The Art of Retention: 10 Proven Strategies to tackle SaaS Churn Rate

To grow sustainably, SaaS companies should avoid logo churn rates of over 8% and ideally keep monthly churn to around 3%.

Just a second, did you get what are we talking about?

If you're not already a SaaS business owner, then you might not, but if you are a SaaS owner and still crossing the red mark of 8%, then it's time to adopt the best practices to reduce it.

Today in this blog we'll explain everything from what is SaaS churn rate to what are the strategies you should adopt to steer clear of this dangerous churn rate. 

So whether you're an early-stage SaaS company or an established SaaS business, with this guide you'll be able to gain your ex-customers back and to become the king of this SaaS world.

What is SaaS Churn Rate? 

Churn Rate for SaaS companies refers to the rate at which customers cancel or stop subscribing to a Software as a Service (SaaS) product over a specific period of time. 

It's a crucial SaaS metric or benchmark for companies, providing insights into customer retention and the business's health. A high churn rate indicates that many customers are leaving the service, which can impact revenue and growth prospects.

The formula to calculate SaaS Churn Rate is:

In this churn formula

Here, the period could be a month that will lead to a monthly churn rate, a year that will lead to an annual churn rate, or you can also calculate an average churn rate of the customers of your SaaS business. The result is usually expressed as a percentage.

For instance, if you had 1000 customers at the beginning of the month and 50 customers canceled their subscriptions during the month, the churn rate would be (50 / 1000) × 100 = 5%. This churn rate of 5 % means that you lost 5% of your customer base during that month.

10 effective Strategies to reduce SaaS Churn Rate

After talking about churn, it's time to know what strategies you use as a SaaS business owner or marketer to reduce churn and increase retention.

1. Define your target audience strategically 

It means carefully and thoughtfully identifying the people most likely to benefit from and use your SaaS product. This involves creating a detailed picture of your ideal customer and understanding their characteristics, preferences, and challenges.

By doing so, you can customize your product and communication to effectively address their needs and preferences, increasing the chances of retaining them as loyal customers.

For example, imagine you have developed a project management SaaS tool. Your strategic target audience might be small to medium-sized businesses in creative industries, such as advertising agencies or design studios.

By understanding their pain points, like the need for streamlined communication and task management among creative teams, you can tailor your product to include features that specifically address these challenges.

Additionally, you could create marketing content that showcases how your tool enhances collaboration and project efficiency within the context of their industry.

2. Craft a winning onboarding process

This initial experience is crucial because it forms the user's first impression of your product and can significantly impact their satisfaction and decision to continue using your service.

To make onboarding successful, it's important to guide users through your product's initial setup and usage, ensuring they understand its benefits and how to use it.

For instance, if you have developed a time-tracking SaaS tool for freelancers, a winning onboarding process could involve the following steps:

By crafting a winning onboarding process, you're helping users quickly understand your SaaS solution's value and ensuring a positive initial experience. This sets the stage for long-term customer satisfaction and retention.

3. Keep users engaged with regular updates 

“Keep Users Engaged with Regular Updates” means continually improving and expanding your SaaS product by adding new features, functionalities, and enhancements.

Regularly providing updates shows your dedication to making your product better over time, which can lead to increased user engagement and a reduced risk of them looking for alternative solutions.

For instance, consider a project management SaaS tool. If you notice that users are requesting a feature that allows them to allocate tasks to specific team members, you can work on incorporating this feature into your product through an update.

This addition enhances the user experience and addresses a specific need, demonstrating your responsiveness to user feedback. Thus, helps to reduce your churn rate for a SaaS.

Here's how you might approach this:

Let's look at Adobe Creative Cloud as an example. They have a special webpage where they show off their new features. They keep this page updated with the latest additions to their products.

Simply adding new features is not sufficient. It's crucial to let people know about these changes, particularly those who have stopped using the service.

In this instance, consider Asana, which utilized a social media platform to announce the introduction of its AI feature.

As part of their strategy, they included a sign-up form for users interested in attending a demo session to learn all about the upcoming feature.

4. Timely communication before free trials expire

“Timely Communication Before Free Trials Expire” means proactively reaching out to users nearing the end of their free trial period for your SaaS product.

This communication aims to engage them, address any questions or doubts they might have, and highlight the unique value your product offers. Thus, encouraging them to convert into paying customers.

Ways to implement this strategy

DocuSign's example aligns perfectly with this scenario. Through a personalized touch, it offers a straightforward and efficient reminder that the free trial period is nearing its conclusion.

Notably, it addresses the potential issue users might encounter after the free trial, while assuring them that this scenario will occur if they won't opt for the subscription plan. This strategic move by DocuSign showcases smart decision-making.

Let's look at LastPass as an example. When they remind users, they also show them all the cool stuff, including features and benefits they'll get if they switch to a paid plan.

In this example, you'll discover that Mailchimp is presenting a time-limited offer where users can save 75% on a year's subscription. This offer not only puts you ahead of competitors but also makes Mailchimp a better choice compared to others.

Here are some ways through which you can execute timely communication before free trials expire:

Channels to execute these strategies

5. Provide help resources for new features

“Provide Help Resources for New Features” involves offering users a range of educational materials and support tools when you roll out new features or updates for your SaaS product.

These resources can include guides, video tutorials, FAQs, and other materials that help users understand how to use the new features, preventing confusion and frustration effectively.

For example, let's say you've added a collaborative document editing feature to your SaaS platform:

Jira Software offers a user-friendly onboarding guide that takes you through the setup process step by step.

This guide ensures a smooth introduction to the tool. Additionally, it provides a dedicated space where users can reach out to the team for solutions to their queries other than this guide.

This awesome tutorial video of Asana gives a short and simple introduction to using the platform. It talks about the important things the platform can do.

The person in the video talks a lot about how useful Asana is for sharing updates without needing old-fashioned spreadsheets.

Such videos make it easy for the user to understand the tool's usage and, thus, not leave any space to get confused with the tool and think about an alternative.

Grammarly never gives a chance to let users say it is just normal because it is not. With its personalized interactive walkthroughs, it lets users enjoy using the product with no issues.

Slack has included FAQs on the Slack Connect page, which is their new feature. These FAQs help eliminate any confusion for users.

By addressing common questions and providing answers, the feature becomes more user-friendly and straightforward.

Here's a common example for help center and community groups points because HubSpot provides it all on one Help page.

With all the available resources and facilities, there is no chance that users will get stuck somewhere and think about quitting. 

6. Make customers feel valued

“Make Customers Feel Valued” involves deliberately showing your customers that their loyalty and business are important to you.

By providing personalized interactions, exclusive offers, and special discounts, you can show your appreciation for their support, which fosters a stronger emotional connection and encourages them to continue using your SaaS product.

This makes customers less susceptible to churn and helps retain them by providing benefits and value. 

For instance, consider you have a subscription-based design software:

In this customer feedback email, Semrush asked its users about the aspects of the tool they didn't find particularly useful.

By using multiple-choice questions (MCQs) as the initial form of inquiry, it simplifies the process for users to provide feedback. With the collected responses, the SaaS business can gain valuable insights into areas where their product can be enhanced and improved.

7. Consistently offer informative content 

“Consistently Offer Informative Content” entails regularly creating and sharing valuable content with your SaaS customers.

This content aims to educate, engage, and provide insights that help users make the most of your product and stay informed about industry trends and best practices.

In the end, it can help avoid customer to churn as people get all the required information and consider your tool as an authority in the market.

For example, let's say you have a fitness-tracking SaaS app:

Publish blog posts that offer tips on using your app effectively. These could range from explaining how to set personalized fitness goals to interpreting different metrics the app tracks.

In this blog example of ClickUp, you'll see that the company provides information relevant to its niche and tries to educate the target audience with the best of the content and builds authority in their minds.

In the end, it also spread awareness about their tool and how it can be useful for project management.  

When users gain a better understanding, the likelihood of them considering alternatives diminishes significantly. Bearing this in mind, Powtoon hosted a webinar titled “How to Create Videos for Remote Work.”

It aims to simplify the process for individuals and demonstrate how Powtoon can be effectively utilized. This serves as an indirect promotion of the tool.

In this video, Calendly provides a clear and straightforward explanation of how users can create event types, eliminating any potential confusion during the process. These tutorials serve as a hassle-free guide to performing tasks.

Furthermore, they contribute to customer satisfaction, leaving users with no reason to seek alternatives.

Utilizing a case study in a Facebook post effectively highlights the impact of Mailchimp on PERC Coffee's growth.

The mention of successful campaigns executed through Mailchimp leaves a favorable impression on the readers. Thus, leads them to choose such a tool by using which other companies are doing great.

HubSpot demonstrates versatility in content creation by addressing various topics. Through the presentation of influencer marketing statistics using professional visuals, they effectively engaged their audience and conveyed the advantages of incorporating such marketing strategies into their businesses.

This information assists users in selecting effective strategies tailored to their businesses, positioning HubSpot as the knowledgeable and authoritative brand from which users seek guidance and expertise.

In this example, Headspace presented productivity tips and stress relief techniques in the workplace in a simple yet vibrant manner.

Through a collaboration with Mailchimp, they introduced a series called “Invisible Tools,” offering expert advice for staying stress-free at the workplace. This initiative not only promoted their own brand but also benefited their partner, creating highly engaging and valuable content for users.

By addressing users' pain points, they encouraged trust in their brand and prompted users to share it with their friends and family.

8. Prioritize quick and exceptional customer service 

“Focus on Quick and Exceptional Customer Service” means strongly emphasizing promptly addressing customer inquiries, issues, and concerns.

By having a customer service team that is responsive, well-informed, and committed to providing effective solutions, you enhance customer satisfaction and build trust, ultimately reducing the chances of customers leaving due to unsolved problems.

Imagine you have a subscription-based project management SaaS:

9. Gather feedback through surveys and interviews

“Gather Feedback through Surveys and Interviews” involves proactively reaching out to your SaaS customers to collect their opinions, experiences, and insights.

By conducting surveys, interviews, or feedback sessions, you gain a deeper understanding of their challenges, preferences, and suggestions for improvement.

This valuable information can then be used to refine your product, enhance the user experience, and help reduce churn.

For example, consider a CRM SaaS platform:

10. Win back churned customers

As churn measures the number of SaaS customers who cancelled their subscription to the service, winning back them refers to the proactive effort of reaching out to those customers.

If you want to achieve a low churn rate, find out why they left and offer solutions to make them want to return and try your product again.

Here's how you might approach this:

Imagine you offer a language learning SaaS platform:

Here's an example of a re-engagement email by Eversign that utilizes personalization to address the fact that the user hasn't logged into their SaaS product for a while.

Additionally, the email showcases successful customer stories as solutions, demonstrating how others have achieved their goals using Eversign. It also highlights the features of the upgraded version to help users understand the potential benefits they can gain.

 This lets the user think about buying the paid subscription and gaining benefits through it.

We previously discussed discounted subscriptions, and here's a real-life example. Typeform sent a re-engagement email offering users who haven't used the product for a while an additional discount of up to 25% for a limited time.

It clearly communicates the percentage of discount available on various subscription plans, ensuring transparency. Thus, leading to attract users to return and enjoy  the provided benefits.

In this context, the SaaS company is notifying users about the integration of a new feature into their product, aimed at enhancing the user experience and making it more user-friendly.

Factors that lead to increased Churn Rate for your SaaS company

Whether it's voluntary or involuntary churn, customers are opting out regardless. The factors mentioned below can help you understand why your customers are opting out. By keeping these factors in mind, you can try to retain them.

1. Your SaaS product/service was not really useful

If customers don't find it genuinely helpful or necessary for their needs, they are more likely to stop using it. People want solutions that genuinely make their tasks easier or better, so if your product falls short in delivering real value, customers might leave.

2. Your SaaS product's value was below expectations

When customers expect it to deliver certain benefits or outcomes, but it falls short of those expectations, they might feel disappointed. If your product doesn't meet or exceed what they hoped to achieve, they could become dissatisfied and decide to churn.

3. Your SaaS product/service was confusing to use

If using your SaaS product feels complicated or confusing, customers might get frustrated and opt for simpler alternatives. A user-friendly experience is vital. Customers who struggle to understand how your product works are more likely to give up and leave.

4. You never focused on customer retention

As churn and retention are inversely proportional, focusing on acquiring new customers and neglecting your existing ones can lead to higher churn. Neglecting current customers can make them feel undervalued, and they might seek better options elsewhere if they don't feel appreciated. 

How does it affect your SaaS business?

1. Revenue loss

Revenue loss refers to the decrease in income your SaaS business experiences due to various factors, such as customer churn, decreased demand, or economic downturns. When customers stop using your service or switch to a competitor, your annual and monthly recurring revenue takes a hit.

Revenue churn or loss directly impacts your business's financial health, potentially leading to cash flow issues and hampering your ability to invest in growth, development, and customer support.

To understand it in the terms of calculation look at the formula that will focus on describing the revenue churn rate

Gross MRR churn rate = Monthy revenue lost from existing customers / MRR at the start of the period

2. Reduced growth potential

Growth potential measures how much your SaaS business can expand over time. Various factors influence your growth potential, including market trends, customer demand, and competitive landscape.

If any of the mentioned factors negatively impact your business, your growth may stall or slow down. Reduced growth potential can lead to missed opportunities for market share, innovation, and profitability.

3. Increased Customer Acquisition Cost (CAC)

Customer Acquisition Cost (CAC) is the cost of acquiring a new customer. It includes expenses related to marketing, sales, advertising, and other efforts needed to convert a prospect into a paying customer.

Suppose your SaaS business faces challenges in attracting and converting new customers. In that case, you might need to invest more resources into your sales and marketing activities, leading to an increase in CAC. This can strain your budget and reduce profitability.

4. Reduced Customer Lifetime Value (CLTV)

Customer Lifetime Value (CLTV) is the predicted net profit a customer generates throughout their entire relationship with your business.

When factors such as poor customer experience, inadequate support, or declining product quality come into play, customers are more likely to churn early, leading to a decrease in CLTV.

Reduced CLTV not only affects your revenue in the short term but also impacts the long-term profitability of your SaaS business.

5. Increased marketing costs

If your SaaS business has trouble staying ahead of the competition or keeping customers, you should spend more money on marketing.

This means putting more into things like ads, making content, using social media, and promoting your product.

But spending more on marketing can be expensive and might not make enough extra money in return, which could decrease your profits.

6. Brand reputation and trust

Brand reputation and trust are crucial intangible assets for any business. If your SaaS business encounters issues like security breaches, data leaks, frequent outages, or poor customer support, your brand's reputation can suffer.

Negative experiences can spread quickly through online reviews and word-of-mouth, leading to decreased trust among existing and potential customers. A tarnished brand reputation can significantly hinder customer acquisition, retention, and business growth.

Ready to let your customers not churn?

In the dynamic realm of SaaS industry, mastering retention is a superpower. With 10 battle-tested strategies to conquer churn, you can confidently navigate changes.

Also, you should remember that your business should never move towards positive churn and instead choose a path towards negative churn and ultimately to a position where not a single customer cancels the subscription.

In addition to this, if you require assistance in enhancing your SaaS business, ranging from website development and search engine optimization to marketing strategies, please feel free to get in touch with webdew.

Are you going to follow these strategies o reduce your customer churn? Let us know in the comments.

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