churn surveys are sent after the cancellation is complete.
Here are some examples of automated responses based on the reasons users may provide:
- Offering users an option to pause their accounts.
- Asking for their permission to send new feature updates in case they find some particular feature missing.
- Ensuring that in-app support is more user-friendly if they’re facing technical issues.
- Suggesting a downgrade as an alternative to cancelation.
- Offering a one-time discount if they find the price too high while buying some time to make improvements.
Don’t turn your churn survey into a questionnaire. Since the users are on the verge of leaving, you need to engage them with concise questions and avoid friction.
There are 3 types of questions you can use in churn surveys:
- Open-ended questions
- Multiple-choice questions
- Mixed questions
Below is an example of a mixed churn survey, where you add a response box beneath the multiple-choice question. Make sure that the open-ended question here is optional because your main purpose is to get answers to the multiple-choice one.
A/B test the different churn surveys to determine the survey type that works best for you and results in the highest engagement. You can try A/B testing for:
- Different kinds of surveys (mixed, open-ended, close-ended)
- Different numbers of questions
- Style and formatting
Final thoughts
Your churn rate may not be good enough for multiple reasons, from bad user experience and high prices to product-market fit failure and bad customer support. But you can always turn the situation around in your favor.
In-app self-service support, secondary onboarding, NPS scores, and churn surveys are 4 major tools you can use to boost engagement and lower product churn.
Want to learn more about how Userpilot can help you reduce churn? Book a demo today to get started!
