Do you want to retain more customers and the money they give you?
Grab your churn rate by the horns and dominate it.
The one metric that can make or break your SaaS business is your customer churn rate.
Without a sufficiently low churn rate, your customer lifetime value plummets – and with it, your SaaS company’s most ambitious goals (and money).
If you want to grow a SaaS business, mastering your churn rate and retaining customers is the only way to become profitable.
Let’s talk about how you can do that.
First of all, churn rate is defined as:
“The percentage of subscribers to a service that discontinue their subscription to that service in a given time period.”
If you want to grow your customer acquisition, the total sum of gained customers (growth rate) has to be more than the churn rate. It’s the only way.
In SaaS, often times you don’t break even with a customer until a few months down the road, sometimes up to six. So knowing this, you must do everything in your power to retain those customers as long as possible.
Churn rate is the impetus to the vitally important metric called customer lifetime value (LTV). The LTV metric lets you gauge your marketing budget accurately.
Until you have figured out your churn rate, you won’t be able to figure out your LTV.
So, let’s start there.
How To Calculate Your Churn Rate
Churn is not always a simple thing to dial down precisely, no matter how many new measuring methods come out.
However, having a ballpark churn rate figure is lightyears ahead of not knowing anything.
We can create a real-life scenario to help you generate that ballpark churn rate.
Say you’re a SaaS company with 200 current customers. And then in the month of February you gain 10 and lose 5…
..here is how you would calculate it:
- Divide the number of clients lost by the total amount of clients you had at the start of that month.
- So for this example, it would be 5 divided by the 200 clients already on board at the beginning of the month.
- That equals out to a 2.5% churn rate.
Look at it this way: If you have a 12% churn rate and are acquiring customers around a 12% clip… you are stagnant.
And to drive the dagger a little deeper, your margins won’t let you fund your marketing efforts, therefore you’ll find yourself burning through outside funds in order to keep acquiring customers.
With these metrics you’re in the red. No SaaS business will survive here.
Where’s the fun in that?
There isn’t any.
The fun starts when you learn how to handle your SaaS customers. It comes when they react positively to your retention strategies put in place. It comes when you have a brag-worthy low churn rate.
And so with that, let’s dig into 5 solid methods to keep your SaaS customers happy and on board as long as humanly possible.
Method #1: Exceed All Customer Expectations
If you’re already saying “duh” to this, then my question to you is: Are you actually doing this?
You know the truth if your churn is killing you. If it is, you’re haven’t mastered this fundamental.
Going above and beyond for customers is standard practice across all industries. And SaaS is no different. Actually, it can be argued that SaaS relies on this more than the rest.
Lifetime value is the result of good service. Top notch service reduces churn, which in effect boosts your LTV.
In order to be 100% certain that you are exceeding all customers’ expectations, make sure you and your sales team, VAs and whoever else, and your customers are on the exact same page at all times.
Yes, a quality product is, at the end of the day, the ultimate priority. But without superb customer service, your quality product won’t see the light of day. Especially in SaaS.
Client Heartbeat describes how expectations are developed on their blog:
“A lot can go wrong during the sales process. Whether it’s sales guys trying to sweet talk a close, or prospects not fully understanding the agreement, somewhere along the way a customer’s expectation of the service he/she will receive, is established.”
It’s in your best interest to start off on the right side of that established opinion in your prospects’ heads.
Ross Beard lists a few mindset methods he uses to please customers.
A personal favorite is to treat your customers as if they are your boss; with ultimate respect.
No, that doesn’t mean you accept disrespectful and tyrannical behavior from them. Here’s what that means:
- Thank all your customers for their business.
- Go out your way to help customers.
- Try to impress your customers as if you want a pay raise.
- Think about your paycheck every time you talk to a customer.
- Keep your promises and integrity.
In addition, help chop your churn and retain more clients by avoiding these costly customer retention mistakes:
- Never ignore feedback, positive or negative. Never take too long to respond to it, either.
- Don’t be offended by negative customer feedback. Use it to improve.
- Don’t ignore social media. Mobile is now the preferred way to interact online, and you can bet your socks that you will be receiving much feedback through social media. Monitor this to keep track of customer satisfaction.
- Don’t inundate your customers with ill-made and poorly timed surveys. If you use them, make them simple and fast to fill out and relevant to their use cases.
- Obviously, don’t ignore email. Use it to stay in touch and provide value in various ways to your customers (marketing automation, various follow up sequences, etc.). You probably nurture your leads and trial users, but are you also nurturing your customers? You need to.
Method #2: Focus On Customer Engagement
By keeping your product in your customers’ top of mind, you compel engagement.
Whether asking, forcing or subtly sliding it in, user engagement is the key to slashing churn and retaining more customers.
Want proof as to how it’s the key? Look no further than what Neil Patel shared in this KISSmetrics post. Here he explains how important user engagement is:
“However you choose to define it, engagement matters. Why? Because a customer who doesn’t use your product isn’t going to keep paying for your product. Think about it. If you pay $90/month for a home cable subscription, but nobody in your home uses it, you’re going to cancel. Likewise, if your customers are not engaged — not using the service for which they are paying — then they will cancel.”
Cancellations always come after a lack of customer engagement, but that in itself is also influenced by things like a sub-par product, confusion due to a lack of SaaS usage guidance or poor on-boarding.
This drives home the fact that both a quality product and steady user engagement are your SaaS company’s backbone.
Don’t let customers not use your product. The second they put it on the backburner you have lost them. In order to solve this problem you must stay on top of engagement metrics.
Here are a couple of the metrics that are critical and can show early warnings.
Early Warning Metric #1: How often your users log in on average is one of these metrics that SaaS companies use to gauge active customers.
So when you see logins become sparse, you will need to take extra measures to engage your customer (because we now know this is a precursor to them saying “sayonara”).
While logins will show you how many “active” users you have, it won’t show user engagement.
Early Warning Metric #2: Check to see what happens after the login, in order to gauge user engagement.
Are they logging in to your software, only to get frustrated and sign right back out?
Why are they getting frustrated?
These are the questions you need to be asking yourself and your team.
The proactive action of monitoring your engagement data will automatically retain you more customers.
So what about when engagement drops? How do you fix it?
You don’t know until you find out the exact problem. Patel recommends the following in order to find that problem:
“…the most valuable way to retain the customer is by contacting them directly. Whether it’s an automated email or a personal phone call, make it your goal to get the customer’s time and attention.”
Method #3: Give Member-Exclusive Perks
People love perks. People love getting free stuff. And people love being a part of something.
So why not call your customers, “members,” and let them join your “family” or your “crew?”
Personalizing your business and treating your clients as friends in a professional manner will go a long way in SaaS right now.
This is because most SaaS doesn’t have “sass” (pardon the pun).
All too often SaaS comes off robotic with the whole “software and user” mentality.
Throwing in perks and benefits along with the purchase is one way to offer a token of appreciation and personalizing your SaaS business.
If you package up some valuable incentives, you’ll find a good percentage buying your app or software just for the members-only perks!
Here, Lincoln Murphy from SixteenVentures shares some Member Exclusive Perk ideas that’ll help your business growth:
“Offer Exclusive Content, Community, Tools, Webinars with industry experts, Meetups, Gifts, etc. to Members… next month, after the billing cycle. Moz is a great example of doing this with their Perks program.”
Method #4: Hire A Dedicated Customer Retention Team
The idea to create a customer retention team was recently sparked up by Neil Patel over at the CrazyEgg blog. He believes doing this shows that your business is here to play.
But the massive benefit a customer retention team gives you is round-the-clock customer support.
Included in the post was a nice infographic revealing the various tasks you can assign your new dedicated retention team. Here they are:
- Analyze churn rates.
- Reach out to clients on a regular schedule.
- Devise & implement new retention techniques.
- Monitor customer engagement.
- Identify risk area for customer churn.
Retaining customers requires a good churn rate, and a good churn rate requires customer engagement.
It comes full circle.
A retention team can be the catalyst to all your marketing pieces coming together. It all starts with engaging customers. When they’re engaged they’re using your SaaS product… and they’re happy.
By hiring a team, you’re now on the offensive; retaining customers through smashing out solutions to any problems you can sniff out. It really is worth having a team. The ROI is through the roof.
Method #5: Find The Right Audience To Market To
Getting customer loyalty requires give and take, both ways.
You want to give away tons of value, but you’re not giving away all that intellectual property for free, are you?
If so, you might be attracting the wrong audience. This will make customer retention tough.
Let’s hop over to Baremetrics and see what founder Josh Pigford has to say about having an ideal SaaS audience:
“When the first interaction with your company is anchored by ‘free,’ you’re attracting customers who aren’t looking for the value you provide.”
Therefore, these are not the right people to attract. Freebie seekers flock to freebie deals. Then they’re onto the next.
So if you’re catering to these types through various free giveaways or simply by highlighting the free stuff from the start, you might very well be attracting the wrong audience.
What you do want is an audience that is able to fully grasp the value you’re giving them.
So, if you do do a freebie here or there, they should appreciate it and be thankful knowing that they’re getting something very valuable for free. And from you too.
This not only builds trust, but customers become inclined to stay on board with your SaaS product for a longer period of time.
Your SaaS Customer Retention Could Probably Use A Boost
To summarize, the 5 methods for reducing churn rate and boosting LTV are:
- Exceeding customer expectations and usage.
- Focusing on app engagement as a KPI.
- Providing a sense of exclusivity and a “VIP” treatment with perks.
- Deploying a Customer Retention Team.
- Selling to the right audience.
Just remember that customer engagement is everything.
You’ll probably want to follow up via email every time there’s an action or conversation of any sort. Interacting with customers on social media is a solid tactic too.
Use these 5 customer retention tips to ensure your SaaS business clients stick around for longer periods of time. Don’t let them go before they start making you money.
Have you currently got any customer retention strategies in place? We’d love to hear about it!
Have you hit the jackpot on any of your strategies yet?