For the past two months, we’ve asked new Baremetrics customers (primarily small to medium sized SaaS and subscription businesses) what their number one motivation for signing up for Baremetrics was.
The options include:
- I want to improve the accuracy of my SaaS metrics
- I want to lower churn
- I want to recover failed payments and save revenue
- I'm seeking investment or selling my business and need better reporting
The winning motivation, with over 17 percent of responses, was “I want to lower churn.”
Are you surprised? We weren’t. Churn is a concern for all SaaS companies, especially startups. And if you aren’t concerned about it, well, you might not be tracking it correctly.
So, what does churn look like for startups and how can you lower it? Let’s find out!
What Is Churn?
Churn refers to the number of customers or subscribers who stop using your service during a given period.
While some churn is to be expected (a churn rate between 5 to 7 percent is generally considered acceptable in SaaS), founders should always monitor their churn and work towards keeping it as low as possible.
But, why would customers decide to ditch you in the first place? Let's look at some of the most common reasons for customer churn below.
Why do customers churn?
You’re bringing in the wrong kind of customers
When your startup is getting off the ground, it’s easy to fall into the trap of wanting to sell to anybody and everybody who’s willing to sign up.
This is problematic because your product or service cannot realistically be the best solution for customers of different sizes, industries, business models… the list goes on.
Rather, the more granular you can get in identifying your ideal customers (the ones who can be the most successful with your product), the better service you can provide.
Customers depend on your product to help them run their businesses. Therefore, any bugs, kinks, or downtime costs them money and productivity.
While not every technical problem can be resolved, how your team responds to product issues when they happen can be the difference between keeping a customer and losing them.
Do your customers feel heard when they run into a problem? Are you acknowledging how the issue is impacting their ability to do business? Do you have the manpower to keep them in the loop as your team works on finding a solution?
Nobody likes to be left in the dark — especially when they’re a customer paying you money.
How much you charge your customers needs to align with the value they feel they’re getting from your product.
If they feel like they’re paying too much for what they’re getting, there’s a good chance they’ll look elsewhere to your competitors.
Your Competitors Offer a Better Solution
Speaking of competitors, as a SaaS company, you likely have at least two to three competitors offering a solution that’s similar to yours.
If a customer leaves you for a competitor, it’s probably because the other product is cheaper, faster, or easier to use.
How Startups are Affected by Churn
Allow us to state the obvious: Canceled customers means less monthly recurring revenue (MRR) for your business.
If the MRR you lose from canceled customers becomes greater than MRR from new customers, something is definitely wrong. In fact, higher churn than growth is one of the leading reasons why SaaS startups fail.
Along the same vein, if you decide to seek outside investment, potential investors will certainly look at your churn rate when evaluating your company.
A low churn rate may indicate potential for long-term success because it means your company requires less capital to maintain your current and likely, future, revenue.
A high churn rate, on the other hand, can signal that a product may be a poor market fit, have limited demand, or struggle to compete against similar products.
Simply put, too much churn is the antithesis of growth.
4 Steps You Can Take To Reduce Churn
1. Track why customers are leaving
Understanding why your customers cancel can tell you a lot about what’s going on in your business. The first step is to ask, ideally via an in-app survey or email right after they pull the trigger.
Once you’ve collected enough responses to analyze trends, try to find out how much revenue each different reason is costing you in MRR.
For example, the data above tells us that most of this company’s cancellations are the result of customers leaving for a competitor (“Switching to another product.”) Yikes.
What is the competition offering that they’re not? If it’s product-related like an integration with another software, for example, they could weigh the cost of losing customers against the cost of developing their own integration.
One problem that a lot of startups struggle with is knowing which data points to pay attention to. Cancellation data is definitely essential in your toolkit. After all, these are things costing you revenue that you could actually take action on.
2. Invest in proactive customer success resources
The most effective customer success programs accomplish two key goals:
- resolve day-to-day issues with using your product
- proactively find opportunities to positively impact customer experience
Not sure where to start or wondering where your team could improve? Here’s our shortlist for setting up an efficient and effective customer success program:
It’s hard to scale customer success, particularly when you fail to provide users with the documentation they need to self-serve.
Building a strong resource section on your website anticipates user concerns and proactively addresses them.
Based on your team’s capacity, decide what kind of support you can commit to providing.
Pick the right tools
There are myriad tools to make communicating with customers more efficient and organized.
Here at Baremetrics, we use Intercom because we love that we can tag customers based on different events, send out messages inside our product, and track important performance data along the way.
We also have a direct integration with Integration, which means you can get Intercom data in Baremetrics alongside your SaaS metrics. Learn more about the integration here!
Measure customer satisfaction through metrics
Here are a few metrics to consider tracking over time:
3. Provide effective customer onboarding
Customer onboarding is the process of teaching your customers how to use your product.
Customer onboarding usually starts during a free trial if your business offers those and continues (or restarts) after a customer converts to a paid subscription. It can also be done in a lot of different ways. Product tours, email sequences, and even live Q&A sessions can be effective for getting customers to engage with your product and learn how to do what they are paying to accomplish.
4. Automate failed charge recovery
A failed charge happens when your payment provider attempts a charge on a customer’s credit card and it is not successful. This usually happens to cards that are:
Expired, lost, or stolen
Over or approaching its limit
Frozen by the bank for suspicious activity
Of course, a failed charge increases the risk that you won’t get your payment. To combat this, larger companies typically have an Account Receivable team to chase after customers. But as a startup, you need to operate on a leaner headcount. This is where a revenue recovery solution can be a game changer.
Recovering revenue lost to failed payments (a process sometimes also referred to as “dunning”) involves nudging delinquent customers to update their credit card information through activities like automated emails and in-app paywalls. Generally speaking, the more nudges the better, though engagement declines as time goes on, as shown in the below graph:
These figures represent data collected by Baremetrics’ revenue recovery tool, Recover. Recovery rate is highest on the day of the credit card failure, which is why it’s so helpful to connect your payment provider with a recovery solution and automate the outreach process so it can start immediately.
You can try Recover for 2 weeks free, with or without an existing Baremetrics subscription. Get started today.
Conclusion: Startups Can Reduce Churn with Baremetrics
Reducing churn is a long game, but these recommendations can help your business get to the root causes of churn, address them, and get your MRR moving upwards and to the right.
To ensure that you always have a pulse on your company’s metrics including churn, MRR, ARR, LTV and more, try Baremetrics free for 2 weeks.