How to measure and reduce churn rates
24th August 2016
For most SaaS businesses, getting your product in front of the right users is only ever the first step. From there, convincing a potential customer to sign up for a free trial or demo is often the next priority, and retaining that customer as a long term paying client is the final, and ongoing hurdle. Of course, not everyone is going to stay with you forever, and the amount of business you lose to varying factors over a given period of time is known as the churn rate.
Churn is most often discussed in terms of a ratio, such as 14% of clients lost, but whatever your magic number, you’re always going to want to lower it. In this post, Xander Marketing talks you through some of the ways in which to pinpoint exactly what your churn rate is, and how to reduce the footfall that’s walking in the wrong direction.
Analysing and measuring churn
Measuring your churn rate as a solid metric is the first stage towards identifying why customers might be falling by the wayside. Traditionally for software companies, the simplest way to calculate churn is by measuring the number of users who left the service out of the total number of users for your chosen timeframe, quantifying how many subscribed, or renewed against the number who cancelled or did not renew. You’ll also want to define at which point you consider a customer to be officially churning; you might feel that a cancellation is not yet a fully converted churn, as payment has been made until the end of that period and that user can still theoretically be won back. In this case, you would use the moment at which the payment is not renewed and the member is no longer an active customer as the point of churn.
When evaluating your churn, carefully examine patterns such as spikes or decreases in the loss of users, and consider the factors that might be behind the activity, such as the time of year, adverse industry conditions or promotional activity. Look for correlations between implementing new strategies and their effect on churn, such as marketing campaigns or advertising so that you can monitor which efforts are producing the right results.
Getting that churn rate down
Churn is the inverse of your retention rate – i.e., if your retention stands at 90%, your churn is 10% – and so by doing your best to minimise churn, you’re always going to be increasing the amount of happy, committed subscribers on your books, which in turn leads to better profit margins.
To reduce churn:
- Identify changes or elements that have a negative effect on customer retention and adjust accordingly
- Isolate the point in the consumer journey where churn is most likely to occur or is proven to happen, and correct any issues in that area of the pipeline
- Improve customer communications, ensuring you gain feedback on why users are deciding to leave, and how they feel things could be improved
- Recognise trigger patterns in user behaviour and engagement that act as red flags that a user may churn
- Give value during your onboarding process, ensuring that new users are trained, understand the service and what it offers correctly and are able to make the most of the product, increasing the likelihood that they will adopt it full time
- Encourage recommendations from existing customers and promote signing up colleagues, etc
- Focus on customer service, putting as much energy into existing clients as you do into finding new ones
- Avoid trying to trap clients with complicated systems or processes for cancelling or leaving
- Remind customers of the value of the product and the results it could have for them
Lowering churn with Xander Marketing
The right marketing strategy can be a key weapon in encouraging existing customers to stay with your service, winning new business and lowering churn rates. A specialised marketing agency can give the professional support and direction you need to generate new leads and prevent churn at every stage of your development.
Xander Marketing works with many SaaS businesses to improve their websites, create thought leadership content, and execute marketing campaigns that engage new and ongoing business prospects. If you’d like to add your name to that list request your free consultation.