You hang up the phone, thank them for their business, and wish them well going forward.
The exchange, cordial. The words, friendly.
You’ve lost customers before, but none of them made your stomach turn quite like this one. None of the others felt so existentially threatening.
Losing a top subscription customer hurts. Not only can a major churn cut your confidence down to size but it can also take a considerable bite out of your recurring revenue.
Most B2B businesses see about 70% of their revenue come from 20% of their customers. This obviously puts an enormous premium on retaining large accounts.
Losing a big customer is a bad experience, often fraught with unpleasant consequences concerning budget and possibly even personnel. For all the unpleasantness though, an educational opportunity emerges. Businesses that learn from their churn experiences advance into the future knowing how to save the next big account.
As Jason Lemkin at SaaStr says,
“Few things are more brutal than when the competition steals one of your top customers….But even though it feels that way at the time, it usually ends up being a gift. You and the team quickly learn how to save the next customer just like them. You level up your game”.
- First, you should set aside time to analyze what happened to lead to a customer churning. Ask questions like: What was the customer journey like from beginning to end? How much was the customer using the product? What kind of experience did the customer have with you?
- Reviewing metrics like historic NPS scores and comments of churned customers is an important source of understanding customer attrition and part of improving your future processes, and can help you make the necessary changes to prevent customer churn.
- After the right action items are in place, it’s time to turn your attention to addressing that reduced recurring revenue. Some ways you can do this are by maximizing the value of your current customers, employing smart billing solutions, and encouraging longer contracts.
Perform a postmortem when a big subscription customer churns
When your SaaS business loses a major account, it’s important to set time aside to analyze what happened leading up to this point.
Hold a meeting with all relevant personnel and pick apart the factors that may have led to the churn. Here are a few things to look at.
- What was the customer journey like from beginning to end? How long has the customer been with you and what was their journey like? Understanding when customers tend to leave can hint at why.
Is there something going wrong in your onboarding process? Does your product not scale well to the needs of a growing business?
While the customer journey alone might not answer the question of “why” completely, it can serve as a preliminary indicator.
- How much was the customer using the product? If a customer’s usage begins to drop off, it can be a good warning churn is looming. At the very least, it may indicate the customer isn’t enjoying the full value of your product.
Taking a retrospective look at how your customers’ usage levels have corresponded with churn in the past may provide insight into how you should interact with current customers.
For example, if your post-churn analysis indicates a number of previous accounts’ usage levels dipped to a certain point preceding churn, you might use that level as a red flag going forward. In the future, you might then reach out to customers whenever their usage dips to this point.
- What kind of experience did the customer have with you? It’s been said customer experience is the new battlefield in the world of SaaS. In fact, 86% of customers say they’ll pay more for brands with excellent customer service and some have estimated the customer experience will overtake price as a decision-making factor in the years to come. What’s more, over 40% of outgoing SaaS customers cite experience as the reason they left or switched brands.
To that end, sometimes it isn’t very difficult to determine why a customer left. Did something happen on the customer support front that could account for this churn? If so, what was it and what can be done to avoid replicating that situation in the future?
Reviewing the historic NPS scores and comments of churned customers is an important source of learning and part of improving your future processes.
- Where did the customer go? Finally, where did the customer wind up? If your outgoing account has moved on to one of your competitors, it’s important to find out why.
Does the competitor offer different or better features? Lower prices? Or is it simply a matter of service and experience?
Understanding how your outgoing customers view the competition can be just as important as understanding how they view you.
- What are the next steps? It’s great to dig in and discuss what went wrong. But then, it’s time to do something about it!
Once your full postmortem is complete and you’ve identified the reasons why that big customer churned, you need to make any necessary changes based on those findings. Does your customer experience need work? Is your product in need of some development? And what churn risk indicators have you found that will now trigger calls to action for your team going forward?
After the right action items are in place, it’s time to turn your attention to addressing that reduced recurring revenue.
Look to recuperate your lost recurring revenue
Big customers leave big shoes to fill. The loss of recurring revenue that results from a major churn can feel insurmountable, but there are things you can do to mitigate the situation.
- Maximize the value of your current customers: While looking for another big client may feel like the natural next step, it shouldn’t represent the entirety of your strategy. Landing large accounts can take months, and even after you make the sale, you’ll likely spend the better part of a year recuperating the cost of acquisition.
By all means, look for your next large account, just not at the expense of maximizing the value of your existing customers. Keep in mind the probability of selling to an existing customer is about 70% while your chances of selling to a prospective customer hovers at around 5%.
Having studied what went wrong with your outgoing account, you’re now well-positioned to do better with the customers you still have. Use that intel to improve their experience and grow your revenue.
Maximizing upsells and cross-sells is an effective way to enhance the lifetime value (LTV) of your existing accounts while also helping your customers get the most out of your products. In fact, many businesses focus on upsells as a major component of their strategy, implementing a “land and expand” technique.
For example, On24 is a virtual communications SaaS business that has used upsells and excellence in customer service to bring in $200 million in annual revenue. And they’re far from alone.
Customer-centric businesses are, on average, nearly 60% more successful than those who do not focus on the customer experience.
- As Saravana Kumar, CEO of Kovai.co says, “A customer will continue with your business only if they get the value from the product as advertised by your sales and marketing. For the most part, if they are getting value, a customer is unlikely to churn.”
- Satisfied customers may also be a rich source of referrals: As Slack co-founder Stewart Butterfield says, “Every customer interaction is a marketing opportunity. If you go above and beyond on the customer service side, people are much more likely to recommend you.” Building a SaaS referral program can not only expand your current customer base, but it can also lower your customer acquisition costs, drive brand awareness and LTV, and foster customer loyalty.
- Of course, it’s important to make it a strong customer referral program so your users actually have a reason to start referring. Not only does your product or service need to add value, but you also need to offer a lucrative reward so there’s a strong incentive for your customers (like cashbacks, discounts, or access to exclusive features). Another option you could consider for your most loyal customers could be offering a SaaS referral fee, which means that referring customers would earn a percentage of the revenue you generate from a new client.
- Employ smart billing solutions: While much of customer churn is deliberate, a number of customers may churn without knowing, especially if it has to do with billing reasons. For one reason or another, a customer may have an expired card or might not have updated their payment method in a while, which could lead to them being locked out of your service. A great customer retention strategy to help avoid involuntary churn and revenue leakage is to use an automated billing provider like Stax Bill. By taking proactive steps like automating credit card retries and payment renewals, Stax Bill’s dunning management makes it easy to avoid payment failures and improve the customer churn rate of your existing customers.
- Provide a stellar onboarding experience: First impressions matter. With 60% of clients seriously weighing the onboarding process as a reason to sign with a new company, and 70% stressing that understanding how to use a new product or service is important for winning their business, you can’t afford to drop the ball here. It’s absolutely important to provide a user-friendly and flawless customer onboarding experience, which helps set the tone of your business relationship and ensure things get started on the right foot. So where do you start?
- Well, you want to make sure that all relevant personnel (like a customer success team) take the time to deeply understand the customer journey, any pain points they have, and steps they can take to improve the onboarding. To do this, tap into your current subscribers and see what they have to say. Actively listen to their feedback, and learn from it. You’ll see your customer satisfaction start to increase, promise.
- Provide unmatched customer engagement and support: It doesn’t just stop once you’ve onboarded a new customer; after all, poor customer service can contribute to voluntary churn, so you want to keep working to keep your customers happy. Make sure you provide a range of options for customers to reach out to you so they can talk to a real human, and keep the communication warm, personable, and honest. And although we’ve said it before, it’s worth repeating: listen to what your customers have to say and make actionable changes if a recurring theme arises from the feedback received. Consider sending periodic surveys to subscribers to get their input, and for higher-value customers, a 1-on-1 call can be a great way to stay more closely connected to them.
- Encourage longer contracts: Did you know that the average churn rate of monthly contracts is 14%? Longer contracts—either annual or multi-year ones—have a lower churn rate, which means you should aim to lock in new customers on a longer contract whenever possible. There are quite a few reasons why users with longer contracts churn less: happier customers are more inclined to renew for a longer contract, but they also have fewer opportunities to proactively reconsider if they want to stay with you. Meanwhile, month-to-month subscribers receive regular reminders and have ample opportunities to decide if they want to stick around.
- Offer personalized offers: For higher-value customers that are considering churning, it can be worth considering providing personalized offers to get them to stay longer. Once you have a deeper insight into the main reasons why customers might churn, you can have a team member reach out when users are considering canceling with an offer custom-tailored to them (based on a combination of their data, like plan type, current contract, length of time using your product, etc.) Some offers could include eligibility-based discounts that are only available to potentially churning customers, the chance to downgrade or pause, free upgrades or services, or anything else that you believe could add value and will allow you to keep that revenue.
Churn is part of SaaS life
SaaS customers tend to stick around for between 3-5 years on average before moving on. That number can, of course, vary enormously. But regardless, no business relationship lasts forever.
When a big customer churns, it’s what you do next that’s important.
Bill Gates put it well when he said, “Your most unhappy customers are your greatest source of learning.”
Pick yourself up, dust yourself off, and advance onward, confident you won’t make the same mistakes twice.
Quick FAQs about Customer Churn
Q: What is customer churn in a SaaS business?
Customer churn, also known as customer attrition, is the loss of customers or subscribers over a specific period in a SaaS business. It’s a crucial metric as it directly impacts the company’s revenue, customer acquisition costs, and reputation. Churn can occur due to various reasons like dissatisfaction with the product or service, better offerings from competitors, changes in customer needs or financial situations, poor customer service, or lack of perceived value from the service.
Q: How can you calculate the churn rate?
The churn rate can be calculated using the following formula:
Churn Rate = (Number of Lost Customers ÷ Total Customers at Start of Period) x 100%
For instance, if a company starts with 100 customers at the beginning of the month and loses 10 by the end of the month, then the churn rate for that month would be 10%.
Q: What happens when a top customer churns in a SaaS business?
When a top subscription customer churns, it can significantly affect the business’s revenue and confidence. However, it also presents an opportunity to learn and improve. Analysing the reasons behind the churn, understanding customer journeys, usage patterns, experiences, and where the customer moved on to, can provide valuable insights. These insights can then be used to improve customer retention strategies and prevent future churns.
Q: How can a SaaS business recover from a major customer churn?
Recovering from a major customer churn involves two key steps. Firstly, understanding and addressing the reasons that led to the churn and making necessary changes based on those findings. Secondly, implementing strategies to mitigate the loss of recurring revenue. This can be done by maximizing the value of current customers through upselling and cross-selling, employing smart billing solutions, providing a stellar onboarding experience, offering unmatched customer engagement and support, encouraging longer contracts, and offering personalized offers.
Q: What are some strategies to prevent customer churn in a SaaS business?
Preventing churn in a SaaS business involves improving product quality, providing exceptional customer service and support, implementing customer retention strategies like loyalty programs or personalized communication, engaging with customers regularly through updates and feedback surveys, and analyzing churn data to understand and address the root causes.
Q: How can a SaaS business maximize the value of its current customers?
Maximizing the value of current customers can be achieved through upselling and cross-selling which enhances the lifetime value (LTV) of existing accounts. Offering stellar customer service can also improve customer retention. A strong customer referral program can expand the customer base, lower customer acquisition costs, drive brand awareness and LTV, and foster customer loyalty. Listening to customer feedback and making actionable changes based on that can also significantly increase customer satisfaction.
Q: What is the role of billing solutions in reducing customer churn in a SaaS business?
A significant portion of customer churn can occur due to billing issues like expired cards or outdated payment methods. Using an automated billing provider can help avoid involuntary churn and revenue leakage by automating credit card retries and payment renewals, thus improving the customer churn rate.
Q: Why is the customer onboarding experience important in preventing churn?
First impressions matter. A good onboarding experience sets the tone for the business relationship and ensures things get started on the right foot. Understanding the customer journey, identifying and addressing any pain points, and learning from customer feedback can significantly increase customer satisfaction and reduce the likelihood of churn.
Q: Why are longer contracts beneficial in a SaaS business?
Longer contracts generally have a lower churn rate compared to monthly contracts. This is because customers committed to a longer contract have fewer opportunities to reconsider their subscription, whereas month-to-month subscribers receive regular reminders, providing them with more opportunities to decide if they want to continue.
Q: What is the average duration that SaaS customers tend to stick around before moving on?
SaaS customers tend to stick around for between 3-5 years on average before moving on. Of course, this number can vary greatly. However, no business relationship lasts forever, and when a big customer churns, it’s what the business does next that matters. Every churn is a learning opportunity to improve and avoid repeating the same mistakes.