If you’re wondering why, despite all your efforts, your customers are still dropping off your products, then you need to continue reading this article. That, my dear friend, has a name and it’s churn rate. We’re gonna tell you what this means and how you can avoid it for your SaaS business by sharing a few easy strategies that worked for us in Palabra.
What’s customer churn rate?
Let’s start with the basics: the easiest definition for churn we found is in this Hubspot article, they just say churn is:
People who have cut ties with your company.
It is also known as customer attrition.
So, we can understand the churn rate as
A metric that measures the percentage of customers who no longer interact with your business. This may be because they unsuscribed or because they haven’t opened one of your emails in a year or more.
The churn rate is one of the most valuable metrics when applying a customer retention strategy. It allows you to measure if your business vision is having a positive impact on your clients and gives you important feedback to improve.
As you know, as a member of a SaaS company, subscriptions are one of the most valuable assets. So, customer churn is something that you want to avoid at all cost.
Here is a universal truth: It’s less expensive to keep customers than to gain new ones.
It’s impossible to achieve churn zero. People are constantly changing, and that includes their purchases. Also not all users are gonna like your service for a lot of different reasons, and that’s ok. But it’s important that you try your best to reduce churn and even predict it.
Calculate customer churn rate
In order to understand what is going on, you have to calculate your customer churn rate.
The formula to obtain the magic number is quite easy: take the number of customers who churned and divide it for the total of new customers, then multiply the result by 100%.
For example 1️⃣0️⃣➗1️⃣0️⃣0️⃣ = 0️⃣,1️⃣0️⃣✖️ 1️⃣0️⃣0️⃣% = 1️⃣0️⃣
The churn rate is calculated over a specific period of time. It’s key to study what’s the best criteria for your company. You can calculate it over a period of a year, monthly or even to ten years, it’s up to you.
Your minimum goal should be that your churn rate is never higher than your new customers rate. It’s like sailing a boat: you always want to keep it “over” the water.
How customer churn can affect your business
An unexpected increase in the churn rate can mean many things. High churn rate can impact your business in a variety of ways:
📉 Wrong strategy: it doesn’t necessarily mean a wrong marketing strategy. It could be that one of your products doesn’t match with user expectations. It could be a lack of performance in the customer service area.
📉 Revenue loss: no clients, no money. As simple as that.
📉 Stronger competitors: If a client isn’t in your nest, she’s in another.
📉 It can hurt your public image and translate into more revenue loss. Your investors will not be pleased with this picture.
Keep in mind that long-term customers bring in a big piece of your revenue. So you have to nurture those relationships.
How to avoid customer churn
Now the section that you probably were waiting for. The answer to this problem that afflicts us all. In Palabra we’ve tried different formulas to reduce customer attrition. We’re still working on it, but we have found a couple of strategies that worked for us even at an early stage.
📌 Actively listen
Build the habit of listening to what your clients have to say about your services. They can help you see things that you might be overlooking.
We like to apply surveys, because we think they are a great way to communicate with our audience. And when you are analyzing churn rate, you should especially use exit surveys. Take into account that they should be short, three questions at most.
But nothing like an old fashion call to really listen to what they have to say.
In that way, customer service is your most valuable player, your first line of attack. It’s crucial that, once your customers acquire your services, they feel valued and understood. A happy customer is the best advertising that you can get.
📌 Segmentation. Segmentation. Segmentation
It’s a golden rule that your product should be delivered to the right person, or else you’re wasting your time and your money.
A segmented customer base will aid you in making your services and products more effective. It makes it easier to recognize the requirements that they need.
Targeting too many clients can backfire. The best thing is to focus on the clients that align with the focus of your business.
For example: integrations with their favourite platforms. Here in Palabra our public started being exclusively the no-code community, so we started by integrating to their most used platforms, like Webflow, Zapier and Airtable.
As we started getting some customers with coded products, like other SaaS businesses, we created features to integrate to their preferred apps, like Segment, Hubspot or even direct webhooks integrations.
✨Remember: deliver the right product or service to the right user.✨
📌 Focus on early engagement
This is an obvious one, but to prevent churn you have to start working on retention as soon as possible. For that purpose, onboarding strategies work quite well.
As soon as users sign up for your product, this is the most important moment to engage with them. It’s that moment when they don’t necessarily understand the product quite well and, therefore, can’t take full advantage of it.
Provide value for your customers as soon as possible and you will win.
At Palabra we are constantly trying to improve 3 things in our onboarding:
- Product: work on UX to make it as easy as possible for people to find their value in your product. We created simple user flows so that automating and triggering emails can be done in a couple of minutes
- Welcoming sequences: Encourage your users to interact with your product multiple times in the first week. Sending automated emails with tutorials could be an excellent method to achieve that (you can use Palabra to create those sequences pretty easily 😉)
- Customer success: make every user feel as important as they are to you. In-app chats are the obvious choices to engage with users as quickly as possible (we’ve used Crisp and Intercom for that). And quick direct answers are always the best way to go. This gets harder as you grow your user base, but it’s always something to keep in mind.
Now that you know the churn rate basics, you can start to develop strategies to boost your retention engagement and build long term relationships with your customers! 🙌🏾