SaaS Customer Churn Analysis: Why Does It Matter and How to Do It Right?

Customer churn analysis is an integral part of any SaaS company. This write-up discusses its importance and the way to do it correctly.

SaaS Customer Churn Analysis
SaaS Customer Churn Analysis

Your customers are truly the most important stakeholders in your company. While it’s important to know what works for them, it’s equally—probably even more important—to know what doesn’t work for them and causes them to churn. That’s where SaaS customer churn analysis comes in. Keeping track of churn will help you understand areas of improvement, how to reduce it, and how to generate better ROI. So, in this guide, we’ll cover what a customer churn analysis is and how to conduct one.

What is Customer Churn Analysis?

Customer churn analysis means evaluating the rate of customers that churn from your company. For example, a company loses 5% of its customers yearly. This is the churn percentage of customers for the company. The customer attrition rate is when customers opt out of the company’s services or products.

It tells you what percentage of customers will not return to or continue using your product by analyzing trends, data, and other metrics.

Reasons for Customer Churn

Churn isn’t just money loss from the customer that left, but it can cause a negative sentiment in the market, resulting in more potential customers turning away from your company before they ever use it. Here are some reasons for customer churn:

  • Onboarding bad-fit customers
  • Unable to achieve desired outcomes
  • Missing key features
  • Too many bugs
  • Lucrative competitor package
  • High price points
  • Lack of engagement
  • Customers no longer need your product

Why is Customer Churn Analysis Important?

Here are reasons why analyzing customer churn is important:

  • Churn reduces revenue and increases CAC: CAC or customer acquisition cost is the total spend needed to acquire a customer. Churn reduces revenue and impends financial growth. Arresting churn leads to maintaining customer relationships.
  • Increase profits: Analyzing churn is essential to increase profits. It’s simple, if a business has more customers for longer periods, it will make more money. Tracking customer churn helps lower attrition rates and helps you learn more about your customers.
  • Enhanced customer experience: You can improve your customer experience by analyzing churn
  • Improve product features: Since you know customers are leaving for X reasons, you can make appropriate changes to your product and enhance it. You have greater access to customer opinions and insights. This will allow you to improve your product overall.
  • Retain Customers: Retaining customers is possible when you analyze churn. You will know patterns of customer churn and what causes it. Plus, retention helps increase lifetime value and reduce CAC.

How to Analyze Customer Churn?

Analyzing customer churn is important—that’s clear. So, below, we’ll cover a few ways you can.

Track Key Performance Indicators

You can’t find out what’s causing your customers to churn if you don’t have the data. You need to track certain customer success metrics to analyze customer churn such as customer usage and engagement. One of the biggest KPIs is customer engagement. If customers are not engaging with the product, there is a high chance they will churn. If customer usage rate declines, they are more likely to churn.

Track Inflow of Customer Tickets

Another way to track customer churn is by tracking the inflow of customer tickets. If the number of support tickets is above average, it means customers are having problems understanding or using the product. This lack of understanding can mean they need more support in using the product and service.

Compare Price to Value

As a CSM, you can’t control the price points of your products but having this data will give you a more well-rounded understanding of why customers are churning. Plus, when you share the report with your execs, they’ll have a better understanding of the role pricing plays in customer churn.

Ask Your Customers

The best way to find out why your customers are cancelling their subscription is to ask them. A couple of ways you can do this is by sending an email and asking them or giving them a call and holding a quick discussion with a few of them.

Is there Good Churn?

Yes. There is negative churn. In negative churn, your expansion revenue is more than the loss of revenue from customer churn. Negative churn means when high yields will overpower decreasing revenues from the churning. 14

But now that you know why your customers are churning, you can start actively strategizing how you can lower churn rates that are within your power to control.

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