How to use SaaS analytics to reduce churn in 2022

How to use SaaS analytics to reduce churn in 2022

Are you wondering how to effectively use SaaS analytics to reduce churn?

You can collect heaps of data but they won’t be of any use if you don’t know what to do with them. SaaS analytics allow you to leverage the data to gain actionable insights and make informed decisions.

In this post, we’ll discuss the most important SaaS metrics to analyze and some of the best SaaS analytics tools you can use to drive product growth.

So let’s dive in!

TL;DR

What is SaaS analytics?

SaaS analytics is the process SaaS companies use to collect and analyze data points about user engagement across all touchpoints in the user journey.

Companies analyze user behavior throughout the journey to boost engagement, decrease churn, and ultimately drive their recurring revenue. As technology rapidly advances, the SaaS industry relies on data to thrive.

Why do you need SaaS analytics?

Analytics help you get a detailed understanding of:

  • Who your customers are
  • How they are benefiting from your product
  • Where they are experiencing friction
  • What tasks they are struggling with
  • How the various customer segments interact with your product
  • What features are the most used, and what are under-used?

Let’s look at some interesting insights that highlight the importance of being data-driven.

A Forrester Consulting survey of 900 global corporate leaders revealed that companies that depend on data management tools to make business decisions are 58% more likely to achieve their revenue goals compared to non-data-driven businesses.

Not only that, data-driven companies experience a 173% advantage in efficiently complying with regulations and an 8% rise in customer trust. Moreover, such companies are 162% more likely to exceed their revenue goals significantly than their non-data-savvy equivalents.

How to analyze SaaS companies?

To analyze the SaaS company, you have to carefully choose the key metrics for your SaaS business and track them regularly. Metrics such as monthly recurring revenue (MRR), customer lifetime value (LTV), and churn provide deep insights into the growth of your company.

You’ll also find SaaS analytics tools that let you visualize the metrics using diagrams, forms, and charts. We’ll discuss them later in the article.

Which SaaS metrics should you track?

There are many key performance indicators for SaaS companies, but you don’t need to analyze all of them. So, you need to track the SaaS metrics that really matter.

Here are the key SaaS metrics you must track.

  • Activation rate
  • Churn rate
  • Customer Lifetime Value (CLV)
  • Customer Acquisition Cost (CAC)
  • Monthly Recurring Revenue (MRR)
  • Net Promoter Score (NPS)

Activation rate

Activation takes place when a user completes the key events in your product that lets them experience its value. Note that it’s different from the ‘Aha! Moment’, which occurs when your user realizes your product’s value.

Because a trial user can’t turn into a paid customer without activation, it’s crucial to track the activation rate and improve it if needed.

The activation rate equals the number of users who activated divided by the number of new users who signed up within a given period, multiplied by 100.

Activation rate calculation

The activation events will vary according to the type of product, use cases, and user personas.

Therefore, you need to split the calculation based on all the different personas and their ‘jobs-to-be-done’ to reach the activation milestone. Segment your new customers into cohorts and calculate the rate for each cohort separately.

This proves to be very helpful in building improved in-app experiences to improve activation of the cohorts with low activation rates.

Churn rate

Churn takes place when your customers downgrade or cancel their subscription plan. It’s the absolute opposite of retention, which is even more important than acquiring new customers since it determines the longevity of your business.

Churn rate allows you to track churn for your business on a monthly, quarterly, or annual basis. You can use a combination of these periods to get a better understanding of your business and take actions to reduce churn and boost retention.

Customer churn rate is the number of customers you lost during a specific period divided by the number of customers at the start of that period, multiplied by 100.

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Churn rate calculation

Suppose company A had 1000 customers at the beginning of 2022 and lost 100 of them by the end of the year. So, the company has a churn rate of 10%.

Instead, if the company had a churn rate of 5%, it would’ve had 50 extra customers by the year’s end. Moreover, since they are customers who pay them every month, the impacts of reduced churn would’ve compounded over time!

The goal of your business isn’t to reach zero churn, as that would be too idealistic. Rather, you have to increase your revenue to a point where it surpasses the amount of money lost due to churn, i.e., you need to reach negative churn.

Customer Lifetime Value

Customer Lifetime Value (CLV or LTV) measures how much revenue you earn from a paying customer throughout their journey. CLV is especially important in SaaS companies with a big customer base and high transaction rates.

To calculate your customer lifetime value, divide your average revenue per account (ARPA) by your customer churn rate.

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Customer Lifetime Value calculation

Most of the profits in a subscription business come from repeat payments, which means improving your CLV would improve your company’s overall profitability.

The longer you can retain existing customers, the more revenue you’ll earn per subscription, and the greater your CLV will be.

Furthermore, you can even predict the CLV of a new customer. How?

For instance, company ABC has an average CLV of $6,000 over 2 years, which means every customer brings in about $3,000 per year. Plus, the sales CRM expects to make 11 new sales, and an average of 1 customer leaves each month.

The CFO now knows that with each passing month, the company would make an additional profit of $30,000. They can use this value to make informed investment decisions regarding marketing, recruitment, and real estate.

Customer Acquisition Cost

Customer Acquisition Cost (CAC) is the average amount of money spent to acquire new customers. In SaaS, it’s relevant only for paying customers.

CAC is your total sales and marketing expenses divided by the number of new customers acquired.

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Customer Acquisition Cost calculation

CAC allows you to keep you to make important budgeting decisions and understand what strategies would bring in the best results at minimum cost.

You can use the LTV: CAC ratio to understand the profitability of a customer and how efficiently you’re achieving it. For example, a ratio is 1:1 means that the customer is generating the same amount that you spent on gaining them.

According to David Skok, your LTV should be thrice as high as your CAC to run a financially successful SaaS business.

Monthly Recurring Revenue

Monthly Recurring Revenue is the amount of revenue you can expect to earn from all your active customers per month.

To calculate MRR, multiply your average revenue per account (ARPU) by the number of existing accounts in one month.

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Monthly Recurring Revenue calculation

MRR is one of the key customer success metrics because it helps you estimate future cash flows and the overall profitability of your SaaS business.

Moreover, calculating MRR also helps you calculate MRR churn, which is another metric that measures how much revenue you lost and the overall effect of losing that amount. The lower the MRR churn, the more opportunities for rapid growth.

In addition, MRR provides insights into whether a specific cohort is churning quicker than others. For example, a low MRR churn rate but a high customer churn rate suggests that customers in a lower-tier are dropping off faster than those above them.

Net Promoter Score

Net Promoter Score (NPS) is a measure of customer satisfaction.

An NPS survey measures the likelihood of your customers recommending your product to others on a scale of 1-10.

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NPS Survey

NPS is equal to the percentage of detractors minus the percentage of promoters.

Here, detractors are the customers who rate you 6 or less, whereas promoters are the ones who rate you 9 or 10. The passives rate you 6 or 7 and are indifferent to your product.

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NPS calculation

We would recommend you include a follow-up question to get qualitative user feedback. This second question should ask customers to give reasons behind their score to identify areas of opportunity and pain points and improve user experience accordingly.

This way, you can figure out how to ensure your promoters remain as loyal advocates in the long run and how you can convert detractors into promoters. You can also help passives find more value from your product so that they become promoters.

3 ways to use SaaS analytics to reduce churn

In an ideal world, every SaaS company’s dream is to drive customer churn down to zero. Here are some tactics that you can apply to make the best use of SaaS analytics to reduce churn.

  1. Use customer segmentation to segment disengaged users
  2. Use behavioral data to predict customer actions
  3. Analyze user sentiment data with NPS surveys

Now let’s dig deep into the details.

Use customer segmentation to segment disengaged users

Disengaged users are at the highest risk of churning. Segment them into different cohorts and cater to the needs of each cohort separately to address their pain points and avoid churn.

First, list the most critical patterns in user behavior like login frequency or in-app events (or lack thereof). Any deviation from standard behavior suggests that users are disengaged. You can detect them using an analytics tool like Userpilot.

Segment these users and then track certain vital features within your product and track the frequency of interaction for each cohort. After listing the anomalies, select relevant filters in your analytics tool to find the number of users in this category.

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Disengaged User Segments

Based on the category, you can take actions to boost engagement. For example, you can customize your users’ onboarding according to their needs using interactive walkthroughs. This way, you can familiarize your users with the features they’re unaware of but might benefit them.

Use behavioral data to predict customer actions

The data collected from your product helps you realize how much value customers derive from your product and where the areas of improvement are.

Userpilot helps you decide what to concentrate on by tracking user behavior based on your predetermined goals.

Userpilot’s analytics uncover insights according to what users do inside your app. These are based on ‘feature tags’ or custom events. You can tag a feature on the front end of your web app.

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Feature Tagging – Userpilot

Analyze user sentiment data with NPS surveys

NPS surveys help you separate the loyal customers you know from the ones who are dissatisfied and the most likely to give negative reviews.

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NPS Survey

You can gather NPS data using in-app surveys that are custom-coded in your app or via an NPS feedback tool like Userpilot. Userpilot lets you create the survey inside your app without coding!

With Userpilot, you can track user sentiment data and calculate your NPS score automatically. Then, you can compare the NPS score with the average NPS values in your industry.

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Want to collect user sentiment data and calculate the NPS metric? Get in touch with Userpilot and get started right away!

When you back this up with a second follow-up question to collect qualitative feedback, you can learn what makes your users happy or disengaged. You can then use these insights to form strategies to boost retention.

3 best tools for SaaS analytics

You need to have the best SaaS analytics tool at your disposal to track the important metrics and find out ways to improve your product and user experiences.

Let’s look at 3 such SaaS analytics tools.

Userpilot

Userpilot is a code-free onboarding platform handy for mid-term user analytics. It makes it easier to interpret user behavior data and track them using your predefined business goals.

Tracking user behavior based on predetermined goals helps you choose what to focus on. The insights from Userpilot’s analytics are based on user activities inside your app. These are based on ‘feature tags’ or custom events. You can tag a feature on the front end of your web app.

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Userpilot – Goals Overview

Furthermore, Userpilot lets you create funnels and user segments easily by applying custom filters to user activity data.

For instance, you can use filters to identify customers who:

  • signed up fewer than 3 days ago,
  • use your product for personal use,
  • have gone through their first onboarding step,
  • speak German,
  • have greater than 3 web sessions, and
  • gave an NPS rating of less than 8.

You can use the actionable insights from Userpilot’s SaaS analytics to optimize your in-app experiences. Moreover, you can build secondary onboarding experiences.

This way, you can drive product adoption by helping users find particular features they might not discover themselves and thus prevent churn.

Baremetrics

Baremetrics is a SaaS analytics tool that gathers data from payment providers and organizes them all into reports and charts.

This lets you track and analyze metrics like churn rate, growth rate, MRR, and lots of other important metrics that indicate your company’s health.

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Baremetrics Control Center

Heap

Heap is an all-around SaaS analytics tool that keeps track of all kinds of in-app user interactions and helps you know what’s happening inside your product. It allows both account-level and user-level tracking.

Heap doesn’t need any extra configuration or event definition, to begin with, so you can start monitoring user activity from day one.

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Heap Dashboard

Moreover, Heap allows you to build custom events and use them in cohorts and funnels. You can also define conversions and events to stay in pace with the latest updates. Plus, you can receive real-time reports and analyses along with several behavioral segments.

Summing it up

Today, SaaS companies are reliant on technology more than ever. This makes SaaS analytics imperative for the survival of your business.

From selecting the most relevant metrics to track and using the best SaaS analytics tool, you can gather valuable insights into the position of your business relative to its goals. This lets you find and remove flaws in your product and enhance the user experience to reduce churn.

Ready to realize the full power of analytics? Get a Userpilot demo and significantly improve your churn rate?

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