Churn rate is the percentage of customers who canceled a subscription in a period of the time (month, year). Customers are coming and leaving, and there is nothing wrong about that.
Everything in the world has a lifespan. Still, there are different reasons for canceling a subscription:
Your job is to reduce it and keep it low. Therefore, I’m gonna show you 7 steps that will help you to do it right.
You can do it using this simple formula.
Let’s say that SaaS business loses 130 customers and acquires 1000 customers, annually.
In this case, that the annual churn rate is equal to 13% or 1.08% per month.
This is a good KPI metric for your SaaS business since the best companies have an annual churn rate near 10%.
Churn rate is a good indicator of customer satisfaction. The point of SaaS business is to keep a number of new customers above the number of ones you had lost, in a period of time.
As long as you’re in this zone, you’ll have a positive growth rate. In other words, your annual or month growth rate will be higher than churn rate.
It’s like a snow that melts - if you don’t add new volumes, the snow surface will disappear, eventually.
A strong Month-over-Month growth is 10%.
I’ve already shown the formula for customer (unit) churn rate, but what about revenue churn rate?
It shows how much revenue you lose per month or per year.
One of the ways to reduce churn rate is segmenting customers into groups because they often have different churn rates.
Buffer is a great example. They are very transparent company and we can learn a lot from their public free data.
On yearly plans, they got a really high churn rate.
The most popular annually plan, named as Pro, has a churn rate of 30.27%, which means that 69.73% customers will pay for another year.
After that, 30.27% of them will churn again and so on. On a monthly basis, the most popular plan, also named as Pro, has a churn rate of 8.40% (11 months and 3 weeks a customer lifespan is).
The most interesting thing is that $100/mo plan has the lowest churn rate. It’s equal to 3.36%.
In other words, it’s customer lifetime span is equal to 2 years, 5 months and 3 weeks.
So, what I want to say?
The point is that when you segment your customers, you’ll know what groups have the lowest churn rate and acquisition cost.
Try segmenting your customers into following groups (e.g.):
You can even mix these groups. Results might surprise you.
Maybe you’re focusing on the customers from the wrong industry or maybe small businesses are more valuable to you than medium businesses.
You can’t tell until you measure it.
Here at Jellymetrics, we’re trying to identify customers whose product usage is below the average.
It’s a signal for us that group or customers might not be satisfied with the product and that they may leave us.
Here’s the list of what you can track:
With these metrics, you can predict which users might churn in the near future.
Predicting customers that might churn can be tricky. It can take lots of time if you’re trying to predict manually. What’s worse, you can make wrong predictions.
Luckily, these days machine learning APIs are making predictions easier than ever, due its availability and a low price.
Machine learning helps you to predict future trends using historical data.
If you're still wondering what this concept is, here is a good explanation: “Machine learning is a method of data analysis that automates analytical model building.
Using algorithms that iteratively learn from data, machine learning allows computers to find hidden insights without being explicitly programmed where to look.”
Google Prediction API is one of the most popular APIs available today because it’s fast (prediction less than 200 ms), reliable and low priced.
What are typical use cases of machine learning?
You can even predict customers that might churn using Google Spreadsheets. Check out the post where I've explained it.
Once you’ve identified a group of customers that might churn, the next step should be trying to stop them! In order to do that, you need to be a creative. You can try some of these suggestions:
There are customers who don’t take all advantages from the app. Sometimes they even don’t know how to use the most of it.
A webinar is a perfect way for showing tips and tricks. Do that and wait to see if the app usage will increase.
In your customer's eyes, 1-on-1 training is something that brings them a great value. Send them a newsletter with the offer mentioning the time when you are available for the consultations.
Apps like Calendy will be very useful for this matter.
Ask your top customers to share their experiences with the app. Think about creating a remarketing campaign at Google Ads and let others read the case study.
A case study educates current and potential customers. It allows people to learn how they can benefit from the app. You can also send them a newsletter with the case study.
A mix between science and art helps you to reduce a churn rate. Firstly, use science to identify near-the-leave customers. After that, it’s all about creativity.
You can start with suggestions from this article, but when you get things going I’m 100% sure that you’ll find your own ways. You just need to be a creative.