SaaS businesses spend an average of $1500 to $6000 on acquiring a single mid-market customer.
That’s not an insignificant amount of money, and it doesn’t account for the amount of time spent, either. Simply put, a lot of resources go into customer acquisition.
But sometimes, customers leave without so much as a whisper. Their exit comes at the cost of revenue, sure, but they take something else with them as they go: your business’s potential to learn and improve. Businesses that don’t understand their customers are doomed to lose them for the same reasons over and over again.
People expect a tailored, seamless experience. By learning more about your customer base you can improve customer experience (CX) and reduce your churn rate at the same time.
How does a business’s understanding of its customers influence its CX and ultimately its churn rate?
Nearly 80% of customers say that CX built on knowledgeable, fast service is a key component of their buying decisions. It sounds so simple. Be there for your customers and they will be there for you.
But many businesses run into problems with channeling their focus.
CX is an investment. The objective isn’t just to provide support. It’s to provide the best support to the widest number of people. To do that effectively, you need to understand your customers’ objectives and pain points.
Five tips for understanding your customers
Customers are hoping to find success with your product quickly. When they don’t feel like they are getting value from your product they move on. It could be because they decide your product wasn’t the right fit for them. Or it could be because you didn’t do enough to show them that it was.
The more you know about your base, the better you can help sculpt an experience that will increase your customer retention rate and boost your monthly recurring revenue in the process.
1. Perform post mortems
Understanding when you experience the most customer churn can also help answer the question of why. For example, if your customer churn rate is highest during the earlier stages of a contract, it could indicate that customers are having a hard time with your onboarding practices.
The first eight weeks of a software or application are usually the hardest in terms of retention, with some companies only keeping 6-20% of their new customers during that time period. While that may be a drastic revenue churn stat that thankfully doesn’t apply to your business, you may still find yourself surprised by the number of customers that drop off in the first two months.
If you do find significant instances of early churn, consider increasing your onboarding efforts—onboarding has been shown to increase a customer’s willingness to pay for a product by up to 17%—and increasing your contract lengths to incentivize people to stick around long enough to get their wins. Contract lengths of two years or longer are significantly less likely to report churn.
On the other hand, if most of the churn is happening later in your contracts, it might indicate that your product is either not delivering as expected, or is being perceived as having less value than a competitor’s product.
A high churn rate generally indicates that the company is doing something wrong. Figuring out how many customers leave early vs. later may help you pinpoint what that issue is.
2. Look at your involuntary churn
Involuntary churn happens when a customer who wants to stick around gets kicked out, usually due to missed payments. Not only does this needlessly inflate your annual churn rate, but it also makes it much harder to recoup customer acquisition costs.
Involuntary churn can account for between 20-40% of all customer loss and it also tends to say something about the experience your business is putting out. Namely that there may have been a breakdown in communication.
Scenario: A loyal customer’s credit card gets stolen. They cancel it and forget to update their billing information. The next time you charge the card that they have on file, it doesn’t go through, and you break things off.
It can happen in other ways. Maybe the card has expired, or the credit card limit has been reached the first time you send the bill. When you cut ties, not only do you lose the money you’re owed—businesses lose up to 5% of their revenue each year to leakage—but you also sever an otherwise happy relationship forever.
By working on dunning communications—that is, preemptive communications to let customers know there was a billing issue before churn happens—you improve the customer experience, recover lost revenue, and lower your revenue churn all with one move.
3. Ask for feedback
Approximately 66% of businesses actively seek feedback from existing and former customers. This is important because only about 4% of customers come forward on their own to report when they’ve had a bad experience. Most just leave without saying a word, taking a wealth of valuable, actionable data with them.
By asking for feedback you:
- learn what you are doing well,
- find out what could use improvement, and
- prove that you care about your customer’s thoughts and feelings.
This final point is particularly important for the business that recognizes loyalty as a two-way street. More than 80% of customers report feeling loyal to businesses that are interested in and respond to their complaints.
By asking a few simple questions, you not only learn why customers churn, but you also gain a valuable opportunity to strengthen your bond with those who might still be willing to stick around.
4. Take a look at your ideal customer profile (ICP)
Ah, the ideal customer. Sales teams and SaaS companies the world over salivate at the thought of them. They are more likely to get the biggest benefits from your product, making them more likely to go in for upsells, upgrades, account expansion, etc. And they are significantly less likely to churn.
There are several ways understanding your ideal customer profile can both improve the experience you provide and reduce churn.
- It can change the way you sell. Sales teams that are instructed to meet quota over everything else often shoot from the hip when it comes to customer acquisitions, with little mind for the long term. This leads to quick revenue that goes as fast as it came, often before acquisition costs can even be recuperated. The “churn and burn” strategy as it is sometimes known can be avoided by understanding who is most likely to benefit from your product, and selling more directly to them.
- It can improve the way you develop your product. Looking at success cases can also provide good insights into the features your customers find the most valuable. Learn how people are finding success with your product and do what you can to emphasize those features.
While you can’t build a roster of exclusively ideal customers, you can help make sure your product is getting into the hands of those most likely to benefit from it.
5. Invest in a modern, robust subscription billing system
A modern billing platform can help with many of the points listed above, providing data on the customer lifecycle, which features generate the most revenue, and which types of businesses go in for the most upsells.
It can also automate communications for dunning and allow you to implement an automated payment retry schedule, making it easier to avoid involuntary churn and retrieve leaked revenue.
From a customer experience end, automated billing platforms guarantee accurate, on-time invoices that save your staff time and effort. Not only does this mean customers get their bills at the same time every month, but they also never need to worry about unclear line items or other errors that are common to legacy billing systems or manual-heavy billing processes.
It’s a two-way street
It’s tempting to want to let your product do all of the talking. It was made with love and care, designed to solve the problems of the people most likely to use it in the first place. What else is there to know?
But software is difficult. Most customers, especially in the B2B niche, have a thick tech stack, often filled with tools they don’t fully understand.
By learning how to see things from the customer’s end, you improve their experience and make them more inclined to stick around for the long haul. It’s a win for everyone.