What do you think of this idea from a marketing director for lowering average churn rate for saas of a mobile phone provider?
- Get in touch with current customers and offer cheaper plans that fit their consumption better by allowing them to avoid paying for minutes that they don’t use.
According to a study published in the Harvard Business Review, based on a survey of more than 65,000 consumers, the churn rate of those customers who opted for “tailor made” plans was 10%, while consumers who didn’t receive such a proposal (the control group), presented a churn rate of only 6.4%.
For the researchers, by pointing out more advantageous alternatives to customers, the company only stirred a dormant perception in its audience: that the company didn’t provide a suitable service for them.
Regardless of the researchers’ conclusions, we’ve put together this information about the churn rate with a specific goal: to demonstrate how the creation of mechanisms to control or decrease the churn rate may be much more complex than many people think.
To clarify these doubts and certainly establish a good way to calculate, evaluate and take the necessary steps to reduce average churn rate for saas, we interviewed Giovanna Magnanti, Customer Success Manager at Meetime, as well as Lucas Nunes, Customer Success Manager at LAHAR.
But before we understand everything they have to tell us, let’s review some concepts.
What’s average churn rate for saas and how do you calculate it?
The churn rate is the ratio of the number of customers or subscribers who leave your business during a certain period and the total number of customers you had at the beginning of that period.
If you multiply this number by 100, you can calculate the average churn rate for saas as a percentage, which is more usual.
Here’s an example of how to calculate average churn rate for SaaS:
One SaaS had 3,000 customers earlier this month. During this period, 150 unsubscribed.
150/3000 x 100 = 5%
Also, check out other types of churn rates:
After these basic clarifications, we’ll learn a lot more about the churn rate with Giovanna and Lucas!
Reasons Churn exists
“In particular, I see Churn as the result of a series of symptoms that we can’t identify from our client in time to correct” – warns Lucas.
In his opinion, a client usually only cancels their subscription not long after certain symptoms are presented, such as:
- A decline in the use of the solution
- Complaining about problems presented in the software
- Displeasure with a service failure
- Can’t extract results from the tool
“At the end of the day, if the customer doesn’t use the tool and doesn’t generate value from it for their business, they will cancel”
Therefore, it’s clear that churn is only a consequence of an already deteriorated relationship with the company.
Secrets of the Churn Rate and Customer Success
When it only had 9 employees in the company, Meetime wasted no time and started to structure its Customer Success area, says Giovanna:
“Keeping the churn rate under control and having an area dedicated only to our customers was important from the outset”
And it’s not for nothing, as in the case of products or services with recurring subscriptions, it’s only after the initial sale that 70% to 95% of a customer’s revenue is realized, through renewals and up-sells.
Source: For Entrepreneurs
It’s more than justified, so keep the churn rate down early and ensure that customers are getting the success in which they require from the tool.
And to keep the churn rate low, Giovana highlights 3 important points, as follows:
1- Onboarding: make your customers feel at home
There’s nothing worse than being barely received somewhere and feeling dislocated.
Let’s agree that this is one of the main reasons for a person to leave a group or place.
And Giovanna emphasizes this emphatically, comparing onboarding with the foundation that will keep every structure of a building standing:
“Ensuring that new subscribers learn how the software works and understand what their journey will be to success, creates the necessary basis for future retention and avoids short-term churning”
Therefore, building an onboarding process should be your primary concern when creating a Customer Success area.
But the mere deployment of this area will not solve your customer evasion problems.
You need to define metrics, know how to calculate the average churn rate for saas properly, and analyze those numbers continuously.
Lucas, from LAHAR, also similarly believes that the customer’s onboarding process inside the product is a very important action to prevent Churn:
“This process is vital for the customer as it is during the first few months using the tool that they should start to extract value from the solution for their business. It’s essential to prioritize the delivery of value in this early relationship so that the customer can see the tool’s added value from the beginning “
He suggests determining a goal of reaching the customer’s first objective using the solution within the first 90 days of use, when they’re still in the process of onboarding, to make them loyal in the long run.
But before we see how the metrics are used in Meetime and LAHAR, let’s take a look at a HubSpot case, which has created its own retention metrics.
Do you know what CHI is?
This methodology created by HubSpot has generated so many positive results that it was the focus of a Harvard Business School study.
It is a play on words with the Chinese ideogram 气, which is pronounced “chi” and means vital force.
Source: Pierre Lechelle
CHI is a metric that indicates how well a client is doing content marketing and succeeding with it.
To do this, thousands of clients have been analyzed over the years to determine which elements of content marketing are highly correlated with success, in order to create a CHI scorecard.
The CHI score is a function of many variables and indicates precisely which clients are getting the highest increase in traffic or generating more qualified leads each month.
At the same time, marketing, sales, and customer service teams go on to study the inbound and content marketing strategies these well-rated clients use and teach them to others so that they can also achieve the same success.
It’s clear that the more customers achieving good results with Hubspot, the lower the churn rate of the company.
Do you want to hear a full explanation of what CHI is, in Lopin’s own words?
Then listen to this PodCast available from The Happy Customer:
2- Fragment your metrics
This is one more tip from Giovanna: A customer’s churn does not happen overnight.
Throughout its journey with the company, it’s leaving signs that show that this is something that may or may not happen.
For this reason, the importance not only of calculating the average churn rate for saas and constantly following its evolution, but also keeping an eye on other aspects that allow you to employ actions that prevent future churn.
“Here at Meetime we have criteria both to ensure that a customer has had a good onboarding period and to show that he is on the right path to the success he desires,” says Giovanna.
It’s an idea similar to Hubspot’s CHI, but in the opposite direction, to measure the possibility of a customer canceling.
3- The importance of the SLA is to maintain a low average churn rate for SaaS
Studies show that poor service is one of the biggest causes of customers choosing to part ways with service companies.
And as if that wasn’t bad enough, this negative experience still has a domino effect, with 65% of those customers saying something bad about their company to someone else.
With these types of statistics in mind, the people at Meetime know that support and a Service Level Agreement (SLA) that ensures low response times are closely linked to customer success.
This is even more important in software like theirs, which is part of the sales process: if a problem happens, they need to be there as fast as possible so as not to harm their customers work.
“At Meetime we have an SLA response of less than 2 hours from the time the first ticket is opened inside the tool” – comments Giovanna.
Meetime believes this kind of initiative is the foundation for up-selling and cross-selling because it builds good relationships and customer trust from the fact that they’ll always be served quickly when they need it, which gives them the confidence to increase their partnership with the company, thereby reducing the average churn rate for saas.
Measures to bypass Churn
Luke is very clear when talking about this subject:
“I would recommend a proactive and preventive approach to Customer Success processes. That is, a ‘rescue churn’ which is a last resort your team should carry out as an emergency measure to keep the client “
In his opinion, circumventing or redeeming a churn can be seen only as the last step in the Customer Success process. If your business needs to rescue a churn, it may be because you haven’t efficiently monitored the symptoms mentioned in the previous topics or have not acted in time to bypass them.
Churning, in some cases, is inevitable. Your client may cancel for reasons beyond your control, such as when you go bankrupt or when you are in financial trouble.
In these cases, there is not much to do, but in most cases churn could be identified and avoided.
In this sense, Lucas provides some tips on how to take a proactive approach:
- Always monitor customer activity and how much they use the tool
- Identify and fix problems in the tool as quickly as possible
- Constantly monitor whether customer goals are being met
- Work to ensure your service is incredible and your staff always delight the customer
Customer success is also about making your tool successful, get the best out of the software, solution or service. If it doesn’t succeed, client relationships become compromised and churn will happen sooner or later.
To avoid this, Luke highlights some questions that can help a Customer Success Manager detect the possibility of churn:
- Is this customer reaching their goals with our tool and generating results?
- Are they using the features that they thought were essential to the business at the beginning of the relationship?
- Is our solution really adding value to their business?
In the next section, we’ll talk more about this topic.
How do you predict a customer’s average churn rate for SaaS before it’s too late?
When you have just calculated a period’s average churn rate for saas and realize that it was too high, it’s too late…
How do you predict this before it happens so you can take corrective action?
One way to do this is by measuring your customer engagement to see if they’re using your service in the way and amount expected to achieve meaningful results.
Low engagement indicates that your solution is not delivering the desired effect and is not giving your customers success.
To determine customer engagement in a SaaS, for example, we must first determine a series of events that indicate that the client is interacting appropriately with the software.
Next, a weight is determined, a degree of importance for each of these events.
As these events occur for each customer, these points are summed up and it’s possible to determine an engagement score for a given period of time, for each customer individually, groups of them, and an average for the company.
After some time tracking these metrics, it will be possible to determine a correlation between customer success, engagement with the tool and a possible future average churn rate for saas, triggering an alert for the company to take the necessary action.
Giovanna told us that, in reference to the issue of customer engagement, Meetime has taken some steps towards launching a new commercial prospecting tool: Flow.
Because it’s a more complex tool that requires a greater commitment from the client so that they can perceive and clearly visualize future results, it’s necessary to guarantee greater customer engagement soon after the beginning and thus increase the chances of success.
For this, two initiatives were idealized.
During onboarding, the client will feel obliged to hire a paid consultation.
In this way, it’s possible to sit down with each client, explain the prospecting methodology, understand their business more deeply and configure the tool in a personalized way, so that the objectives are reached soon after.
“There’s also a financial commitment from the client, which guarantees even more engagement”, – according to Giovanna.
Throughout the use of the tool, you should continuously implement a very tight result monitoring methodology, with spreadsheets and analysis meetings.
After all, the thing that makes a customer stay with a company for long periods is when they achieve the success they wanted when they acquired the product or service at the beginning when they chose to subscribe.
And by just corresponding to this expectation you can achieve a low average churn rate for saas in the long term and create a win-win relationship, which is the main purpose of a company’s existence: to solve the pains of its clients and, at the same time, to remain profitable in a sustainable manner.