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Here is your chance to learn everything about negative churn in the SaaS industry.
To grow in a SaaS model, it is a no-brainer that one needs to retain customers. Businesses need to prioritize customer retention, maintain a good customer relationship, and help customers reach the goals they signed up for.
Churn cannot be avoided. You need to look at reducing churn to ensure there is increased retention. However, customer churn is different from revenue churn. In customer churn, we measure how many customers cancelled subscriptions.
Revenue churn calculates the revenue lost in these cancellations. Negative churn is tough to achieve for many early-stage start-ups. Negative churn is aspirational for any business. It means the company is loved by customers and can compensate for its revenue churn from existing customers.
By churn, of course, we are referring to the metric that SaaS and other relationship or subscription-based sales model businesses use to calculate customer attrition. Companies with a high customer churn rate have a large number of dissatisfied customers. This rate is highly informative. It can point to problems with a product or service, or with the sales or customer success management process, or a variety of other factors that influence adoption and use (and the desire to continue as a subscriber.)
Net negative churn is when the total revenue from existing customers exceeds the revenue lost due to downgrades and cancellations. SaaS companies need to understand this beneficial metric in a better manner. They must look to achieve net negative churn to grow and survive in the long run. When your revenue grows without any new customers being added, you have positive net revenue retention.
The three main drivers of negative churn include-
“Negative churn occurs when your expansion revenue from current subscribers is more significant than lost revenue from existing customers. This beneficial churn rate is a key metric for SaaS companies because it echoes and reverberates with customer success.”
Net Negative Churn Formula
There is no defined rate of what a good churn rate is. The lower the churn rate, the better. This depends on three factors- subscription base, revenue amounts, and existing customers.
It is clear that expansion MRR caused by cross-selling and upselling to current customers offsets losses from churn. The best way to trach negative churn is by understanding the upsells and cross-sells. For example- A SaaS company has 100 customers, and each customer pays $10 per month as a subscription. The company ends up losing 2% of customers every month to churn. Despite this, they are growing. The reason is that the company and the customer success team have been able to get customers to spend more with them- in a steady fashion. This is where the revenue per customer increases compared to the number of customers.
Achieving net negative churn requires businesses to connect with existing customers overall so they can offer more value. It takes more than just satisfying your customers. You can provide a great product or service, and enjoy positive customer feedback, but it is nearly impossible to satisfy every customer.
Many reasons can influence a customer’s decision to cancel a SaaS subscription, and the SaaS provider cannot control all of them. For growth and to offset churn, businesses have to plan for increasing revenue opportunities from those who already subscribe.
Here are five strategies for achieving a negative churn.
It is simple- less revenue churn means an improved negative rate. To reduce revenue churn, you need to determine what is causing it. This will help know the reasons why people are canceling out. You can use cancellation surveys to find out. You can know why users are churning and know feedback that helps you improve your product and reduce churn. You can also contact existing customers and help them with product value.
In-app communication needs to be contextual and show the right, relevant message to the user. You can help your users upgrade by trying out the product. You can offer self-service support and understand the new features of the product. The top ways of this include chatbots, knowledge bases, live chat, video tutorials, FAQ page, and in-app videos and guidance programs. Self-service adoption in customer success is a terrific way to reduce churn rate.
The first strategy is also an effective way to encourage customer success in general. For your SaaS solution to stick, it has to resonate with users. Adoption rate optimization is an essential component of your SaaS’s success. Several factors influence adoption, above all user experience and customization. The adoption rate is a foundation for future success, too, as it can lead to referrals from happy customers who use your SaaS to achieve their goals.
As the cornerstone of customer success, high adoption should be a goal from the onset of the sales process throughout deployment and continued use of the SaaS. Businesses can ensure greater adoption by investing time and resources in understanding your customer’s needs, both today and tomorrow. With high adoption, customers are less likely to cancel, but they also are more likely to find value in add-ons and expansion of the SaaS to other areas of their business.
A high adoption rate can also lead to seat expansion, where your user count grows organically as your customer grows.
With this, you can promote more linear purchases, which would be related to the product a customer already has. You will often see seat expansion within the software industry. Basically, fees are charged to the user of a particular software and then, with seat expansion, that customer is encouraged to buy more licenses for more people, who also need to use it.
Let’s take a closer look at how seat expansion leads to higher adoption. There could be a customer who has purchased licenses for two software users. However, their team has since then grown, so they require a third. They buy another license, which means there was seat expansion. Pricing the use of software by user is a model often used so that if additional users want to use it, there will be a higher cost charged.
When a company uses this kind of strategy, it often includes additional features that are unavailable in a standard license. Companies who want to make use of this strategy should make it clear to their customers what the benefits are of adding additional users. It should be framed in a way that demonstrates to the customer how adding more users benefits those users.
One way to achieve a negative churn is to encourage existing customers to increase their subscription. Depending on the services your SaaS solution offers, you can increase storage, the number of transactions processed, minutes, or other methods of metering services. However, achieving a negative churn requires a little more than just offering add-on services. Your customer success team, or sales team, should simulate to identify how these additions will translate to greater value for the customer. For example, if a customer does not need more storage, then convincing them to sign up for a higher tier of service is only going to lead to churn down the road. Negative churn is not impactful if it is only short-lived.
Resource expansion usually occurs when customers need to use something they are already using more than they are. A classic example of this is a cell phone plan. There are different tiers and price points, depending on how many minutes and how much data a customer needs. Churn gets reduced by providing options for the different types of needs of customers. Where one customer would only need 500 minutes of talk time and 10 GB of data a month, another may need unlimited calling and data.
Resource expansion as a strategy can be incorporated into a price structure that includes a free version. Many online services offer an entry-level version of their software for free. These versions will usually have minimal features, but be usable enough for people to want to use them. There will also be enough incentive to upgrade to a higher tier once they need additional resources, such as more cloud storage space. When it comes to resource expansion, you will want to focus on crafting various package levels, which will allow customers to expand and upgrade when their needs are no longer being met.
When you have high adoption, customers will be receptive to other ways your business can help theirs. In addition to offering tiered services, and encouraging appropriate moves to higher tiers, you should submit a variety of solutions as add-ons that can augment customer experience and increase value for the customer.
Always keep in mind that upselling is primarily about achieving greater customer success, not solely adding to your bottom line. If you have well-thought-out premium or additional services, carefully determine whether or not they will help a particular customer reach their goals. If so, demonstrate this value to them and strive to find a “quick win.” For example, adding data analytics can provide actionable information with a great deal of value.
Customers will often be receptive to paying extra for an upgraded version of the product they have already purchased. They will be responsive to benefit from additional features or modules.
A video streaming service can successfully upsell to its existing customers, even if it cost a good amount more, like 50% extra. This is because customers see the additional value being offered, such as improving user experience by removing commercials, is worth it. When someone has bought into a service or product already, they have signaled that they like and value it. This makes it easier to upsell to them.
On a related note, your product or service should not be stagnating. With SaaS delivery, you are in an ongoing relationship in an ever-changing business world. It would be best if you look for opportunities to improve your SaaS solution, incorporating client recommendations and feedback. Developing your solution gives you more opportunities to ask for more business from your existing customers. It gives you more opportunities to create value that leads to higher adoption and uses of expanded services. Grow, adapt, and watch your customers grow.
The communication and support you provide for your product or service should go hand-in-hand with it and be exemplary. Most customers will not express their dissatisfaction and instead simply cancel their subscription and go elsewhere. By staying in continuous communication, you remain open to feedback and retain customers for longer. You will, at some point, develop a reputation for having excellent and dedicated customer support and communication, which will bring more customers to you and increase negative churn.
Your company should never stop improving or innovating. This will keep it fresh and ensure you keep getting new customers while retaining old ones. You can successfully poach customers from other competitors who do not have the exceptional customer service you provide or the latest features your product has. This will all keep your company highly successful.
Ultimately, your success is firmly rooted in your customer’s success. Customer success has a role in all of the other tips listed here for achieving a negative churn. Successful customers are happy ones that not only won’t cancel, but they will also buy more from you. Customer success is more comfortable to track and manage today with automation.
Most SaaS companies provide the type of services that benefit the most from customer success automation. With the right automation tools, you can monitor adoption rates, set and track customer goals, and encourage a collaborative relationship that finds opportunities for continually delivering value.
Besides automation, there are a few additional things you can be doing. One is to reach out to customers who are cancelling their subscriptions and learning why they are doing so. This is especially important if churn is a big issue for your company. Better yet, the head of the company should be the one writing the emails or making the calls. This is because they will have the means to alter the attributes of a product or service after receiving feedback.
Sure, this task could be delegated to someone else. However, given how important it is to reduce churn, if there is the feedback that is raising an issue with your product that results in it not solving a customer’s problems, it needs to be changed. This also goes for issues with production implementation. If one customer is having difficulty using the product, the chances are that others do as well.
You can also help your customers increase their level of success by measuring their level of engagement. Since it’s challenging to measure their happiness, this is the next best thing. You can readily see how much engagement a customer has with your product. For example, you can have a database that stores entry logs, so that every time a customer logs in, you have identified they have engaged with your product. From there, you can develop a score that indicates how engaged your customers are. The higher the score, the more engaged they are, and less likely they will be to churn. Those with low scores can be reached out to so that you can learn how to get their engagement levels up.
These strategies will provide value, achieve negative churn, improve customer experience, and build customer loyalty. You can identify the customers who are likely to churn, investigate them and then create product offerings or features to match that. You can prevent involuntary churn and retain as many customers as you can. This works long-term as you will keep your revenue churn negative and grow.41
SmartKarrot is a technologically advanced customer success platform that provides class apart solutions that help in operationalizing and automating customer success. With the help of its intuitive dashboards, process management, and metrics that readily measure customer success, SmartKarrot is the greatest ally of CSMs to expand your existing customer business and achieve negative churn.
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 13 Dec 2019, Updated 3 Feb 2022
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