Why Low Churn is Important and How to Measure SaaS Churn Rate
Although Google Analytics and other analytical tools allow business owners to view insights at the mere touch of a button, there are several critical KPIs (or key performance indicators), especially for SaaS and subscription-based firms, that often get swept under the rug. One of the most important is your customer turnover.
Often mistaken for your overall retention rate, having either a low or negative churn is important to understand your client and their account life cycle. Understanding how often individuals are using your services, how much each account is spending before closing and the retention rate of your business are all KPIs that allow for better insights which means better decision making backed by data!
According to visitor-analytics.io, having a churn rate of 5% or less annually is generally considered fairly low, depending on your business niche. In general, 20% is considered quite high and can be narrowed down to several factors like user engagement and customer retention.
As we stated above, a churn rate of 5% annually is often considered low, while anything over 20% is usually considered high. Along with KPIs like user engagement and customer retention, client loss is also dependent on how much value retaining individuals bring, new acquisitions, and the lifetime of your customers. Although you may already be familiar, we’ve put a short definition below – just in case.
Photo provided by Indicative (Mparticle)
Types of Turnover: Revenue vs Customer
Are there different types of churn? What does each mean? As stated by Product Craft, churn can be measured in two broad categories. Revenue churn is the type that measures the dollar value of contracts not renewed. While customer churn is commonly expressed as the percentage of companies up for renewal that does not extend their contract. Within each of these main categories are several more specific viewpoints. Ranging from the predictable such as (net vs. gross) churn within the company size or industry cohorts, to nuanced unsatisfied B2B consumers and inactive users, to structural churn where the customer went out of business or was acquired by a separate firm.
Retention vs Churn Rate
When lowering churn rate, it is important to still keep the retention rate in mind. Where churn rate describes how many customers are lost over time, retention rate describes the ratio of individuals who are satisfied with the product and return to buy more. Retention rate carries a strong influence on the brand’s revenue retention as well. When retention rate is high, revenue retention also stays high. Maintaining a high revenue retention ratio creates a more stable product platform while allowing room for more profits.
How to Measure SaaS Churn Rate
Your retention ratio can be calculated by taking the quotient of existing customers to the number of customers at the start of that period. Check out this diagram from Promodo, here:
Photo provided by Promodo.com
There are several methods when it comes to calculating churn rate, each having subjective benefits and nuances. The simplest method for being the quotient of existing customers over the number of customers at the beginning of a period.
Photo provided by blog.smile.io
5 Tips on How to Reduce Overall Churn
Ease of Use
So how can you increase individual client retention and keep consumers happy with your product or service? By creating a well-valued product and offering a smoother user interface (UI) or user experience (UX) than your competitors, of course! Creating an easily maneuverable UI will make users want to come back to your product or service due to the ease of use, given it provides the results people want. A high-quality service naturally entices customers to keep purchasing your product or service. On top of that, if the service is simple and easy to use, there’s a higher chance the person will be satisfied. Meshing a high-quality product with a continuous experience allows for a higher chance of return. In other words, prioritize the quality of service and let your product do the talking.
Learning From Your Losses
When it comes to losing accounts, oftentimes one might ask themselves what went wrong? Part of keeping high-value clients around is continuously developing a higher quality service as you learn which of your services are more favorable than others. While it may be apparent why people prefer particular services, it is more difficult to pinpoint why they aren’t so satisfied with others. Being able to take constructive criticism from exiting users often provides impactful feedback for creating a longer customer life cycle. This can be achieved simply by offering surveys for both exiting and existing customers. The data and feedback gathered from surveys allow companies to evolve; Thus creating a more sustainable product or service, potentially reviving sales and attracting more long-term customers.
Churning it Around
In terms of making profits, flipping the churn rate can increase customer loyalty as well as income. So how can you create a negative churn rate? There are several methods– one is to upgrade your features. This keeps your existing customers engaged and provides them a reason to further invest in your services. This can be done by offering improved features such as faster internet speeds, more storage, or a larger user base. Although your premium services may be priced higher, it’s important to consider the budgets of existing client accounts. When offering an upgraded service to a repeat customer, the increase in price should match accordingly to the quality of the services provided. However, it can be more enticing for the customer if the upgraded system comes at a slightly discounted price. Therefore, it makes it more likely that they will continue to subscribe to the services or even upgrade again in the future. That being said, we’d highly recommend incorporating a loyalty program for better client retention.
Loyalty is Royalty
On top of offering upgrades for a discounted price, establishing a loyalty program with consistent customers may increase the lifetime of that client account and overall sales. Both of these reduce your overall churn rate. While it can cost your company a little more as you are investing in your consumers, the payoff can be exponentially better as they’re encouraged to keep using your services over a longer period of time. With the customer lifecycle being an essential component of any company’s KPI, especially with subscription-based services – loyalty programs benefit both the user and the company.
When it comes to minimizing churn rate, it’s a known fact that it’s best to put customers and customer service first. The feedback that they can provide is a monumental key for the growth of any company and its services so make sure you have an avenue for individuals to leave their insights.
Investing in your user’s experience and the quality of your product or service can help provide:
- Long-Term Stability
- An Overall Lower Churn Rate
- Higher Retention Rates
- A More Seamless Design
Plus, easy-to-use features with seamless integration capabilities mean more repeat customers or longer subscriptions for that client life cycle!
5 Tips on How to Reduce Overall Churn (Overview)
We hope these tips and tricks help you lower your overall churn rate and measure your turnover! If you’d like to look back at this article and glance at the top 5 tips to lower your churn rate, view our 5 tips below:
- Create an Easy to Use UI
- Learn from Your Data (Losses)
- Higher Prices? Offer More Features!
- Upgrade Your Features
- Create a Loyalty Program