Running a successful business isn’t just about how many customers you attract. It’s also about how many you keep. That’s why the total number of subscribers doesn’t paint an accurate picture of a business’s health.
Imagine you gain 1,000 new users every month. That’s great…until you realize you’re also losing 1,001 users each month. That means your customer base is actually shrinking, indicating a negative customer churn rate.
Sustainable business growth requires a positive churn rate.
Naturally, subscriber churn is a major concern. To address the issue properly, you must identify what types of churn you’re experiencing. Then, calculate churn rate to find out how much it happens. Next, measure churn rates at a granular level to find out where it happens—and to who. Are old or new customers churning? Look at your customer segments. Finally, find out why it happens, which involves analyzing churn with as much customer data as you can get your hands on.
Before we get input from industry leaders, let’s take a general look at what churn is.
Types of churn
The term ‘churn’ includes revenue churn (lost revenue, ie. the dollars lost from non-renewals and downgrades), but this article focuses on customer churn, aka. subscriber churn. It’s the number of customers who stop paying for your service over a certain period.
Customers churn for all sorts of reasons, but there are two main types of churn that subscription businesses try to limit.
Voluntary churn is when a customer actively decides to end their subscription. This could be due to poor customer service or a business not upholding its value proposition.
Involuntary churn refers to customers lost for reasons unrelated to the business. The most common cause of this is payment failure. A failed recurring payment doesn’t necessarily mean a customer is unhappy, but it still leads to cancellation and loss of monthly recurring revenue.
The goal of any subscription business is to reduce both voluntary and involuntary churn rates. It’s no easy challenge, but SaaS industry bigwigs have the experience and know-how to help you get it right.
Let’s begin with the post-sign-up experience.
Help customers see early wins
Reducing subscriber churn starts from the very moment a customer signs up. But I’m not just talking about the ease of the onboarding experience. The actual time period between signing up and their first “aha” moment—or the first moment they experience your product’s value—really matters.
If your product isn’t solving problems quickly, its perceived value goes down until all customers see is an unnecessary expense. It shouldn’t come as a shock when those customers cancel.
So, an obvious way to reduce churn is to help customers get early wins. This means holding the hands of new subscribers. Guide them to use a popular feature, or identify their problems and prescribe them a unique action plan. When customers see value early on, you’ll have fewer subscription cancellations, i.e., less voluntary churn.
Matt Lerner, Venture Partner of 500 Startups takes things a step further. “If you go on a date and they never call you back, they didn’t divorce you: they never liked you in the first place!” He argues that early wins are so vital, customers who don’t experience them don’t count toward customer churn rates at all—they’re simply an activation problem, a different thing requiring a different fix.
What if new customers churning isn’t the issue? Let’s turn our attention to the longer-term customer experience.
Make sure your product is continuing to solve your customers’ problems
Businesses evolve—and SaaS businesses at an especially fast rate. As technology advances, so should your product. Users’ needs change along with it. And as the market adapts, so do customer expectations.
“An important component of preventing churn is the need to always be aware of how your customer defines success. It will change over time, so ensuring that you’re in sync regularly is important.” Andrew Marks, a partner at TQ Ventures explains.
Keeping up with market conditions, monitoring competitors, and tracking other external information like audience data will help you stay relevant and prevent customers from leaving. But you must also turn your gaze inward. One way to do this is by leveraging AI to measure and analyze key performance indicators for clues about changing customer behavior.
“The more you can track, the better. Think about your financials, churn, deal size, etc. The more granular, the better. Often we see companies waiting too long to think about that. Don’t build a parachute while the plane is in flight,” warns Alex Kayyal of Salesforce Ventures.
As Kayyal emphasizes, analyzing churn should be pre-emptive. Keep your finger on the pulse, stay in touch with your customer base, and measure key metrics like average lifetime value, net promoter score (NPS), and revenue churn. This will help ensure your product’s problem-solving capabilities are up to par and reduce the number of customers you lose to competitors through voluntary churn.
Create proactive customer relationships
Another way to decrease churn rate is to create proactive, rather than reactive, relationships with customers. This means investing heavily in customer success rather than just support. Regular customer success check-in meetings or quarterly business reviews will help you to look after your existing customers and should reduce subscriber churn rate.
Bill Macaitis is a former CRO/CMO at Slack, Zendesk, and Salesforce. “Delight your customers at every stage of their lifecycle. Every team including sales, marketing, support, success, product, and legal has an impact on a customer’s experience.” Better customer experience = lower subscriber churn rate.
Macaitis also recognizes the importance of continuous data tracking in customer relationships. “Religiously track experience via net promoter score (NPS) and relentlessly try to improve your score. High scores = tiny churn.”
The main takeaway? We have to delight—not satisfy. Customers don’t just want their needs met: they want to be engaged, surprised, and thrilled. They want to enjoy your product, not just use it. Functionality comes first, but we can’t ignore the increasing role of pleasure in customer retention.
Every interaction with your subscription business must leave a positive impression, whether it’s reading an email, using your platform, or talking with your customer success team on the phone or live chat.
Reducing churn rate isn’t about preventing people from leaving. It’s about giving them reasons to stay.
Being proactive when it comes to customer communication affects more than just customer churn rate. Another benefit is reduced customer acquisition costs. Overjoyed customers are more likely to tell others about your business. Although they’re technically free, word-of-mouth recommendations are one of the most valuable marketing tools. Win-win!
Build viral loops & gamification into your platform
Your product team can reduce churn from the offset by baking elements of virality and gamification into your SaaS product at the development stage. It’s a tactic used by major players, like SEMrush who increased users by 4x when they introduced an easter egg game—as well as startups like Threedots who doubled engagement and retention and halved their customer acquisition cost and app uninstall rate when they gamified learning.
It’s basic behavioral psychology. Creating engagement hooks throughout the customer lifecycle will keep them interested and reduce the customer churn rate. Make a great product that people want to share—when someone recommends a product, it reinforces their loyalty, making them less likely to churn.
Let’s look at actionable gamification tactics to help you entertain and reward users, and reduce your subscriber churn rate.
CELEBRATE MILESTONES
These milestones could be based on a certain time period, like a signup anniversary. Alternatively, they could be based on usage (think, “Congrats! You’ve sent 10,000 emails via MailChimp!”)
Businesses will be motivated to share milestones like a badge on social media as it’s an opportunity for brand exposure. It’s a chance to show off their achievements and build prestige. A public acknowledgment of their link with your business should also increase their brand loyalty, helping you reduce churn.
POINTS SYSTEM
Implementing a points system, such as a loyalty point system, is a great way to reduce your customer churn rate. For maximum effect, show the monetary value or provide non-financial rewards.
Software company Gener8 does this brilliantly. Users earn tokens the more they use the web browser, which they can exchange for real-life products, discounts, and cash charity donations. Complete with eBay-style bidding wars for high-token-value items, it’s a smart way to keep people coming back for more.
PERCENTAGE BARS
Why not display a progress percentage bar in-platform? This works especially well at the onboarding stage—people don’t like to leave things unfinished, especially when there’s a visual reminder that they’re just a few percentage points away from “complete”.
You could also use a bar to show usage limits, along with prompts to increase their subscription plan, like:
- You have 2/8 seats remaining on your current plan. Click here to add more seats.
- 88% of storage used. Increase limits now to ensure new files are saved.
- You have 3 reports remaining. Upgrade your plan to continue getting profit-boosting insights.
These actions will help users form habits, boosting long-term retention and reducing your customer churn rate.
Now, let’s look at actionable ideas for virality.
INDIRECT EXPOSURE
This includes methods where others become accidentally exposed to your brand, like how Atlassian’s StatusPage includes “Powered by Statuspage” in the footer.
INCENTIVIZE
Offer monetary rewards, increase usage limits, or provide other incentives for businesses to spread the word about your SaaS product.
ORGANIC INTERNAL VIRALITY
A great example of this is when Jira opened things up so users could invite team members to collaborate on a project. “This improved the number of invited and active users at the end of a trial, which meant that we had a higher tendency to get customers to convert from their trial to a paid account,” explains Patrick Thompson, who previously led teams at Atlassian. As we already know, getting customers to be active and engaged is the first hurdle in stopping them from churning early on.
You can run retention experiments to see what works best. Bing Gordon was formerly CCO at the gaming behemoth Electronic Arts. His advice? “Stop churn with ‘coming soon’s. An example is World of Warcraft: at level 40 all players get a steed. They found that between level 35 and 40, nobody quit.”
The temptation to hit the next level or get the next win is just too strong. After all, we’re only human.
Gina Gotthilf, former VP of Growth at Duolingo gives another example of gamification to drive engagement. This churn-rate-busting tactic is now a commonplace feature. But when the popular language-learning app first introduced the little red notification dot, they were surprised to see it “led to a six percent increase in DAUs (daily active users)”. Dormant users became engaged, and engaged users means reduced customer churn.
Reduce the churn rate in your subscription business
Looking at industry benchmarks, the average churn rate for subscription-based businesses is anywhere from 1% to 7%, with smaller companies being at the higher end of the scale. While churn benchmarks aren’t the be-all and end-all, it’s good to aim for a monthly churn rate well under 1%.
“If your churn isn’t in the single digits, it’s absolutely the only thing you should be focusing on fixing right now.”
Josh Pigford, founder of Baremetrics
Get to work by practicing what our industry leaders preach. Ensure early wins to stop customers leaving right off the bat and keep solving customers’ problems as they evolve. Build proactive relationships and go above and beyond normal levels of customer satisfaction. Bake virality and gamification into your product to make it sticky, which will not only reduce customer churn rate but increase customer lifetime value.
It’s time to get a handle on subscription churn and slam your business’s back door shut.
