The lifeblood of your SaaS business is your customers. They pay subscription fees which provide predictable recurring revenue to help keep your organization running and earn you a living.
Losing a customer can be very painful, and it’s important that you understand the reasons of why they’ve unsubscribed or churned from your services. Then you can implement processes to prevent it in the future as well as monitor other SaaS metrics that will help you predict ahead of time when a customer is going to churn.
When businesses look at the reasons for customer churn, there are often trends.
Here are the main reasons why your customers might be leaving your SaaS business and what you can do to stop others from leaving for the same reasons.
1. Poor customer service
Customers love to feel special. When something goes wrong with a product and it isn’t sorted to the customer’s satisfaction, they’re more likely to start weighing their options and potentially leave your business for the competition.
In fact, customer service is one of the primary reasons for customer churn, whereas price is rather unimportant. About 90% of Americans use customer service as a deciding factor for whether they want to do business with a company. And nearly 60% will switch companies based on poor customer service.
Churn due to poor customer service can have a double negative impact. Customers leaving your business due to a bad experience will often tell others and this could impact your future customer acquisitions.
Therefore, it’s very important that you deal with customer service problems almost immediately.
One of the first steps should be to implement a feedback process by which customers feel they can share their grievances and your team can easily track them. Then, when you have a complaint your team must act and try to resolve the issue.
On the bright side, an unhappy customer who’s been given special treatment could be turned into a brand advocate. And nearly 90% of people are more likely to make another purchase from a business if they’ve had a good customer experience.
It’s important to train staff to be customer-centric and empathetic to your customers because it can make the difference between retaining and even increasing customer lifetime value or churning them over to the competition.
Once your team is properly trained, then you can start spotting gaps in your customer service treatment.
2. Too few features in your SaaS product
Not every product is the same, of course. And sometimes customers are lured away by competitors because they have a product that has more functionality that’s aligned to their needs.
Your competitors have therefore successfully developed something that more closely matches the needs of your target users than what you have on offer—assuming the customers churning for this reason really do match your ideal customer profile (ICP).
To avoid this, you should first identify your best-fit customers based on their lifetime value with your business, the value they’re deriving from your product, and their overall satisfaction with your service—perhaps by monitoring their net promoter scores. Once you know who your best-fit customers are, you need to know what these customers want so you can match their needs. This will help your SaaS business:
- satisfy and retain its current customers, while also
- attracting more customers like them.
While it probably doesn’t make sense to build a new feature to meet the needs of just one customer, it certainly makes sense if it’s a feature being requested often by many in your best-fit cohort.
Also, it’s important to keep tabs on your competitors and what they’re offering, including new products, features, and processes.
3. Too many features in your SaaS product
Sometimes you can have the opposite problem with customers wanting a less complex product. If they find a competitor is offering this for a smaller monthly price, then you could end up losing the customer.
To ensure this doesn’t happen, use a tiered billing model and pricing structure to meet the demands of different customer segments. This can also be a good marketing tool and a great way to introduce customers to basic packages by offering a premium option to your main, larger product.
Of course, it’s also important to ensure you have a good marketing and sales screening process to weed out any potential customers that simply fall outside of your ICP aren’t a good fit for your product from the beginning.
4. Your pricing is leading to customer churn
Sometimes your price is the reason why customers are leaving your subscription service. However, this is usually the case when something else is upsetting the customer.
For instance, they might have had a bad customer experience or find there are other competing organizations offering similar services at a lower price point.
To avoid this, you need to keep your pricing competitive but also determine what the true reason for their departure is. If you can correctly identify this and then solve the issue, your pricing strategy likely won’t be too much of an issue after all.
5. Your customers’ payment methods fail
The average credit card expires every three years. When this happens—or when a card payment fails for potentially dozens of other reasons—it can lead to payment failures and customer churn. According to ProfitWell, between 20-40% of SaaS churn and cancellations are due to payment delinquencies.
So what can you do about it? The solution is to get better at recovering these customers before they’re gone for good.
- Using in-app notifications to let your customers know when their cards are about to expire can be a great way to avoid this problem before it ever happens.
- Once a card does fail, it’s important to let the customer know via email or SMS so they can take action.
- Your SaaS business should also have an automated system for reattempting collections as part of your dunning management strategy.
While reattempting collections isn’t always effective, is can be successful as much as 75% of the time. Optimizing dunning management is always worth the effort.
Know the reasons for customer churn and work toward solutions
Even though some level of churn is unavoidable, customers leaving your business’s SaaS subscription can still be disappointing.
At the very least, if your customer churn rate is high enough, it will affect your recurring revenue and diminish your profits. And left unchecked, a high churn rate can prevent your SaaS business from long-term growth and success.
So, consider the reasons for customer churn for your particular business and find solutions to fix the gaps.
You can also dive deeper into the various types of churn metrics for a better understanding of this topic.
