How To Reduce Churn Rate In SaaS [9 In-Depth Ways]
Without exception, all the SaaS businesses I’ve ever spoken with want to keep their churn rate down.
That’s because retention and activation, not acquisition, are the main drivers of profitability in the SaaS world.
It stands to reason when you think about how much time and money you spent building your product. You’re not going to recoup all that investment with just one round of monthly payments per customer.
That all sounds well and good in theory… but how do you reduce churn in practice?
Allow us to walk you through some churn-reducing strategies that are actually actionable!
- Churn rate is the percentage of customers that leave your business over a given time period.
- It’s an important metric for SaaS businesses because profitability correlates with retention and activation.
- To prevent churn in onboarding, use a welcome screen, an interactive walkthrough and tooltips. Remember that onboarding is a never-ending process.
- To prevent churn after receiving negative customer feedback, be sure to categorize the feedback and follow up on it.
- To address churn pre-emptively, creating helpful blog content and a knowledge base are essential activities. If you can make the knowledge base accessible in-app via a help center, even better.
- Many of these anti-churn strategies are in-built features of Userpilot.
How to calculate churn rate
Before we get into the ways you can reduce churn rate, first a quick word on how to measure it.
A customer is said to “churn” when they stop doing business with your company. The churn rate is therefore the percentage of customers who churn over a given time period.
To calculate churn, identify:
- The period of time you’re measuring churn over.
- The number of customers you had at the beginning of that period (A)
- How many customers you’ve lost during that period (B)
Now divide B by A, and multiply the result by 100 to get a percentage.
If company XYZ had 1000 customers at the start of 2022 and lost 50 of those by the end of the year, you could say they had a churn rate of 5%.
Now, if that same company had a churn rate of 1% instead, that’s 40 extra customers over the whole year.
What’s more, those are customers who pay them money each month, so the effects of reduced churn compound over time!
No wonder that a famous study by Bain found that improving customer retention by just 5% can improve profitability by up to 95%!
The same study found that it’s five times more expensive to acquire a new customer than it is to keep an existing one.
So keeping churn to a minimum is essential. Let’s look at some no-fluff ways of doing that.
Step 1 to reduce churn: Use an interactive product walkthrough
A common experience when you start using a new product is to be given a product tour. Sounds reasonable, right?
But have you experienced product tours that show you a bunch of features that you don’t actually need? Frequently we end up pressing the “Next” button rapidly, in the hope that we’ll finally be able to use the product we came to use!
Traditional product tours often lead to churn because they serve generic product features in the same generic way to each user. The product tour is completely pre-determined by the business; there’s no interaction with the user.
This is a tedious experience and I have a lot of sympathy for people who rage-quit during tours like this.
By contrast, an interactive walkthrough is more like a back-and-forth dialogue with the user.
It begins with a welcome screen that gauges who the user is and what their use case looks like.
Then, on the basis of the user’s answers, they are shown only the handful of features that they actually need. All the advanced or more nuanced features can wait for now.
The best product features to show a user during a product walkthrough are those that they need in order to activate. You want to get the user to that “Aha Moment” as quickly as possible.
A user who has experienced the value of your product quickly and interactively is much less likely to churn.
You can build interactive walkthroughs with Userpilot. See this post for more details.
Step 2 to reduce churn: Provide a help center in-app
It’s a cliche in the SaaS world that most users who churn do so because of poor customer service.
But hiring salaried customer support agents gets expensive quickly, especially in the early stages of a SaaS company’s life.
That’s why the concept of a knowledge base exists. The knowledge base is a section of your website that contains solutions to common customer problems, allowing the customer to self-diagnose and fix problems without needing a support agent.
But even this is insufficient in an age of impatient customers who expect instant gratification. Some customers will still churn because they get frustrated that they can’t find your knowledge base within 10 seconds of having a problem.
Enter the Help Center.
A help center is a small widget inside your product that pulls up articles from your knowledge base. This allows users to access self-service support without the friction of having to leave your app.
A good help center will generally contain:
- Best practices
- Video guides
- Bug fixes
- And more!
From a user’s point of view, a help center translates into a quicker answer to their question. This means less frustration, and happy users are not known for churning.
As a bonus, a help center is also great for user engagement, since it keeps them in-app and focused on your product. Engagement and retention are also strongly correlated.
It’s possible to build a help center widget in Userpilot and style it to your brand. Click here for more details on how this works.
Reducing churn rate step #3: Categorize user feedback
The larger your SaaS business becomes, the more user feedback you will necessarily have to juggle. If you don’t have a system for organizing that feedback, you’ll be that much slower to respond to users, thereby risking them churning.
Consider categorizing user feedback by the following categories. Note that 3-4 categories will likely be sufficient for early-stage SaaS businesses, but larger enterprises will probably need to reflect on all of these questions.
- Was the feedback solicited directly, or did the user give it to you of their own volition?
- Is the user a power user, or did they just join yesterday?
- Is the issue the user has a serious one with financial or legal implications, or is it just a minor bug?
- Is the user giving positive or negative feedback? What is their NPS score?
- What plan type is the user on?
- Where is the user located, and what language do they speak?
- Has the user completed any custom events in your product that are relevant to their issue?
Ideally, you have templates at hand that allow you to respond quickly to customers who have an issue that you already solved for another user in the past.
For example, imagine the following feedback category:
- Power user
- Major financial issue with your product
- Enterprise plan
- Unsolicited negative feedback
If you have a template ready to deal with this category of feedback, and responding within 12 hours reduces the odds of churn by, say, 50%, just imagine how much money having a categorizing system will save your business over time.
Do remember to follow up on customer feedback once you’ve categorized it!
Categorization systems are not an end in themselves; they exist to maximize your speed when answering users with problems, thereby preventing churn.
If you’re thinking “I have no idea how to build a categorization system from scratch,” don’t worry. There are software tools for that.
We previously recommended Qualtrics, UserReport, and Canny here.
Step 4 to reduce churn: Replace empty states with meaningful templates
Picture the scene: you sign up for an online product. You’re excited and ready to get into using it every day for your work.
After registration and the welcome screen, you see an empty dashboard. There’s nothing there, just white space.
It’s a rather depressing feeling, isn’t it? Much like the feeling of staring at a blank piece of paper before writing an essay at school.
There’s an interesting concept in habit psychology called “activation energy.” The higher the activation energy, the more willpower it takes to start doing a new activity. That’s why going to a gym that’s 50 miles away requires more willpower than using a home gym.
In the SaaS world, empty states like the above dashboard require a lot of activation energy to fill in. Sometimes this energy requirement is so high that a user would rather churn than keep using your product.
To solve this problem, replace any empty states in your product with templates, case studies, dummy users, and other placeholder data. Read this post to learn more about what to fill empty states with.
Ideally, all of these templates are geared towards the individual use case of your customer that you found out during sign-up and via the welcome screen.
You’ll be able to figure out what should go into these templates by segmenting your customer base and applying user analytics to determine their individual needs. Read this post to find out how to segment users with Userpilot and this post to learn about user analytics.
Once you’ve got rid of the empty states, your placeholder template data will show the user what they could do with your product and give them the sense that this is an app with real users. Both these things correlate with reduced churn.
Reducing churn rate step #5: Don’t provide experience flows to users who don’t need them
Here at Userpilot we talk a lot about customizing product experiences to the individual needs of a user.
For example, if you’re a social media scheduling tool, it hardly makes sense to serve user ABC a flow for scheduling a post if that user hasn’t connected a social media account yet!
Do that repeatedly, and you can be sure user ABC will churn in no time.
To gauge whether a particular experience flow makes sense to offer to a particular customer, you should take into account two things:
- The customer’s user attributes
- The customer’s previous in-app behavior
User attributes might include:
- Plan type
In-app behavioral factors might include:
- Whether the user has activated
- Whether the user has completed a particular custom event, as defined by your devs
- Whether the user has previously engaged with a different experience flow or feature
Putting this together, here are some examples of experience flows that do make sense:
- Ensuring that the only users who see secondary features are those who have already activated and have access to those features on the plan they purchased.
- Only showing an advanced security and compliance module to enterprise customers.
Paying attention to customer needs in this way will reduce churn.
Read this post for step-by-step instructions on how to use Userpilot to only show experiences to customers who need them.
Reduce churn – step #6: Follow up on negative NPS scores
Here’s a sobering thought: if a customer gives you a negative NPS score, the score in itself doesn’t provide you with that much useful data.
A negative NPS score just means that a customer is unlikely to refer you to their friends and family.
It says nothing at all about WHY the customer has this opinion.
To prevent this customer from churning, what you really need to do is follow up on that NPS score. (Hopefully, you’ve categorized your customer feedback by sentiment to make this easy to do!)
There are 3 ways you can follow up:
- By qualitative microsurvey
- By checking session recordings
Let’s look at each one of these in turn.
The first thing you can do is to automatically send the customer a microsurvey. This is a short survey that appears to the customer in-app, asking them why they gave you that NPS score.
It’s possible to build these microsurveys in Userpilot. Here’s an example that Postfity created.
If you need more insight, use software like Hotjar or Logrocket to look at the customer’s session recordings to see what the problem is. These tools monitor customers’ clicks and mouse movements inside your product, and you’ll be able to see what the customer was doing.
We previously reviewed both Hotjar and Logrocket in this post.
If all else fails, you still have the option to send the customer an email to get them on the phone. The information gathered from your microsurvey and session recordings will leave you well-equipped to handle that conversation.
The faster you can follow up when a customer gives you a low NPS, and the more you can show them you understand their problem, the less likely they are to churn.
Step 7 to reduce churn: Don’t forget secondary onboarding
It’s a common misconception in the SaaS world that onboarding ends after a user has activated.
Nothing could be further from the truth.
Put yourself in your customer’s shoes: you’ve activated and enjoy using a given product, and then suddenly a new feature is launched that you’ve never seen before.
The worst thing you could do as a business in that situation is just leave the customer to sink or swim. There’s a good chance that the customer will just get frustrated and churn.
Instead, think of onboarding as educating the customer at every stage of the product adoption journey — something that never ends.
We can therefore speak not only of secondary onboarding but tertiary onboarding — even “evergreen onboarding.”
The following UI elements are very handy for onboarding purposes and can all be built with Userpilot. Click the link in each case to discover more about each element.
To find out more about secondary onboarding, we suggest you read this post.
How to reduce churn rate step #8: Use content to educate your customer
SaaS products can sometimes be complicated and counter-intuitive for users to understand. The more complex your product is, the more of a risk you have that customers will churn due to feeling confused.
Companies can create two types of content to mitigate this problem:
- Knowledge base content
- Blog content
Let’s look at each one of these in turn.
We mentioned the knowledge base earlier in this article as a separate part of your website where users can self-diagnose and fix issues they run into.
The knowledge base is a great place to answer questions that your customer success team are receiving all the time. This is what the Userpilot knowledge base look like:
A knowledge base is a great defender against churn because customers will appreciate being able to get a quick answer on their own schedule.
And your customer success team is probably sick of answering the same questions every day. Rather than type a new answer each time, it’s much more efficient to just point users to an article.
Zendesk is a good software choice if you want to build a knowledge base. We reviewed other software options here.
But valuable content is not necessarily always product-centric. Sometimes a customer will refrain from churning because you do such a good job of educating them about their industry, for example.
This is where a well-maintained blog comes in.
If you need inspiration in this area, feel free to look at the Userpilot blog. We practice what we preach, and we try to make our articles as helpful as possible.
Frequently, we hear from our customers that we provide actionable content that has screenshots and examples. This is a far cry from most blog content, which is fluffy and superficial.
The hundreds of hours of work we put into this blog each month mean that our customers are constantly educating themselves without coming to us with direct questions.
This builds trust over time and aids in preventing churn.
Reduce churn rate step #9: Use tooltips intelligently
A tooltip is a UI element that explains unfamiliar UI features to your customers when they hover over it.
Tooltips come in two varieties:
- Standalone UI elements (sometimes called “native” tooltips)
- Integrated into a larger experience flow
Userpilot allows you to create both types of tooltip, and you can read more about how to do this here.
Tooltips are a good barrier against churn for the following two reasons:
Tooltips help with activation
Day 1 retention is a big problem in SaaS businesses. Many users churn before really being able to experience that “Aha Moment” and the value of the product.
Social media scheduling tool Postfity is an example of a business that uses tooltips to maximize activation and minimize churn.
In social media scheduling tools, users activate by firstly connecting their social media account, and then scheduling their first post.
Postfity ensures that users connect their social media account by using a tooltip.
Tooltips help with feature adoption
A sure way to prevent churn is to offer customers features and upsells they find valuable.
A tooltip is a great way to highlight these things to your customer. You can think of this as a part of the secondary onboarding process that we discussed earlier in this article.
For example, Facebook used this tooltip to highlight the ability to “like” a comment in multiple different ways after that feature was released.
Ready to retain more users?
We hope you got lots of value out of reading this article about reducing churn. It’s a huge topic, so we encourage you to read through some of the other posts we linked to if you want to learn more about a particular strategy.
Something you will have noticed is that Userpilot has a lot of these strategies built into its product as features. This makes it a versatile tool for reducing churn.
If you want to give Userpilot a spin, click the banner below to book a demo.