* This article is part of a White Paper called “SaaS: Secrets of Churn Revealed.”
As with all great things, SaaS is not without its share of obstacles; From shifting
technological standards to changing practices to fluctuating trends, there are many
obstacles to overcome… especially the big one – churn rates.
Churn rates are unavoidable, but a successful SaaS provider will gain enough
customers per fiscal period to vastly out-scale this loss, resulting in not just stability,
but in ongoing net gains of profit and equity.
The problem is that as the average amount of customers at any time increases,
these churn rates have a tendency to creep up. A 5% churn rate per 100 customers
is fairly common, but in some cases, the creep with customer gain can result in a
thousand customers running parallel to as much as a whopping 50% churn rate.
There is no guaranteed golden solution to churn rate, but there are some measures
that will definitely work, within reason. Some measures have even proven to reduce a
50% rate at one thousand customers to only a 20% churn rate, which is actually
The first measure to take is to be proactive and aware of the community. Keep a
watchful eye out for competitors who wish to capitalize on the popularity of a service.
Study them closely, and find the flaws in their design, flaws that your ‘superior’
service does not have (These flaws are absolutely there, they are simply waiting to be
When you find the flaws, work them into your marketing strategy and your white
papers; Show how your service is vastly superior, more efficient and more reliable
than existing or new competition.
Show potential customers – right away – that they are making the right decision, so
that down the line, they won’t be tempted by the illusion that competitors with lower
prices are superior.
Taking this a step further, the tactic of incentivizing customers, by rewarding loyalty,
is very powerful. Customer loyalty programs have proven themselves to be incredibly
effective over the course of hundreds of years, regardless of the business or
economic climate of the time.
In recent decades, loyalty programs with car rentals, travel agencies and airlines
have become popular for their lavish rewards for frequent, long-term, customer
Naturally, a SaaS provider is not expected to be quite so lavish with their rewards.
The reason customer loyalty rewards work, in general, isn’t entirely due to how
valuable the reward is, but rather in the gesture of a ‘reward’ itself.
Always remember that in marketing, regardless of the field or industry, it is important
to appeal to both logic and emotion when reaching out to customers.
This is true with SaaS as well. Customers value the sensation of feeling appreciated. A
customer who feels valued and respected by a company is going to have a natural
compulsion to continue a relationship with this company, even if an inferior service
provider can save them significant money.
Unfortunately, offering incentives and clearly illustrating the superior services of your
company are not going to prevent every migration of this type. Some people won’t
read the addendums to your white papers and marketing material, especially if they
were made after their initial sign up.
Others will simply be unable to pass down the illusion of savings that the competitors
Luckily, all is not lost. It’s just a matter of looking at what prevents companies from
rectifying their mistakes and rectifying the problem itself. This may sound difficult, but
it’s actually not.
The first thing to do is be certain that subscription termination or renewal fees are
nonexistent. Given the nature of SaaS, such fees are unnecessary, so taking these
measures won’t entail losses.
Without these fees, an existing customer will feel less wary about coming back…
They’ll discover that the sirens which have lured them away were serpents in
Another strategy that can play into this idea is a show of confidence to your
customers. This strategy is slightly risky, but if you’re on top of all of the other issues
and their solutions, it’s a guaranteed bet.
You should point out, along with documentation, what makes your service superior to
the competition and – vis-a-vis – worthy of the higher price.
Play on this tactic: Encourage your customers to go try the competition if they’re
curious, and offer them an extra incentive if they come back within a fixed amount of
time. This shows of a lack of greed alongside an incredible confidence in your
product, and will say a lot to the customers.
Show them that you’re even willing to reward them for shopping around and coming
back. They will interpret this as a sign you have no fear of competitors, and that you
stand by your product for the service it can render to mankind, not for the profits it
You will find that fighting churn rates isn’t so much about combating fiscal statistics
and logistics, as it is about having a flair for sociology and psychology, as is often the
case with marketing.
While some SaaS providers will strive to keep their churn rates at an absolute 5%,
regardless of their growing customer base, competition and so forth …
it is important to realize this is practically impossible. As a customer base grows, the
ratio of serious customers to passing customers will forever fluctuate, so even if
every serious customer remains for the duration of a customer life cycle (as defined
by your business), a 20% percent churn rate is about as low as it can get.
Very few, even among the most successful, ever get close to such low numbers.