What is the SaaS churn rate, and how can businesses reduce it?
“SaaS” means software as a service. Lots of businesses use SaaS products for hosting customer care, communication, and managing different projects. If the company offers a SaaS product, they will want to retain the customers for as long as possible. The churn rate will tell how many customers have stopped using the service. Now, let’s learn what the churn rate is, why it matters, and how businesses can reduce it!
What is Churn Rate?
The churn rate is a measure of the percentage of customers who stop using a product over a certain period of time. Within the SaaS context, it measures subscribers who cancel their subscription or otherwise stop payments for the use of the services. Therefore, a higher churn rate indicates a higher number of customers leaving, whereas a lower rate indicates a better customer retention rate for the business.
How to Calculate Churn Rate
Here is the simple formula to calculate the churn rate:
Churn rate = number of lost customers. Total Number of Customers at the Start of the Period × 100 \text{Churn Rate} = \frac{\text{Number of Lost Customers}}{\text{Total Number of Customers at the Start of the Period}} ×100Churn rate = total number of customers at the start of the period. Number of Lost Customers × 100
For instance, if a company starts with 100 customers in a month and loses five, then the churn rate will be:
Churn Rate: 5100 × 100 = 5%. Churn Rate: 5100 × 100 = 5%. Churn Rate: 1005 × 100 = 5%
This indicates that 5% of the subscribers chose not to use the service during that particular month.
Why Is Churn Rate Important?
Churn rate is important because it depicts how well a business is keeping its customers. If a significant number of customers are departing, it can negatively impact the business. High churn means the company has to keep getting new customers to replace the ones that left, which can be expensive and time-consuming. A low churn rate, on the other hand, implies that the company is doing a satisfactory job of keeping customers happy.
How Can Businesses Reduce Churn Rate?
A low churn rate is what businesses would want, which basically translates to keeping customers happy. Here are some ways to reduce the churn rate:
1. Great Customer Support
If customers have software issues, they should get help quickly. Good customer support can solve problems and make customers feel valued. Businesses can offer chat support, email help, or even phone calls to answer questions and fix issues.
2. Onboard new customers effectively.
At first use, customers of a SaaS product require help in understanding how to make use of the software. An onboarding process makes them feel at home. Furthermore, this process ensures that the customer has become comfortable using the software, whether through tutorials, guides, or one-on-one assistance, thereby ensuring that your customers use the product as intended.
3. Keep Your Software Up-to-Date
If the software becomes outdated or does not serve the purpose of customers any longer, they will shift. The regular updates with new features and bug fixes will keep the customers satisfied and engaged. Feedback from the customers and improvements to the software help keep the product fresh and useful.
4. Offer flexible pricing.
Some will leave because they feel that the price is too high. Having varied pricing plans or discounts can retain customers who may have been considering quitting. A company can design various plans for different kinds of customers so that everyone can get an option that best suits them.
5. Interact with customers.
Engaging with customers can make them feel important and appreciated. Businesses can send emails, surveys, or newsletters to check in with customers and ask for feedback. If customers feel that the company cares about their needs, they are more likely to stay.
6. Build Strong Relationships
Building positive relations with customers can lead to better loyalty. The business can follow up on customers to see how they are doing, offer them special promotions, or even invite them to events. A customer who feels connected to the company will not tend to leave.
7. Know Why Customers Leave
Find out why the customers are leaving. Send surveys to the canceled subscriptions and ask them why they left. Once you identify the issues, you can address them and enhance the product to minimize future churn.
8. Add Value
If the product delivers value, it is the most important way to keep the churn at bay. If customers like the software, they will pay. Companies need to ensure that their product is helping customers solve problems or reach goals. Once the value is clear, customers will stay.
Conclusion
SaaS churn rate refers to the measure of customers dropping out over a certain period of time. High churn hurts business, but there are many ways to keep it down. Some of the many ways that a business can retain its low churn rate include excellent customer support, proper onboarding, frequent software updates, and engaging with customers. Knowing why customers leave could help businesses make the changes necessary to ensure a loyal customer base and growth in success.