Reducing churn is the single most important thing your SaaS company can do to improve its growth. By some estimates, it is up to 25 times cheaper to keep a customer happy than to onboard a new one.
So how do you identify customers at risk of churn? In this article, I will list a series of actions you can take to identify cohorts of customers most at risk of churn. I’ll also give you positive actions you can take to reduce and even prevent customer churn.
By the end, you will have all the tools you need to reduce churn at your SaaS enterprise.
What is churn?
Before I get into how you can identify customers at risk of churn, let’s quickly go over what churn is and how to calculate it.
Churn is basically the speed at which you lose business. It is usually represented as a percentage. There are two kinds of churn: revenue churn and customer churn.
Let’s take a look at each of them.
1. Revenue churn
Revenue Churn = ((Churn MRR + Contraction MRR)) ÷ MRR at Start of Month) × 100
Note that Churn MRR is the MRR lost from cancellations, while Contraction MRR is the MRR lost from existing customers due to downgrades.
While I’m focusing on customers in this article, it is important to consider revenue churn too because not every customer is equally valuable to your company. When you have limited resources, you should always focus on the most valuable customers.
Baremetrics provides a broad overview as well as daily breakdowns into revenue churn. Take a look:
2. Customer churn
Customer churn is the percentage of customers that are leaving your service per month. It can be calculated using the following equation.
Customer Churn = (Customers Lost During the Month ÷ Total Customers at the Start of the Month) × 100
What should you do about customers at risk of churn?
Fundamentally, your goal with customers at risk of churn is to keep them using your product. You can do this by targeting the right customers in the first place, providing them with a high quality of service tailored to their needs, and continually tracking their user behavior looking for indications of displeasure.
I will address these actions in order, so that by the end, you will have an effective strategy starting with marketing and continuing on through the entire customer lifetime.
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Sign up the right customers
Do you have a well-defined ideal customer profile (ICP)? If you don’t know what that is, stop and check out the article. You should be planning your entire marketing strategy around a specific ICP.
If your product has broad appeal, developing multiple specific ICPs is better than one ICP that is too broad. By refining an ICP and targeting only prospects who match this profile, you will curb your churn rate before your customer even signs up.
That’s because the right customers will be able to extract the most value from your product. So long as customers are profiting from your app, they will remain subscribed.
Strive for meaningful engagement
Starting from the moment you get a lead, you should be using all the tools at your disposal to encourage customers to integrate your product into their business processes.
During the free trial period, start sending emails to your prospective clients pointing out interesting features, explaining how to use your platform, and nudging them back to your site to give the tools a try.
By getting your clients to use the features of your SaaS product to their full potential early and often, you guarantee that they are getting as much value as possible from your product.
Track user behavior data
Keep track of all the available user behavior data. This information lets you know which features your users are getting the most value from.
Your marketing, sales, and customer success teams should be engaging with your clients on a regular basis and encouraging them to interact with your platform.
Meanwhile, your data analytics and dev teams should be tracking and mapping out how users interact with your platform. This helps your dev teams optimize the parts of the platform that are most used.
This process is an invaluable feedback loop:
- You track how customers use your platform.
- You further develop the platform based on market demands.
- You proceed to market to a population that needs those features (specific ICPs).
Keep track of payment information
Some customers will realize that your product simply isn’t for them, and choose to leave. However, a proportion of customers actually churn involuntarily. Involuntary churn occurs when a customer leaves your platform not by choice but because of another issue, such as a credit card payment failure.
Baremetrics’ Recover tool can help you prevent involuntary churn by activating automatic processes to get clients to go back and fix their payment issues. Take a look:
Keeping an eye on unopened credit card details through update emails can help you identify customers that are at risk of churn. You can then execute other strategies to push users back towards actively using your product.
Recover automates your dunning process so you never have to worry about losing customers involuntarily. Recover’s payment processor can be fully integrated into your Baremetrics dashboard. The best part? It pays for itself - on average, Recover makes back 38x what it costs. Try it as part of your Baremetrics free trial today.
Use customer segmentation to develop re-engagement plans
Not every customer is the same, however, groups of customers who share certain characteristics such as geographic location, or choice of subscription tier, exhibit similar user behavior.
Working with these cohorts separately can help you develop re-engagement plans that will work best for each individual group. For example, if your customers in America seem to be more active than those in Canada, you can try and figure out why the Canadians are not getting as much value out of your platform.
Baremetrics Segmentation can do all of this for you. Take a look:
FAQ: Customers at risk of churn
Q: What is churn risk?
A: Churn risk is a measure of how likely a customer is at risk of churning. By segmenting your users into low, medium, and high risk of churn, you can focus your attention on the clients that need it the most.
Q: Are at-risk customers worth saving?
A: Yes! You should absolutely try to save every customer you can from churn. By some estimates, it is up to 25 times cheaper to prevent a current customer from churning than it is to onboard a new customer.
You should try to identify every customer at risk of churn and communicate with them to figure out how you can prevent that from happening.
Q: How can you save at-risk customers?
A: I have gone through a series of actions in this article that you can take to prevent a customer from churning. You start by finding the right customers—the users that will get the most value out of your app.
Listen to their needs to reduce pain points and provide users with the best experience of your platform possible.
Finally, implement a great dunning process with Baremetrics Recover to put an end to involuntary churn.
Identify customers at risk of churn with Baremetrics
The principles of business growth are simple: sign up and retain as many customers as possible.
The more you can learn about your customers and how they interact with your product, the better you can retain happy customers.
Baremetrics offers more than 26 separate metrics to track and segment your user information. These tools can help you adapt your product to customer needs, reduce churn among current users, and identify and attract your ICPs. Try it for yourself with a free, 14-day trial.