A SaaS startup business runs on a recurring revenue model. That means much of its profits come from customers continuously using its products. Because of that, you want to keep these regular customers for as long as possible.
That is where customer churn becomes an even more significant concern for companies like this. Let’s explore why such an issue happens. We will also discover how Virtua Solutions can help you overcome it.
Understanding Startup Business Customer Churn
In its simplest definition, customer churn refers to the number of customers who stop using your product after a certain period of time. Within SaaS, this refers to the number of customers who cancel their subscriptions within the specified period.
Image from Viquepedia.
While the metric is used for determining the historic performance of the business, it can also work as a forecasting tool. In this context, the metric represents the probability a customer will cancel their subscription.
The Importance Of Churn Rates In SaaS
While various industries use the metric, churn rate has a more significant role in SaaS. As already mentioned, SaaS relies heavily on recurring customers for its revenue. Looking further, it can impact the growth of your company significantly.
Here, lower churn means that your customers stick with you longer. With that, your business has the opportunity to grow faster. Conversely, a higher rate can slow down that growth significantly. What’s more, churn rate actually increases with the size of your customer base. Because of that, you have a strong impetus to keep it at manageable levels.
Measuring Churn Rate
The formula for the churn rate of your SaaS startup company is surprisingly simple. It goes as follows.
However, that simplicity belies how difficult it is to define and measure churn. That difficulty comes from the fact that you have to contend with different types of churn.
For instance, there is customer churn. This type pertains to any customer canceling their use of products, regardless of the subscription level. There is also the subscription level churn, which focuses on a specific tier within your customer base. The metric is handy for gauging the individual performance of each subscription level.
There are also other variables that can influence the actual numbers that you get. These include:
- Varying churn rates: The rates you get within the designated period can fluctuate, making it harder to pin down the actual churn rate for that period.
- Varying growth rate: The sudden influx of new customers can skew your data, making it harder to measure churn rate exactly.
- Customer types: Some customers might have lower churn rates than others. That might be due to them having varying fits to your product.
- Contract type and duration: Monthly contracts might have a higher churn rate than annual ones simply due to the option of non-renewal being available faster.
Because of these factors, you should be diligent in measuring every aspect of customer churn. That will help you get a more accurate figure and better plan how to deal with it.
But What Would Be An Acceptable Churn Rate?
Churn is an inevitable part of running a SaaS startup company. But while you can’t eliminate it, you can lower it. However, you probably wonder about what rate to aim for. According to experts, your best bet would be around 5-7% annually.
At this rate, you can get a comfortable growth rate. Typically, you will be able to double your business within the next year or so. Do note that there is still a bit of variability here. Keep in mind that this translates to an even lower monthly churn rate. With that, you need to really strategize on how to control your churn rate.
How Your SaaS Startup Business Can Reduce Churn
The first step in reducing customer churn is understanding why it happens in the first place. The following are some of the most common ones you will encounter here.
- Pricing
- Better alternatives
- Buggy product
- Poor user onboarding
- Lack of key features
- Diminishing value of the application
Note that it can often be a combination of different factors. Virtua Outsourcing can help you better understand what these reasons are. When you sign up with our customer support and customer success services, we will devise a means of collecting customer feedback. Our expert team analyzes these to pinpoint the exact reasons you need to deal with.
Improving User Onboarding
The initial encounter that users have with your SaaS product arguably has the most significant effect on their relationship with you. If they have a great experience, they are more likely to stay. If they don’t, then you get churn.
Image from Medium.
Thus, you need to develop a good onboarding experience for them. Here, you need to create a hook that will convince users, not just to sign up, but explore more of your service. One way to do this is to create a more personalized experience for them.
That includes creating custom tutorials based on their goals. You can learn more about these goals from the information they provide during initial sign up. Additionally, you can do a short interview to get that information.
Heighten User Engagement
Once they do sign up, your next challenge is keeping customers invested in your product. Here, it isn’t just about meeting their needs. You should also look for new opportunities to get them involved with your product.
Some of the ways that you can increase user engagement is by educating customers. We can help you look for things that might interest your customer through monitoring their online conversations. From there, you will help you plan out programs you can use.
Adding more value also encourages more user engagements. Rewards programs are a great strategy here, as your users get something outside of what they expect. But you should tie that reward back to your product to get them using it more.
Market To Them More
Don’t ever think that marketing to your customers stops when you get them to sign up. However, your marketing now switches to reminding them of why they got your service in the first place. Doing so, you keep your service at the forefront of their minds.
Since you will be busy with other marketing duties, our team is ready to handle this work for you. We cover everything from initial planning to actual implementation. Our agents are also experts in personal marketing, helping your brand get closer to users on an individual level.
Beat Churn And Keep Your SaaS Startup Business Growing
Dealing with customer churn is a continuous process. As your customers evolve, your startup business needs to be ready to engage them in new ways. And we are ready to provide you all the support you need. Contact us today and let’s keep MORE customers staying for longer.