Churn is the rate at which customers will cancel their subscriptions. As Joel York clarifies on his blog Chaotic Flow, SaaS churn can most simply be stated as the number of customers cancelling (ΔC) per time interval (Δt) divided by the number of customers at the beginning of the interval (C). Churn is a critical metric for SaaS companies; each customer lost to churn today negatively impacts future revenue and valuation.
Any SaaS company can make major and immediate improvements in their churn rate by focusing on the simple things that can be fixed now. We asked a few companies for input on how they boost card-not-present revenue by reducing or eliminating churn, where possible.
“The best way to avoid churn is to avoid taking on bad customers in the first place,” said James Messer, President & CEO at Transverse – makers of TRACTBilling. “Bad customers are rarely profitable. Sometimes you just have to say ‘no.’ After all, the goal of managing churn should not about keeping customers, it should be about staying profitable.”
As Messer points out, companies need to be selective about the types of customers they’re taking on. This is a great way to proactively eliminate churn as well as the headaches that come with handling bad business. No one wants to tie up internal resources with customers that are not going to help turn a profit in the long run.
Fix the simple Things
Churn not only happens when a customer comes up for renewal, it also happens much earlier in the customer lifecycle.
The simple things have a huge impact. According to MasterCard, recurring payment decline rates can average 25 to 30 percent — much higher than the five percent average for face-to-face transactions. An incorrect credit card number or expiration date, insufficient funds, credit card rejecting an international charge, or other technical issues can have a massive impact on churn.
According to Frank Stornello, Chief Marketing and Strategy Officer from Verifi – a provider of global electronic payment and full-suite risk management solutions for card-not-present merchants, “there is no single way to eliminate churn but reducing recurring credit card declines is a simple way to make an immediate and significant impact. By focusing on decline salvage, merchants can recover revenue that would have otherwise been uncollectable. Losing customers to buyers’ remorse or cancellation is bad enough, but losing customers who want to keep a merchant’s product or service is particularly painful.“
Another way to soften the impact of churn is to allow people alternatives or down-sells rather than outright cancellation.
“Create “cancel funnels,” said Lincoln Murphy, Found of Sixteen Ventures. “By giving people the ability to cancel from within the app, there is a psychological effect that seems to calm them down and make them feel more in control. If they decide to click the ‘cancel’ button, remind them of the value they’ll lose when they do. And give them an option other than canceling: offer down-sells or the ability to hibernate an account for x months, which can be especially helpful in industries with seasonal volatility.”
The long and short of it is that recurring customers are valuable to SaaS companies.
Churn is a big topic. Combatting unnecessary churn requires not only a proactive approach, but a common sense one. Focusing your efforts on fixable items will help keep the horse in front of the cart and aid in chipping away at churn so you can direct your time and resources towards turning a profit.