Top 7 Reasons For Customer Churn in SaaS and Tips to Address Them
What are the reasons for customer churn in SaaS? And how can customer success teams address them to ensure product growth?
As a SaaS company, your ultimate goal is to retain customers and keep them happy with your product. However, sometimes things don’t go as planned, and customers churn.
By the end of this article, you’ll have a better understanding of the common pitfalls that lead to customer churn and how to avoid them.
- Customer churn refers to the rate at which a business loses customers within a specific period.
- The key difference is that customer churn measures the number of customers a business lost, whereas revenue churn measures the revenue lost due to customer churn.
- Reducing churn is critical for SaaS because it cuts back customer acquisition costs and increases customer retention.
Reasons why customers churn:
- #1: Customers churn when there is a bad product-customer fit and your product’s features don’t align with their needs.
- To overcome this, identify the right customers and their desired outcomes.
- #2: Customers churn as a result of an ineffective onboarding process that doesn’t deliver product value.
- Create a personalized onboarding flow to help users reach the Aha! moment faster.
- #3: Poor customer service or experience with the sales teams can make customers churn.
- Provide customers with self-service education by creating a knowledge base packed with helpful resources.
- #4: Customers churn when they don’t get enough value to keep renewing their subscriptions.
- Helps users adopt advanced features with a continuous onboarding process. Use in-app prompts, like tooltips and modals, to highlight those features.
- #5: Customers churn when they experience an unresolved product bug.
- Include an always-on feedback widget in your knowledge base so customers can report technical issues when they occur.
- #6: A negative churn can happen when a customer’s bank transaction fails or their credit card expires.
- To reduce involuntary churn, notify users with emails or notification banners before their subscription expires.
- #7: Churn happens when a product doesn’t have enough features to get the user’s job done.
- Ask customers what features they would like to see with an embedded feature request surveys in-app.
- Want to reduce customer churn? Book a demo with our team to see how we can help you retain more customers.
What is customer churn?
In a nutshell, customer churn, or customer attrition, refers to the rate at which a business loses customers within a specific period.
Customer churn vs revenue churn
Although easily confused, customer churn and revenue churn have a lot of differences.
The key difference is that customer churn measures the number of customers a business loses, whereas revenue churn measures the revenue lost due to customer churn. Here are other differences:
- Method of calculation: Customer churn rate is calculated by diving the number of customers lost by the number by the number of existing customers in a specific timeframe. Revenue churn is calculated by dividing the revenue lost from existing customers by existing revenue in a given period.
- Measurement: Customer churn is a measure of customer retention while revenue churn is a measure of the amount of MRR a product loses.
- Goal: The goal of reducing customer churn is to improve retention and customer satisfaction. Meanwhile, the goal of reducing revenue churn is to maintain a stable revenue stream.
Why is preventing churn critical for SaaS?
Here’s why preventing churn is critical for SaaS:
- Subscription-based businesses rely on retention for recurring revenue. The lower the churn rate, the higher the profit a company can rake in monthly.
- Acquiring new customers is 5 times more expensive than retaining customers. Preventing churn can help you generate more revenue and keep acquisition costs low.
- Large-scale customer churn also leads to reputational damage. Churned customers can go ahead to leave negative reviews which makes acquisition even more difficult.
What are the main reasons for customer churn in SaaS?
Different factors can cause SaaS churn—poor onboarding, bugs, bad service, or something else.
Let’s take a look at some reasons why customers churn and some actionable tips for churn reduction.
Bad product-customer fit
Bad product-customer fit happens when your product’s features don’t align with your customer’s needs.
Your product may not always meet the specific needs of all customers, but occasionally, individuals who do not fully understand your product may sign up.
As soon as they realize that the product wasn’t as good as they thought, they’ll churn.
This could happen if you don’t know who your ideal buyer persona is and, as a result, your marketing messaging isn’t clear and targeted.
Understand who your ideal customer is
Every successful product development is rooted in a deep understanding of the target audience. You must know who you’re selling to, their pain points, and the solutions they’ve tried.
To do this, conduct user research with focus groups, surveys, or interviews to collect as many details about your user personas as possible. Collect these details and create a persona that resembles a human instead of a fictional character.
Then, create a marketing message that speaks your audience’s language. Use this to address their specific pain points, JTBD, and needs before creating your product messaging strategy.
Ineffective new customer onboarding process
A long, non-personalized onboarding process can result in friction that prevents users from experiencing product value and reaching activation.
During onboarding, most SaaS companies make the mistake of stringing users along with long product tours and taking them through all 10 features of the product. Not only is this stressful, but most customers end up forgetting all they’ve learned.
This means they won’t understand how your product can specifically help them get their jobs done.
Create a contextual onboarding flow that helps users achieve value fast
Your main goal during onboarding is to help your users experience product value and reach activation. But you won’t achieve this if you don’t have a thorough understanding of your users to personalize their experience.
As soon as a user signs up, start collecting their data to understand the specific problems they’re trying to solve. You can do this with an onboarding survey in your welcome modal.
Depending on their welcome survey responses, introduce them to key features with an interactive walkthrough. They’re contextual, and let users discover your product at their own pace.
Rather than bombarding users, each onboarding step is only shown after they engage with the previous one to make sure they actually learn by doing.
Poor customer service
Talking to an unresponsive customer support team is a common reason why churn happens. It makes customers feel frustrated and causes them to lose faith in your product.
When customers have an issue, they need it resolved immediately. If your customer support teams are slow to respond, it can lead to frustration for your users and ultimately drive them towards competitors who may offer more satisfactory service.
Help customers help themselves
For SaaS businesses, providing a help center within your product eliminates the friction associated with finding help. Self-service help centers will assist customers and help them find solutions to their problems within a product immediately without resorting to customer service.
You can include videos, documentation, FAQs, etc. You can also go one step further and personalize the knowledge base content to only show modules based on the page or user segment.
Another cost-effective way of enabling self-service help in SaaS is by creating a knowledge base. This is a resource page dedicated to holding all your support resources in one place so that they are readily available when needed.
Users don’t get enough value from the product
Users need to continuously experience value if you want them to keep renewing subscriptions. They’re always on the lookout for a way to do their jobs better and achieve their goals faster.
To achieve product stickiness and retain users, you have to make your onboarding an ongoing process. After successfully driving adoption, the customer onboarding experience should help keep customers engaged and active.
After the primary onboarding, your secondary onboarding efforts should guide users toward hidden features that help them do more with the product.
Help users adopt features that correlate with long-term retention
To help users constantly experience value, you need to know which features they’re using and which ones they’re not.
You can tag UI patterns to identify these features, and then proactively engage these users with the relevant advanced features they haven’t adopted yet.
Use different in-app prompts, such as tooltips and modals, to highlight those features and drive users to adoption.
For this purpose, a tool like Userpilot is great for tagging features and analyzing product usage data. You can also design in-app prompts to trigger contextually and make the customer journey seamless.
Unresolved product bugs
Remember the last time an app crashed while you were using it? Was that an annoying experience for you?
Bugs prevent the product from being used as intended; they only add too much friction and frustration.
Experiencing bugs is unavoidable in almost every SaaS. It’s how you treat them that influences whether a customer stays or leaves. For example, if a bug goes unaddressed for a while, customers will assume you don’t care about their experience.
Enable customers to submit bug reports and act on them
Include an always-on feedback widget in your knowledge base so customers can report technical issues when they occur. Use this not just in your knowledge base, but also at key touchpoints.
When a customer reports a bug, it’s important to take immediate steps to rectify the situation. Apologize for the inconvenience caused and provide reassurance about your product to prevent the customer from churning or leaving a negative online review.
Fix glitches ASAP, and once you’re done, let them know. This is called closing the feedback loop.
Customers’ payment methods fail
This is one of the common causes of involuntary churn – the situation where a customer’s subscription or service is canceled without their intent or knowledge.
A typical example is when a customer attempts to pay for a SaaS product but is unable to do so due to issues such as expired credit card details, changes in bank account numbers, or technical problems on the service provider’s end.
Send pre-dunning in-app messages to prevent involuntary churn
To reduce involuntary churn, send an email to customers before their subscription or payment method expires. You can use notification banners to notify users that they have an upcoming payment or that their card is about to expire.
If the card has already expired, offer a grace period. Allow them to use the product, but put in place some limitations and remind them they need to pay to get full access.
Optimize your checkout page and set up dunning cycles that fit your customer so you can retry their payment at the right time.
The product doesn’t have enough features and functionalities
When customers try your product, they’re always on the lookout for highly-valued features that can get their job done. If you don’t have this feature, then they will look for competitors who do.
Also, not understanding your ideal customers would lead you to build unnecessary features that no one uses. As a result, this can lead to a feature fallacy trap called the “product death cycle.”
Collect features requests to understand customer expectations
To build the right features, ask customers what features they would like to see in your product. Embed feature request surveys in-app and trigger them after users complete specific milestones to collect their feedback.
You don’t have to implement all of this; this is just to understand customer expectations. With the user’s request, create a product roadmap to show users the features you intend to implement.
Then you can prioritize the most requested requests for future updates.
How to analyze churn and identify the exact reasons behind it?
Analyzing churn is crucial for any SaaS business looking to improve customer retention. It shows you the factors contributing to customers leaving and how to manage churn.
Let’s explore some effective ways for analyzing churn and uncovering the root causes.
Collect feedback from churning customers using exit surveys
Unfortunately, losing customers is inevitable. But when a customer decides to leave, don’t let them go like that.
Trigger an exit survey contextually when a customer hits the cancel button. Collect feedback to understand the reason behind their cancellation and how you can improve the customer experience for new and loyal customers.
You can also attempt to recover the customer by offering customized alternatives to canceling their account. For example, if a user says your product is too expensive, you can offer to downgrade their account.
Analyze NPS responses to identify patterns
Manually go through qualitative NPS responses and tag them based on the score. You can collect survey responses on different aspects of the customer journey, user experience, or product.
By using NPS response tags, you can identify patterns and commonalities in detractor responses. Look for recurring problems and issues that detractors mention, and use this information to improve your product or service.
Perform social listening
Customers leave their most honest feedback on social media platforms and review sites. When a customer leaves negative feedback, the first thing to do is respond politely. Thank them for their review and acknowledge your mistakes without getting defensive.
Take time to investigate the reasons behind customer dissatisfaction and offer a solution. Then, follow up to make sure the negative review is dealt with by your sales team to increase customer loyalty.
Customer churn isn’t just about having bad products or poor customer service; it also happens when your customer base feels like they’re not getting the value they paid for.
It’s no secret that customer churn can be a major setback for any SaaS business. But with the right knowledge, it’s easy for a customer success team to reduce churn and retain more customers.
Want to reduce customer churn? Book a demo with our team to see how we can help you retain more customers.