How to Reduce Churn Rate in Your saas Business

How to Reduce Churn Rate in Your saas Business

SaaS companies, regardless their success, should remain fairly fixated on how to reduce churn rate. For an SaaS company, churn rate is pretty much the opposite of grown in their industry, and as such, must be regarded as priority number two, priority one being customer experience and relations. CRM probably ties directly into existing churn rate, but we’ll get to that shortly.

First, why is churn rate such a problem? Well, anyone in SaaS knows that churn rate is the loss of paid subscriptions over a quantized segment of time, often a yearly unit. This is basically a form of radiation, or loss of mass for a company, and it’s just something that should be abated where possible. It’s not going to be completely possible to stop, but … some reduction should be possible in most cases.

Before we discuss how to reduce churn rate, let’s make sure our metrics aren’t being overblown. First, how big is our time unit in question? If it is less than six months, that is a mistake. Ideally, yearly units are best for this measurement, but semiannual measurements can work if yearly is too long term.

Second, as a company gets bigger, churn rates are going to look bigger too, so bear this in mind before panicking too drastically over the churn rate your company seems to have calculated. Nonetheless, no churn rate is a good churn rate, so let’s move on to some ways to reduce it.

This involves getting inside the heads of your customers a little, doesn’t it? What could be causing the customers to discontinue their subscriptions over time?

Well, first, let’s look at what data you may have available. Do your customers leave feedback on why they end their subscriptions? If so, what’s the most common issue they seem to have? If you can spot this, you’ve pretty much answered your problem, but in many cases, it’s not that simple, so we move on to less direct approaches from here.

One major problem could be price point. Customers may fall on slightly leaner financial times, even temporarily, and cut your service from their repertoire to save money, and then decide not to subscribe again later. While you can only reduce prices so much, you can provide incentives for returning, such as one-time return customer rewards like a free month of service or a free upgrade to their account.

This will bring customers back if they have no choice but to leave, and reducing the price as much as is feasible will reduce the initial customer departures as well.

Another issue may simply be that customers have found a free service they feel is close enough to your own to no longer need to pay your subscription fees. This is a common problem, one of the more frequent in fact, and is the hardest to resolve.

One possible solution is to reduce the count of account tiers you offer, and make the current mid-grade tier the lowest cost-wise, and see if the newly affordable features and polish will prevent users from turning to admittedly inferior free alternatives in the future.

Analysts continue to look for common causes in churn in the SaaS industry, and therefore, new solutions for how to reduce churn rate will continue to develop, probably faster than ever in 2013.

Omri Erel
Omri is the Head of Demand Generation, as well as the Lead Author & Editor of the SaaSAddict Blog. Omri established the SaaSAddict blog to create a source for news and discussion about some of the issues, challenges, news, and ideas relating to SaaS and cloud migration.
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