As a SaaS business, I am sure you are familiar with the dreaded churn and the impact it has on your business's bottom line. Every business wants to reduce its churn rate as much as possible. The first step to significantly eliminate churn is to understand churn and how it occurs. This guide will discuss the key definitions of churn, its types, and tips to combat both voluntary and involuntary churn.
What is Churn?
Churn happens when your customers cancel your service or stop paying for your product or service. Companies want to ensure they have a negative churn rate, as a lower churn is important for long-term success. A lower churn rate also means a higher customer lifetime value (CLV) and a greater return on the customer acquisition cost.
Usually, when people think of churn they assume it’s customer churn, but there’s another kind called revenue churn.
Customer Churn is typically a percentage value of the number of customers that actually cancel their service with you. This metric is useful in calculating the average lifetime value of a customer.
Revenue Churn measures the percentage of revenue lost as a result of customers canceling their services. Companies plan to reduce the effect of revenue churn by expanding their revenue streams.
Both customer and revenue churn can be voluntary or involuntary. We will discuss how they occur and tactics to avoid them in the next section.
What is Voluntary Churn?
Voluntary Churn occurs when a customer makes a conscious decision to cancel your services. This could be due to a variety of reasons like dissatisfaction with the service, unhappiness with the pricing, or the perceived value of your service. If your clients are canceling in droves or you receive multiple customer complaints, it could be a sign of an underlying problem. When this kind of churn happens it is essential to find the root cause of the churn and update your strategy as voluntary churn drives up the customer acquisition cost. You also need to analyze the customer experience and identify any areas for improvement.
How to reduce voluntary churn?
Before we dive into the methods for combating customer churn, I wanted to discuss a few strategies to avoid. No one wants their customer to cancel but do not make your customers jump through hoops to cancel their subscription, as it will leave them with a negative impression of your brand. You should provide your customers with an easy way to cancel if they want. It’s also important to remember to ask for feedback about why your customers are choosing to cancel. This is an important piece of information especially if you are experiencing a high churn rate.
- Create a seamless onboarding process
A positive first impression of your brand can go a long way to reducing churn. Therefore, it’s important to ensure that your customers have a seamless onboarding process. The customer experience team and/or tutorial tools should provide a guided walkthrough of your service. If you receive multiple support requests for the same thing, this means it’s a common question new customers have, include them in your demo or welcome video to proactively answer these questions. Ensuring that your customers have all the tools necessary from the get-go is a great way for reducing churn.
- Engage with customers and request feedback regularly
It’s easier to be proactive and ensure that your customers are engaged than trying to recover from churn. This can be achieved by regularly reaching out to customers with helpful guides and how-tos.
It’s also important to conduct regular surveys requesting feedback regarding your customers’ experience and if there are any areas for improvement. Customers feel valued if they see their feedback is taken seriously and changes are implemented in the product based on feedback. You should also conduct exit interviews/surveys when customer’s churn to understand what went wrong and how you can improve so that future customers do not churn for the same reasons.
- Create a cancellation flow
Even if a customer thinks they want to cancel, there’s still a chance you can save them. It is important to build a cancellation flow which not only reinforces the value they derive from using your product but also providing an alternative offering that meets their specific needs.
Automate your cancellation flow process to entice customers who may want to keep their subscriptions.
The cancellation flow process can be as follows:
- Ask customers the reason for their cancellation
- Provide them with a discount or special offer if they stay
- Offer to pause the subscription
- Remind them about the value they will receive from keeping your service
Our customer Garmin, made use of the cancellation flow by offering customers a month-to-month subscription or the option to pause their subscription with no penalties when they recognized the risk of customer churn during the early stages of the COVID-19 pandemic.
- Create win-back campaigns
All is not lost if the cancellation flow doesn’t persuade your customers to stay with you. You still have the chance to reacquire them by making use of win-back campaigns. These campaigns are meant to remind your customers of the value you provide them by sharing targeted offers that can solve their issue. Make sure you take note of the feedback gathered from the exit interviews and implement them in your new offer.
But if your customers still do not respond to your outreach, understand that it’s time to stop contacting. You do not want this campaign to backfire by leaving them with a negative impression of your brand.
What is involuntary churn?
When most companies create strategies to combat churn they mostly consider voluntary churn as it’s the one that’s easier to notice. But there is another type of churn that may drain a huge amount of revenue and can become an issue if it goes unchecked.
Involuntary churn occurs when a customer’s payment attempt fails, without them noticing. If the customer misses multiple payments their subscription isn’t renewed resulting in churn. Customer delinquencies can happen due to the following reasons:
- Expired credit cards
- Lack of sufficient funds
- Changes in payment information or other information like an address change
- Lost or stolen credit cards, etc.
It is more difficult to combat involuntary churn as it is passive and invisible to the company and it can’t be reduced by making product or service improvements as it is usually related to payment processing.
How to reduce involuntary churn?
- Send reminders before card expiry
If your customers benefit from using your service, they will likely renew the subscriptions, and an expired credit card doesn’t have to be why they churn. So sending them an automated email reminder 30-60 days in advance as a pre-dunning strategy can help reduce passive churn to a great extent.
- Create a dunning strategy
In case a customer slipped through the cracks and you didn't notice they churned before it happened, create a dunning strategy by sending them a series of emails to remind them they missed a payment. Also, provide them information on how they can make the payment.
- Retry failed payments
Often a customer’s card may be declined due to a technical issue or due to expired credit card information. This may be fixed by informing the customer about this issue and retrying charging the card.
- Send annual renewal reminders
It is easier to prevent a failed payment than trying to re-acquire a lost customer due to involuntary churn. So it is a good idea to send an email reminder informing the customer about the upcoming annual renewal. This will also remind them to update their billing information if needed.
I understand that churn can be a huge cause for concern and I hope these tips help you overcome and combat both voluntary and involuntary churn. Reducing churn will help you retain lost revenue and increase your customer lifetime value. Contact one of our billing experts today to understand how an intelligent billing system like LogiSense can help reduce customer churn.