SaaS Churn (Part 2 of 3): More On How You Can Control Churn
This is the 2nd in my series of posts about churn in SaaS. In these posts, I discuss the details of why churn happens, how you can analyze it and what you can do to prevent it.
You can read Part 1 of the series here.
In my previous post, I covered an exhaustive list of reasons that can lead to churn for a SaaS product. For each of those reasons, I also discussed potential solutions that can help prevent churn. In this post, I’ll cover a few other things you can do tackle churn.
Push Annual Subscriptions
If you see that churn rate for customers on monthly subscriptions is higher than that for annual subscriptions (which is generally how it is), then it would be a good idea to push your customers to purchase annual subscriptions. This can be done through higher discounts on your annual subscriptions.
SaaS products generally tend to offer a 10–15% discount on annual subscriptions. If you can afford to increase this discount to maybe 20–25% such that it leads to increased retention and thereby higher LTV (lifetime value) and it does not affect your margin, then you should explore this option of higher discounts for annual subscriptions. Please note that this solution does not tackle the root cause of churn and is only an artificial solution to boost your retention rates by a few decimals.
Don’t Allow Downgrades Through Your Dashboard
I cannot overemphasize this. If a customer wants to downgrade their subscription (eg. from a 10 user license to a 5 user license), stop making it easy for them to downgrade! This does not mean that you should not allow for downgrades to happen. Instead, get customers to contact you if they want to downgrade. Do not make this downgrade option available through the billing section of your dashboard.
By getting customers to contact you, you will actually get valuable insights from these customers on their reasons for downgrading. You will know exactly what you need to fix in order to avoid such downgrades in future. The fix could be in the form of a change in product onboarding, or a change in your customer success processes, or even a change in your drip emails.
Never lose out on the opportunity to understand why downgrades happen and what you could do to fix this problem.
Longer Term Contracts
If your sales happen through contracts being signed, then you could try pushing your customers to sign a two year or even a three year contract instead of the standard one year contract. Your prices for Year 2 and Year 3 would of course factor in the standard inflation-based price increase of 5–10% so that in Year 2 you charge 1.05 or 1.10 times of your Year 1 price and in Year 3, you use Year 2 as your base.
Just like the previous solution of pushing your customers for annual subscriptions instead of monthly subscriptions, this solution also only increases the duration that your customer stays with you for. Again, this is just an artificial solution to stem churn.
Generate FOMO: Inform Customers What They Stand to Lose
When customers go to the Billing section of your dashboard to cancel their subscription, tell them about what they stand to lose if they were to cancel their subscription. Storing CRM data for your customers? Tell them explicitly about the numbers of contacts, number of documents uploaded and all their prior communication with these contacts that they stand to lose. Help them think again about the value you provide to them.
This might work only with a minuscule of your user base that is looking to cancel their subscription. However, why lose the opportunity to communicate value to your customers and make them think twice before they cancel their subscription?
Advocate Critical Features That Your Customers Love
At BrowserStack, we figured out through data analysis that our users were less likely to churn if they tested their website on mobile phones available on BrowserStack, in addition to testing on just desktop browsers. Not all our users were aware that we offered website testing on mobile phones too. As a result, we then started promoting the mobile phone testing feature to those users who had never tested on any mobile phone in the past on BrowserStack. This did not reduce churn a great deal but it certainly helped in moving the needle slightly.
Similarly, SurveyMonkey found out that feature usage or engagement in general had an effect on churn. In fact in this presentation, Brent Chudoba, previously the Chief Revenue Officer at SurveyMonkey, talks about how every additional paid feature that SurveyMonkey customers used, resulted in a drop in their churn rate.
So, if you have any critical features in your product that wow your customers, ensure that you’re promoting the usage of these features to your entire user base. The promotion can happen in various ways — inbuilt product workflows that get users to try out these features, in-product messaging, emails etc.
Land & Expand
It’s comparatively easier to sell to an existing customer than to acquire new customers. Once you have a foot-in-the-door with a customer (or in other words, you have landed) where one of the teams is using your product, you should explore how you can quickly expand to the other teams who are not yet using your product. Hence, the phrase Land & Expand.
If multiple teams within the same company start using your product through your Land & Expand exercise, even if one team churns, it would not result in losing the customer as a whole because you still have a presence among the other teams in the company. And, in the future, you could perhaps expand to even more teams in the same company with the net result that the churn of one team had no major effect on your revenues from this customer.
At BrowserStack, whenever a new user signed up with a work email address, we would automatically figure out how many other users/teams from this user’s company were already using BrowserStack. We would then inform the new user about the number of other users/teams from his company who already had a paid subscription (and on request, possibly even connect him to the existing teams, if the existing users/teams were comfortable with being introduced). This built immense trust and validation and resulted in a quicker sales cycle of expansion to other teams within the same company.
Get Churned Users to Purchase Again
Whether you sell to enterprises or whether you sell to small businesses, you must absolutely reach out to your churned users (or even lost sales prospects for that matter) three months or six months after they have churned to get them to purchase a subscription again. Tell them about all the exciting new features you have implemented in your product since they last used it. Lastly, if your SaaS business is self-service sales / credit card driven, ensure that you make it easy for your customers to reinstate their subscriptions. You must provide that 1-click reinstate option in your dashboard for customers who are looking at purchasing a subscription again.
Integrate with Other Products
The more you integrate your product with other software products that your customers use, the more difficult it becomes for the customer to stop using your product. If you use Salesforce as your CRM and you’ve integrated Salesforce with your support software, marketing software and various other internal systems, it would become painful for you to switch from Salesforce CRM to another CRM software.
The strategy here is to make your product a critical part of the ecosystem of software products that your customers use so that they derive even more value out of your product. A great by-product of adding more value through integrations is that your customers would churn less often.
Churn Prediction Model
You could explore building a prediction model that would automatically alert you when a customer is likely to churn. You could then take proactive steps to retain this customer. Again, the steps here could be in the form of product workflows, emails, changes in customer success process etc.
Hubspot built such a model that it called the Customer Happiness Index. In addition to understanding how their customers could get the maximum out of Hubspot, this model more importantly helped Hubspot predict and reduce churn.
The model you build could be a mathematical combination of many parameters such as Weekly or monthly frequency of usage, Recency of usage, Time spent on your product, Whether certain key features have been used or not etc. In to addition to more complicated scenarios, such a model would even alert you (or even trigger automated drip emails to customers) for simple scenarios such as when a customer has not used for product for over 30 days.
So, this was the other set of solutions you could employ to tackle churn. While each of these solutions by themselves might not be able to create a dent in your churn universe, collectively implemented, these solutions should be able to increase your overall retention rates.
In my next post, I will discuss how you can get started with analyzing churn and prioritizing the various solutions for churn.
Update: You can read Part 3 of the SaaS Churn series here
