SaaS industry is one of the fastest growing industries in the world. If you are on the right track, you can see immense growth in your SaaS business. Much faster than any other industry. But where growth is so promising, there the pace of decline becomes high too. One of the reasons companies face decline in their business is SaaS churn. And we are going to discuss that in this article.
In most of the growing companies, their focus gets limited to creating a great product and acquiring new customers. While these are no doubt essential for any business growth, if your area of observation doesn’t extend further, it will sabotage your business. What you need to consider along with new acquisitions is the customer lifetime value. This is one of the most talked topics in SaaS business.
You need to work towards extending your customer lifetime value to break even their acquisition cost first and then to add up to your total business revenue. And if you are not able to extend the CLV, or in other words, if your customers are churning away, then your business would always be in a dwindling state, no matter for how long you are able to sustain it.
Acquiring new customers is not the final solution. You need to seal the leakage in your bucket. You must aspire for making every customer a success story for you. Every churned customer is a story that you must learn and improvise in your business so that it doesn’t repeat. But the mistakes that companies make while handling churn is observed not just in new players but the most experienced ones too. So, let’s discuss those SaaS churn mistakes below.
#1 No churn analysis
When the customers are gone, the biggest mistake would be not asking them why they left. To gain complete control over your business, you need to have a 360 degree view. There could be multiple reasons why a customer left doing business with you. Most of the time they won’t care to let you know that reason.
In fact, in a survey by Esteban Kolsky, a former Gartner analyst, he found out that only 1 out of every 26 customers complain about their dissatisfaction. Rest of them simply churn. There can be nothing more fatal than mistaking their silence for their satisfaction.
To avoid further SaaS churn, you must know the reason why they left in the first place. Then you must do a root cause analysis of that reason to identify what corrective measures you can take. Your overall goal of this practice should be not repeating the same mistake for other customers. Knowing the reason for churn is most valuable to your business as there could be no other feedback that is as important as this one.
#2 Being reactive rather than proactive
As a customer success manager, you cannot afford to remain in the dark about the possible outcome. You must always be on your toes to avoid churn at every possible chance. But for those who have been taking customer retention very lightly, the customer churn comes as a surprise. And once they face this situation, it becomes almost impossible to retain the customer at this stage.
The customer doesn’t just decide to churn overnight. There must be a series of experiences they faced as a customer which lead them towards this decision. The biggest mistake is not knowing what those setbacks are. It is too important for a CSM to keep a check on the customer’s experiences and usage patterns of the product. Oftentimes, there are early warnings that you can find in customer’s behavior that can help you predict SaaS churn.
For example, if the customer is not using the product to its maximum value then most likely they renew their subscription. Hence, through monitoring their usage pattern, you can identify those customers who are in the yellow or red zone. You need to constantly monitor their health score for them to stay engaged profitably with the product. If you missed all these cues and waited for the final news to arrive, then most likely you wouldn’t get a chance to correct them.
#3 Lower Perceived Value
Your product must be flawless in its performance and providing the solution for which it was made. But until your customer gets aware of its real value, your customer retention is not guaranteed. Perceived value plays a major role in keeping the customer engaged to your product or leaving it. When it is high, your customer’s satisfaction would be higher and they would be happily subscribed to your business.
Just demonstrating the value of the product to the end-users is not enough. All the decision makers in the customer organization should be shown the value in their respective terms. For high level managers, a CSM must talk in terms of cost that your product is helping them in saving. For mid-level managers, it must be shown how the product is reducing the time and cost of operation by reducing the workflow.
Everyone perceives your product from different angles. Failing to identify those and demonstrate the product value in their respective perceptions could be a major factor leading to SaaS churn.
#4 Bad Customer Experience
No matter which industry you come from, customer experience plays a major role in the growth of every business. Furthermore, it cannot be more evident than now. Almost all the industries are becoming customer-centric and have realized the need of investing in customer experience. Customer experience is more of a perception and sentiments customers hold towards your brand. It is way more than customer service though it doesn’t exclude that.
Every interaction a customer is having with your brand adds up to shape their customer experience. Most of the time it is related to customer service when they need your assistance in resolving their issues. But it extends further to the point where they experience using your product.
Your product’s performance, its UI, its dashboard, etc. also play a significant role in giving a good or bad experience. And when it is too complex and the value derived from it is a lot less worthy than the amount of time and effort put in by the user, then it leads them towards quitting your product.
Mistakes are an inevitable part of a growing business. What’s important is that your learning curve should always rise higher with your experience. While there would be many more mistakes in SaaS churn that would be more relevant to your business, these are just the basic ones that you can improve upon if you give them their due notice.
Customer churn leads to heavy losses which can be realized only when you see their compounding effect over a long period. If you curb the churn proactively then each customer gives you immense opportunities to expand your business with them, through them. 18
A happy customer is more likely to recommend your product to others and that adds up more leads into your sales funnel. And if you have learnt from your mistakes and running your business at an optimum level, then the cycle of customer retention and new acquisitions becomes stronger and wider than you can expect.
You might also like:
- The SaaS Churn Handbook – Everything you need to know for understanding and preventing customer churn.
- To understand how SmartKarrot helps top SaaS companies predict and prevent churn, Request a Demo.
Rohan has over 11 years of experience in client services, marketing and hospitality field. Previously, he was head of digital marketing for a hi-tech mobile application. Rohan is driven by new challenges and the possibility of making an impact on individuals and businesses.
Published July 10, 2020, Updated March 01, 2023