How can SaaS companies reduce user churn?

Reducing customer churn is a proven way for SaaS companies to achieve profit growth. This article provides four classic cases of how SaaS companies reduced customer churn rates for your reference and learning.

For SaaS companies, MRR (Monthly Recuring Revenue) is undoubtedly the first golden indicator, while customer churn rate (Churn) is the killer of this indicator.

According to Bain and Company, for every 5% reduction in customer churn, SaaS companies’ profits will increase by 25%-95%.

It would be more intuitive to compare it with the Baremetrics model. With the initial MRR unchanged, a 5% customer churn rate and a 13% churn rate will result in a revenue difference of almost double after ten months.

This article will analyze how to reduce customer and revenue churn through the success stories of six major SaaS companies.

1. Goove: Digging deep into the reasons for customer cancellations and reducing customer churn by 71%

As one of the most successful online customer management software, Groove also faced the problem of churn rate in 2012. Although the figure of 4.5% does not seem high, it is very dangerous for their business model .

In January 2013, when Groove’s management decided to improve this metric, they discovered that they had no idea why they were losing customers. If we can’t figure this out, how can we improve it?

So Groove launched a systematic investigation, carefully studying the behavior of customers who canceled their subscriptions. They soon discovered that those customers who canceled their subscriptions had sent out signals before canceling, such as:

• First stay time: Generally, those users who carefully read how to use the software have an average first stay time of 3 minutes and 18 seconds; while the average first stay time of those customers who unsubscribe is only 35 seconds.
• Login frequency: Normal users log in an average of 4.4 times a day, while lost customers only log in an average of 0.3 times a day before unsubscribing.

After discovering these two red lights before unsubscribing, Groove began to take action.

First, email customers who stayed for less than 2 minutes and offered them a 5-minute Skype call to help them better understand the software.

The response rate for this email reached 26%, and 40% of customers chose to renew their subscription after the Skype chat.

For those who logged in less than twice within ten days after registration, Groove sent an email like this:

The response rate of this email was 15%, and more than half of the customers eventually chose to renew their subscriptions.

By identifying early warning signs before customers cancel, Groove has significantly reduced its customer churn rate. At the same time, using the collected information, Groove improved the customer registration and login process, with significant results, reducing customer churn by 71%.

2. Dropbox: Setting goals for customers and rewarding those who achieve them

When it comes to using email to reduce customer churn, few companies can do better than Dropbox. The company sets milestones, triggers, and rewards to encourage customers to use their app.

However, we all receive spam, and messages delivered via email are often ignored. This is no exception for Dropbox, but they have found a way to win.

Here’s the email sent to potential users who haven’t downloaded the Dropbox app yet:

At the same time, Dropbox has taken another big step toward reducing churn by rewarding customers who take key actions. For example, you can get a free space upgrade by inviting friends to join via Email, Facebook or Twitter. The move resulted in a 60% increase in customer sign-ups.

Finding the key nodes that lead to customer churn and giving customers something valuable in return is a method that SaaS companies can learn from.

3. Mention: Reduce churn by 28% by improving communication methods

Mention helps clients track how they are mentioned online. For example, what users say when they tag your company on Instagram or Twitter, or what a review blog says about your product.

Like most SaaS companies, Mention began to worry about churn after reaching a milestone in user sign-up numbers. When the number of users grew from 50,000 to 200,000, the number of churn began to make them uneasy.

To improve this problem, they started with a few obvious facts. For example, paying users or users who have tried the paid version for free are more likely to convert than those who register for the free version. At the same time, they also found that sending emails to customers who were trying the paid version for free was very effective. By encouraging them to try new features of the software, Mention effectively increased the conversion rate of this group of customers.

Next, the company made a three-month plan. They used Intercom.io to categorize customers by payment type, and then launched a new feature called real-time online support for the most valuable customers.

Source: Kissmetrics

They changed the online support for free version users to be handled once every 4 hours, which saved the team at least 50% of their time and provided more favorable support and communication for those paying users and trial users.

The effect of this approach was very significant, with customer churn reduced by 28% and the company's indicators becoming healthier.

Baremetrics: Removing self-cancellation from accounts reduced churn by 63%

The founder of Baremetrics read a blog post about the problem of customer churn. When he looked back at his company, he was shocked by the numbers: at the beginning of 2014, customer churn was 10.3% and revenue churn was 13.1%.

Image Source: Baremetrics

If this continues, no amount of growth will help. Management took swift action.

The first and most critical action they took was to remove the logout button after logging into an account. For many SaaS users, this function is very convenient; but for SaaS companies, it is a big loss source. Make it easy for customers to unsubscribe?

Baremetrics believes this is unreasonable.

This is done for several reasons:

• First, the company can better collect feedback from users about why they want to cancel their subscriptions. The optional text box on the original cancellation interface is far from being effective in collecting real opinions.
• At the same time, at least 15% of customers chose to continue using Baremetrics because they had to contact Baremetrics to cancel their subscription. Many customers don't even know that Baremetrics can provide the functionality they've been looking for.
• Finally, Baremetrics focuses on better communication with customers. If you want customers to know more about the functions of the software, you need to provide them with such tools . So the company did a lot of online seminars, expanded its support team, pushed more updated software features in email blasts, and taught customers how the software could help them be more productive.

In just a few months, customer churn was reduced by 63%.

By learning from the above practices, thoroughly investigating the reasons for customer churn and reducing the churn rate, SaaS companies can achieve long-term sustainable growth.

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Source: ROCKETSHP