Revenue Churn in SaaS: 6 Tips To Reduce Revenue Churn in 2023
Looking for actionable tips to reduce revenue churn fast? Keep reading!
As retention is extremely important for any SaaS company, reducing customer and revenue churn is a top priority.
The loss of customers indicates that your product is not providing value to them in the long run, which can negatively impact profitability and the likelihood of establishing lasting relationships with your customers.
In this article, you’ll learn everything you need to know about revenue churn and how to reduce it. Now let’s get started!
- In SaaS, revenue churn is the amount of lost revenue over a given period. It can happen when users downgrade subscriptions or stop renewing them entirely.
- The difference between customer churn and revenue churn is that the first one tells you about the number of customers you’ve lost in a specified period, while the latter gives you insight into how much revenue you’ve lost due to users leaving.
- Tracking revenue churn is important as it allows you to analyze your product’s potential and learn why users are leaving your product.
- You can calculate the net revenue churn rate by dividing the net revenue lost from existing customers in a given period by the total revenue present at the beginning of that period.
- A few of the most common reasons for revenue churn are insufficient in-app guidance, high prices, and bad customer support.
- To reduce revenue churn, you can use welcome screens to provide personalized onboarding flows and improve user onboarding.
- You can also track in-app usage statistics to identify friction points and fix them, and create an in-app help center to provide self-service support.
- Additionally, you can use NPS surveys to find out detractors and reach out to them, and use churn surveys to understand why users leave.
What is revenue churn?
Revenue churn or MRR churn means the monthly recurring revenue your product loses from existing customers within a specific period.
It occurs when customers stop using your product or switch to lower-priced subscription plans.
For SaaS businesses, revenue churn is one of the most important SaaS metrics to measure.
Revenue churn rate vs customer churn rate
In a nutshell, the customer churn rate explains how many customers your product is bleeding out, while the revenue churn rate tells you about its monetary impact. Here are their differences:
- Customer churn refers to the percentage of customers who dismissed their subscriptions with your product in a given period.
- You can calculate this rate by dividing the number of lost customers by the number of existing customers within a specified time frame.
- Revenue churn measures the amount of MRR your product loses.
- You calculate this rate by dividing the revenue lost from existing customers by existing revenue in a given period.
Revenue churn benchmarks for SaaS companies
In 2022, the SaaS churn rate benchmarks for user churn rate and revenue churn rate were 5.9% and 7.7%, respectively.
There is no specific benchmark for churn rates. It varies between businesses. A good revenue churn rate for one company might be bad for another. But generally speaking, small SaaS companies aim for a churn rate of 5-7%, while larger businesses should keep their rates below 5%.
As companies age, their churn rate decreases, as shown in the graph below.
Why is it important to track revenue churn?
For subscription-based businesses, tracking revenue churn is vital. It is also critical to monitor churn rate since it impacts other SaaS business metrics.
By assessing your product’s churn rate, you can assess your product’s future growth and gain insights into what makes users leave.
Now let’s explain the benefits in detail.
Analyze the potential growth of your product
This provides you with information about your product’s performance, which you can use to forecast future sales and gauge its market potential.
Learn why users churn and act on the insights
When you monitor your revenue churn rate, you can understand why users are leaving your product and spot patterns that can help you eliminate friction points and prevent churn in the future.
How to calculate revenue churn rate?
To calculate your net revenue churn rate, you need to select a time frame first. For example, you might want to measure the revenue churn rate for a month or a year.
Next, measure the amount of revenue at the start of the period and the end of the period.
Then, you need to divide the net revenue lost in that period by the total revenue at the beginning of the period.
For example, at the beginning of January 2021, your MRR was $55,000. By the end of December 2021, it dropped to $48,500. So, your revenue churn for one year is (6,500/55,000) * 100 = 11.82%.
What are the most common reasons for revenue churn?
When it comes to understanding revenue churn, it is critical to examine the causes.
It may be due to a lack of perceived value from the customer’s side, insufficient in-app guidance, inadequate pricing, or poor customer support.
Lack of perceived value
When your product does not fit with your target market, your customers won’t find value in your product. That would mean that your product doesn’t meet customers’ expectations. In both cases, they’ll end up leaving.
Lost customers mean lost revenue, which leads to increased revenue churn rates. Understanding your customers in-depth will allow you to identify where your product is lacking and make adjustments fast.
Insufficient in-app guidance
When you don’t provide sufficient in-app guidance, customers can get confused about your product’s features.
Use checklists, tooltips, or interactive walkthroughs, to guide new customers in the right direction. Otherwise, they won’t be able to understand the value of your product fast.
If your product is too expensive, you may lose revenue, since customers may not be able to afford it. Especially when the product does not meet the customer’s needs.
You can counter this by offering multiple pricing plans.
Bad customer support
Customers can leave your product if your customer support is terrible. Providing late answers or being rude to the customers shows incompetency on the company’s end.
This should be addressed immediately by training your sales team properly. When they treat customers with respect, your product can retain existing customers and generate more revenue in the long run.
6 effective tips to reduce revenue churn
Now, let us take a look at 6 effective ways you can use to increase revenue growth and decrease churn rate.
Segment customers in the welcome flow and provide personalized onboarding
With customized welcome screens, you can segment customers and identify what they’ll be using your product for. This helps you create personalized onboarding flows which are tailored to your customers’ needs.
When customers feel heard, they’re likely to stay. This can also increase the likelihood of existing customers upgrading to higher-priced plans.
Here is how Kontentino uses welcome screens to capture information about new users and segment them.
Track in-app user behavior to see how customers are interacting with features
By tracking in-app customer activity, you can gain insight into which features are being used most and which ones are being used least. You can then focus on improving the features that are least used. The goal here is to find ways to increase customer engagement.
You can use tools such as Userpilot to monitor feature engagement. This doesn’t require any coding. You can simply tag the feature you want to track, and Userpilot will take care of the rest.
Use an in-app help center to provide quick and effortless support
You can provide your customers with a resource center within the app that enables customers to get self-service help. It can contain FAQs, knowledge bases, or interactive tutorials.
This allows them to spend more time within the app and discover more features. A learning center also reduces friction and allows users to become very familiar with your product.
In-app help centers can also significantly reduce the number of support tickets created. Your customer support team can then focus on the important issues, while the users can solve minor problems on their own.
For example, Postfity uses an in-app resource center to guide users and help them find what they need in just a couple of seconds.
Use NPS surveys to find detractors and proactively reach out to them
NPS surveys involve asking your customers the likelihood of them suggesting your product to their close friends or colleagues on a scale from 1 to 10. Respondents who choose 9 or 10 are your promoters, those who choose 7 or 8 are passives, and those who choose 6 or below are detractors.
With NPS surveys, you can identify your most loyal customers (promoters) along with customers who are likely to churn (detractors).
When creating an NPS survey, you can use a qualitative follow-up question to get an understanding of the reasons behind their scores.
Userpilot help you set up NPS surveys very quickly. But that’s not all. It also provides you with detailed analysis, allowing you to group the responses into separate themes and understand what aspects of your product make users loyal or disloyal.
Send cancellation surveys to find out why customers churn
Churn surveys allow you to understand why users leave your product. These surveys are very effective when you want to lower revenue churn and improve your product.
The survey pops out when users unsubscribe or uninstall your product. It asks a simple question, “Please tell us why you’re leaving.” You can offer a multiple-choice drop box, allow them to write something on their own, or use both.
Here, you can also offer some alternatives to users canceling their subscription, such as offering a discount on a lower-priced subscription model.
Segment churned customers and create a win-back strategy
When you’ve identified possible reasons for customer churn, the next step is to segment them by reasons and create win-back strategies for them. This means your marketing efforts need to be redesigned for each unique reason.
You can reach out to lost customers by email and let them know about the changes you’ve made.
Revenue churn is a nightmare for any SaaS company.
The higher your revenue churn, the faster you are losing customers and revenue, so you need to take action immediately. The first step you should take is to identify why your customers are leaving and redesign your product offerings accordingly.
Want to track and reduce your revenue churn? Get a Userpilot Demo and see how easily you can increase customer retention.