It’s easy to make churn exclusively a product-based consideration—your customers don’t like your product, so they churn in favor of one that works better for them. This way, it’s a figure you can reduce by tweaking your features, or maybe even rethinking the way you market them.
The truth isn’t quite so simple.
True subscriber churn reduction involves a strategic shift that needs to happen across your company.
With the global economy quickly heading toward a recession, it’s important now more than ever to hang onto subscribers. By understanding how and why churn happens, you can stabilize your numbers and increase monthly recurring revenue.
Stick to Your ICP
Most companies have a customer sweet spot. A collection of qualities that combine to account for a customer who will enjoy your product the most, opt-in for account upgrades, and maybe even give you some word-of-mouth recommendations.
These qualities will fall under the umbrella of your ideal customer profile (ICP)—something you develop by observing what characteristics your top customers share and determining which of them are predictive of overall success.
During a recession, your sales division may feel pressure to fire from the hip—or to leverage a sales strategy called ‘churn and burn’. They’ll sign anyone they can and hope it works out for the best. Focus all their attention on the short-term goal of making a sale, with no regard for long-term success.
There are several problems with this strategy, some ethical, others practical. From a strictly logistical perspective, the issue is straightforward: a bad-fit customer will quickly figure out that they don’t belong there. Then, they’ll leave. Customer acquisition costs (CAC) for a B2B SaaS customer can range between $1000-10,000.
If they churn out quickly, you may not even recover the cost of acquisition. By focusing on ideal customers, you make fewer sales, but bring in greater revenue.
Focus on onboarding
Studies have shown that poor onboarding practices can account for why up to 50% of customers leave within the first ninety days.
Some SaaS products, especially in the B2B space, can be pretty complicated. In the first few months, the customer needs to overcome that learning curve and achieve their first product successes, or they’ll move on.
By focusing on customer success right from the outset, you help connect the customers with what they actually wanted in the first place. Not a product, but an effective solution for the problem they were facing.
As Amity CEO Paul Philp puts it:
“A poor onboarding experience is hard to come back from and is the fastest way to lose a customer. It’s critical to actively think about the entire customer journey. Define it. Map it. Document it.”
Rethink your dunning management strategy
Customer communications always have a rhythm; a tone and feeling you need to capture with each message. When it comes to dunning management, optimizing the essence of that communication sequence can be tricky—but crucial to its success.
You need to be firm enough to retrieve the money you are owed, but also respectful. Mistakes do happen, after all—credit cards expire every three years. Many failed payments will owe to something as simple as an expired payment method.
No matter what, you want to reduce your customer churn and keep the client around. A shaky dunning management strategy will at best fail to bring in significant amounts of missing revenue. At worst, it may push customers away.
Both situations will increase your churn rate.
To reduce churn, focus on your dunning messaging. To do this:
- Think up an urgent subject line. Something that’ll stand out among the deluge of emails working people get every day.
- Keep it brief and to the point. More than three-quarters of people report disliking emails longer than three paragraphs.
- Explain what may have happened. List common reasons behind failed payments so they understand how to fix the problem.
- Provide contact information. Let them know that if they need assistance, you’ll be there to give it.
With the right messaging, you can reduce subscriber churn and recover outstanding revenue at the same time.
Think about emphasizing longer contract terms
Month-to-month contracts have a churn rate of around 16%. Contracts of 2.5 years or longer are half that. There are many reasons why this is the case—enough to fill their own article.
However, one of the simplest reasons is that monthly contracts give the customer far too many choices.
Each month, they’re invited to think about whether they like your product or would prefer to move on. Longer contracts, by contrast, force customers to stick around long enough to experience high-quality onboarding and achieve their first win.
Trim away involuntary churn
As I alluded to earlier, a well-crafted dunning communications strategy can help to reduce the costly phenomenon that is involuntary churn. And a good suite of subscription management tools can further reduce your customer churn rate.
A good subscription management service will:
- Automate credit card retries. Cards can fail for a lot of reasons. Trying again a day or two later gives you more opportunity to retrieve your payments without the customer ever needing to know there was an issue in the first place.
- Automate credit card updating. New card? No problem. Your tech should work with the major credit card providers to keep your customer’s payment method up to date, and you’ll avoid subscriber churn caused by simple lack of communication.
- Provide vivid reporting. Your subscription management service should also supply clear reporting on how much is owed by who and how long the bills have been outstanding. This information makes it easier to strategize and prioritize dunning based on what is owed and how likely you are to collect.
Approximately 20% of all churn is involuntary. Every leaking ship will sink eventually. Good subscription management software helps you plug those holes up quickly and effectively.
Don’t say goodbye, say see you later!
Customers leave for many reasons. For example, Covid-19 saw many businesses and consumers take an enormous income hit and need to cut costs. And with a recession looming, many businesses are making similar cuts heading into 2023.
However, financial circumstances can change. And when they do, a good customer win-back strategy can help bring people back into the fold.
- Offer an account pause feature. Instead of terminating their contract and losing all their user data, pause features let customers take a break and come back when it suits them. This removes a lot of the friction your customer would face when eventually shopping for a new solution. They don’t need to import data and resynchronize. Everything will be right where they left it.
- Keep them in the loop. Let them know about the features you have cooking. Maybe your product doesn’t quite fit their needs now but will a year down the line.
- Send a “we miss you” email. As you may have learned in the dating world, don’t go overboard with this. You won’t want to come across as desperate. But the occasional follow-up email might catch your churned customer at just the right time. You won’t know if you don’t ask.
Of course, you can’t spend too much time chasing after lapsed opportunities. However, by maintaining a culture that is geared toward welcoming old customers back, you may find it easier to reverse engineer your churn rate.
Look for patterns
Finally, dig into your account data to see if you can identify churn patterns. Are customers churning out after a few months? It probably means you need to work on your customer success. You could even tailor your marketing and sales efforts to make sure you’re targeting the right people.
Maybe you notice customers who churn out aren’t taking advantage of feature X. If you could emphasize this feature more would people find more success with your product?
Chances are, there’s some sort of pattern. Segment the data to find it and reduce your churn numbers.
Churn as a full-time job
A truly effective churn management strategy is a company-wide responsibility. Sales and marketing need to make sure they are targeting the right people in the right way, at the right time. Customer success needs to make sure that each customer uses the product in a way that allows them to solve their problems.
Customer communications need to be managed. Dunning carefully strategized. And someone needs to be there, making sense of the data and figuring out how to use it to keep subscribers around.
The work is hard but well worthwhile. Subscription businesses are built on reliable, recurring revenue. So, buckle down, and chip away at the churn any way you can.
