I spent over a week speaking with different SaaS founders and marketers about how they successfully reduced churn for their business.

One founder told me the key to how he was able to achieve 0.1% churn by doing something every SaaS business should be doing, but most don’t.

Another walked me through the onboarding emails he sends to retain 94.7% of his customers.

And one showed me a simple tactic their company used that helped reduce churn from 9% to 7.5% in just a few months.

Those are just a few of the people I talked to. There are plenty of others who were gracious enough to share their “secrets” with me.

Want to know one thing they all had in common?

None of them relied on one-off gimmicks like cutting their pricing by 50%, or hiding their cancellation button. They all used sustainable strategies to reduce churn while also growing their business.

Now, I’m passing along everything I learned from them over to you!

In this guide, we’re going to go over six strategies to reduce churn, with real-life examples from SaaS companies that have successfully done it.

What is churn?

First, lets define churn, at the very least so we’re all talking about the same thing.

Churn can most basically be defined as resources lost in a given period of time. Typically it’s referring to users or revenue lost and is usually represented with either a percentage or dollar amount.

For example, if you had a 5% monthly user churn rate, that means each month 5% of your customer base is canceling.

Or if you said you had $2,000 in monthly revenue churn, that means you lost $2,000 in monthly recurring revenue from either customer cancellations or downgrades.

The plain-english formula for calculating churn is:

[Lost Resource / # of resources at beginning of a given interval]

More plainly put, say you’re calculating user churn for the month of May. You had 100 customers at the start of May and 5 canceled during the month. You'd say:

[(5 customers / 100 customers) * 100 = 5% user churn]

It’s important to note that you ignore any new customers added during that time frame.

User churn vs. revenue churn

Most people talking about churn are referring to “user churn”…but there’s another type as well.

User churn is the number of customers you’re losing in a given timeframe (typically per month or year).

But there’s also revenue churn, which is arguably even more important. Revenue churn is the amount of revenue you’re losing in a given timeframe due to downgrades or cancellations.

The reason why it’s such a vital metric is that it has a greater affect on your business. If you look at just user churn, you’re ignoring how much revenue you’re losing with those churned users.

For example, a churned user on a $50/mo plan isn’t nearly as bad as a churned user on a $500/mo plan.

Just looking at user churn would gloss over the fact that you lost a major customer. Revenue churn effectively weights your user churn to be a more accurate representation of how your business is doing.

Signs that you have a churn problem

If you run a SaaS or subscription business, you’re in a constant battle to reduce churn as much as possible because it improves your monthly recurring revenue (MRR) and creates more sustainable growth.

But you should also keep in mind that it’s ok to have a little churn—emphasis on little.

It’s generally accepted that anywhere between 5-7% is a “healthy” monthly churn rate.

Within that range, your business is at a point where you’re losing some customers, but not enough that you can’t balance things out by acquiring new more or expanding your current customers through offering upgrades, add-ons, etc.

If you’re curious about how your churn stacks up with similar companies, our Open Benchmarks show you average churn rates based on average revenue per user.

So, when should you start worrying?

Should you run around with your arms flailing in terror if your churn rate hits 9%?

Not necessarily. Every business is different, and what’s considered “high” for one might be ok for another.

There are some red flags you should look out for though. Here are a few signs that you might have a churn problem:

  • Your churn is outpacing new customers: This one is pretty obvious, but if you’re regularly losing more customers than you’re acquiring, it’s a potential red flag. Particularly if you’re not upselling your current customers.
  • LTV is shrinking: In most cases, The longer your customers stay with you, the higher the lifetime value (LTV) of your average customer should be. So, if customers are constantly churning, you’ll likely see a downward trend in your LTV.
  • Your churn rate is above 10%: Like I mentioned earlier, 5-7% is considered an average churn rate. But when you start getting into double digits, it’s usually a sign that something in your process isn’t working. It could be the way you’re acquiring customers, your onboarding, or another part of your business. But if over 10% of your customers are cancelling, it makes it difficult to grow long term.
  • More downgrades than upgrades: If you offer different plans or add-ons for your product, you want to have more customers upgrading than downgrading. Otherwise, you’re likely to deal with a revenue churn problem.

Those are just a few signs of a churn problem. But chances are, if your churn is getting into uncomfortable levels, you’ll feel it all across your business.

Even if you don’t have a high churn rate, there’s no reason why you shouldn’t aim to get it lower if possible. And if you’re not sure where to start, we’ve got you covered!

6 Churn reduction strategies that can save your business

Now that you have some background info, let’s talk about how to reduce your churn.

Unlike some other articles you might’ve read about how to reduce churn, we’re going to stray away from tactics like “sell annual plans” or “make it harder to cancel”.

Sure, those things might reduce your churn, but they won’t solve the root issue of why customers are churning.

It’s like using duct tape to seal a leaky pipe. It’ll stop the leak temporarily, but eventually you’re going to need to change out that part of the pipe or it’ll start leaking again.

We’re going for the permanent fix.

Here are six strategies to reduce churn for the long-term. And as promised, I was able to convince other SaaS companies to share their “secrets” for how they’ve reduced churn too.

Your goal shouldn’t be to get your churn to zero percent. That’s unrealistic. Your goal should be to at least get your churn rate to a level that makes it possible for you to grow your business long term. The number will depend on your business.

1. Find out why customers are cancelling

The very first thing you need to do to reduce churn is find out why customers are cancelling. And the easiest way to do that is to just ask!

Your cancellation flow should include a short survey where you ask customers why they’re cancelling.

cancellation reasons form

You can use our Cancellation Insights to create a form just like this, and track the responses. The best part is we’ll even show you how much money you’re losing due to each cancellation reason.

cancellation reasons breakdown

Once you start getting responses, the next step is to look at the data and make changes to prevent it from happening again. Prioritize them by which cancellation reasons are costing you the most money.

That’s exactly what Usersnap did in order to figure out why so many customers were cancelling after only a month or two.

They added a cancellation reason field to their unsubscribe page and started to monitor the responses. A common issue started popping up.

usersnap customer feedback

Based on the feedback, they launched a new product line that gave customers a reason to keep their accounts for more than just one-time projects.

Asking customers why they’re cancelling is one of the easiest ways to get valuable insights that can save your business.

Make sure you customize the cancellation reasons in your survey based on your product. For instance, at Baremetrics we allow people to choose from these options:

  • Too expensive
  • Switching to another product
  • Shutting down the company
  • Technical issues
  • Not sure how to use the data & tools
  • Missing features I need
  • Other

As you can see, there are a couple options that are very specific to our product/industry. Since our customers are largely startups, the “Shutting down the company” option makes sense because if they no longer have a company, there’s no need for our product.

You should also always include an “Other” field for people who don’t fall into any of the listed reasons. The more info you can get on why customers churn, the better.

Unfortunately, not everyone will give you a cancellation reason. But Pat Walls, founder of Starter Story and Pigeon, has a solution to increase your chances.

I asked him for some insights into how he’s reducing churn for Pigeon, and here’s his strategy:

pat walls

Pat Walls

Founder @ Pigeon

quote

You would be crazy to not do everything you can to find out why customers are cancelling. That kind of knowledge is power. This is the kind of feedback you need to build a great product.

But how to find out why customers cancel? The hardest thing is getting an answer at all. Then, the next hardest thing is getting a good answer. Sure, you can email them, call them, tweet them, whatever.

But here’s the secret to finding out why they are cancelling: build a relationship with them before they cancel.

If you can develop even the smallest personal relationship (even just a simple personalized email after signup, a friendly support conversation, etc) then the customer will be more inclined to share with you why they’re canceling when they cancel, because they see you as a human 🙂.

One thing I do to build that personal relationship is send every new trial a one minute personalized video to introduce myself and welcome them to the trial.

Pat Walls Personalized Video

I learned this from Davis Baer, the founder of OneUp.

Of course, you still have to ask why they canceled though—I just send a simple email asking why:

Pat Walls Cancelation Email

The punchline here is that you need to find out why customers are cancelling. And if the first time you interact with a customer is when they’re cancelling, that’s probably part of the problem.

Like Pat points out, the best time to establish a strong relationship with your customers is during the onboarding/free trial process. Which leads me to our next strategy...

2. Create a magnetic onboarding process

When customers sign up for your product, do you just leave them to set everything up on their own? Or do you proactively guide them to make sure they’re getting the most from their subscription?

According to data from Wyzowl, most customers aren’t satisfied with the way businesses onboard them.

customer onboarding study

You need to avoid having customers sign up, trying your product once or twice, then never logging back in again because they aren’t sure what to do next.

With a magnetic onboarding process, you’re actively pulling customers back into your product, so they don’t forget about you.

So where do you start?

First, make sure you have the right tools in place.

Pulkit Agarawal, the CEO of Chameleon, shared their onboarding stack with me. They divide their toolset into five categories, and recommend other companies do the same:

Tool category

What they use

How to use it

User data

Clearbit

Find out who your customers are so you can tailor the onboarding experience to them individually.

Product tour

Chameleon

Give your customers the best first experience of the product possible, by guiding them through it.

Communications

Intercom

Keep customers informed throughout the process with a clear line of communication.

Support

ReadMe

Help your customers learn more about how to use your product.

Analytics

Mixpanel

Find out what works and doesn’t for your customers.

You don’t have to use all of the exact same tools as Chameleon, but this is a great list to get you started.

You also need to realize that having all the tools in the world won’t do much if your actual onboarding process is garbage.

So next, I’m going to share a few examples of SaaS companies that’ve optimized their onboarding process to be magnetic and reduce churn.

First, is MobileAction. It’s an app store optimization tool. When people sign up and log into the dashboard for the first time, Mobile Action provides a guided tour (with UserGuiding) to walk people through the product.

Mobile Action Onboarding

This seemingly small step made a big impact. They were able to:

  • Decrease their time to adapt by 32%
  • Increase their breadth of adoption by 38%
  • Increase their net promoter score by 26%
  • Improve their new feature adoption
mobileaction new feature adoption

All of these metrics directly tie back to churn. When users adapt your product quicker, try new features and are more engaged, they’re less likely to churn. Focus on getting your customers to actively use your product, and you could see a drop in churn like MobileAction.

Another company that created a magnetic onboarding process to reduce churn is Encharge. Their co-founder, Kalo Yankulov, was kind enough to break down their strategy for me.

kalo yankulov

Kalo Yankulov

Co-founder @ Encharge

quote

At Encharge, we have a very low churn rate because of our high-touch onboarding process. If a user churns, it usually happens within the first month of their subscription. A churned customer means we haven’t managed to onboard them effectively, or the account is simply not a fit for Encharge.

This pattern in churn together with the complexity of our tool, is the reason why we focus heavily on our onboarding process.

We put trial users into two parallel buckets, or swim lanes:

  1. Automated email onboarding sequence
  2. A sales-driven cadence

We use our product to orchestrate these onboarding activities/emails and get a full picture of the onboarding process of the person.

Every trial user gets in the first bucket and receives a series of time-based and trigger-based emails. We want to get our trial users to follow the shortest path to their desired outcome. An active user in our platform is someone who has imported email contacts, created at least one email and activated an email flow.

In our onboarding emails, we strictly follow what we call the “simple email formula” that each email should have one goal, one desired outcome for the user, and just one call to action.

In the email example below, we nudge people to create their first automation flow by providing the quickest shortcut—using templates in our platform.

encharge.io onboarding email

On top of this, we use a CRM to execute and track sales activities that we follow for the hot leads. The sales process is broken into three calls and supported by multiple email/social media follow-ups.

The first call is a quick, 15-minute qualification call that we use to figure out if the lead fits our customer persona and if our software is going to help them.

The next call is an extended 45-minute marketing automation strategy/email review call, where we try to provide as much business value as possible. This is more of an advisory call than a product demo call.

The last call is an onboarding call where we discuss technical details, demonstrate specific product features, and answer specific questions.

There are no growth hacks here but this personal, consultative-driven onboarding approach helps eliminate our churn with high-value customers.

The upfront resources Encharge invests in their onboarding process might seem like a lot. But it helps them avoid unnecessary churn since they’re heavily qualifying each lead before they become a customer.

One of the things I like most about Encharge’s onboarding process is that it’s an attempt to find out not only if the customer is a good fit for their product, but whether or not their product is a good fit for the customer.

Even if you’re able to convince someone to sign up for your product initially, unless they’re able to get long term value from it, they’re going to churn—quickly.

If you’re acquiring tons of customers, but they’re only sticking around for one or two months, an approach like Encharge’s could be your answer for reducing churn.

Another company that takes a similar approach is Promoly. Their co-founder, Pete Callaghan, gave me a deep dive into how they use automated emails to improve retention for people in trial.

Here’s a look into their strategy!

Pete Callaghan

Pete Callaghan

Co-founder @ Promoly

quote

I'm explicitly measuring people logging into the app and reaching certain milestones within their trial stage. That's my main focus right now.

When someone starts a trial, I have an onboarding sequence that nudges them in the right direction of completing various goals.

I send a series of emails (using Autopilot) that are triggered by customer behavior as well as nicely timed emails on a sequence. The trick is to get the user to take action from that email.

Within the body of the email, I tell them how to do something within the app and provide a link to take them to the appropriate app section.

I believe delivering an email in the right moment of their trial helps build trust, guidance and increases conversion. Ultimately, it creates a conversation between the user and me, which is crucial if you want them to stick around for a long time.

For example, the first-ever email sent has a 63% open rate and a 19.6% CTR. In this email, I welcome and tell them how to create a campaign within our app. I keep it very simple and don't confuse the message.

Here's the copy:

"Let's get you up and running: You'll need music, artwork and a press blurb to start sending promo campaigns. Click the button below to head to your campaign dash. From there, create a new promo. When you've done that I'll be in touch." 

Under the copy, I have a blue button that links directly to their dashboard (our app). As you can see, I give them action and then say I'll be in touch when they complete the task.

When they've completed their task, I deliver another email triggered by our API. The API feeds our email marketing platform, which I can then trigger user-specific emails when needed.

When I was talking about delivering an email at the right moment, this is a great example. The first email gives them a goal; our API tells us when they complete it, and then I deliver another email with the next target. This email, in particular, gets a 66.7% open rate.

Another email I want to talk about is one that asks the trial user a simple question. This email gets a 67% open rate and a 12% reply rate. It’s delivered 5 hours after signup.

Here's the copy:

"One quick question, if you don't mind me asking... Why did you sign up? I would love to learn more about your business and how you're planning to use Promoly. Reply here and let me know."

As you can see, I keep it simple, but the important part is the last line.

I tell the reader to reply. From this single email, I get to build a relationship with the lead, find out about their business and talk about resolving their problems with our app.

As you can see, I track the entire signup and customer app usage. Doing this is the absolute key for gauging customer retention.

Last month's customer retention was 94.7%, and our overall average is 93.66%. Delivering the right message at the right time will help your overall retention, get people to take action and ultimately help them convert.

You’re probably starting to see a common theme here. If you want to retain customers and reduce churn, you need to engage your users.

Both Promoly and Encharge are proactive about reaching out to leads and customers once they’ve signed up. They even gamify the onboarding experience by giving users “tasks” to complete, so they aren’t just left to fend for themselves.

If people don’t understand how to use your product, they aren’t going to use it. The end result is churn. Use your onboarding process to show customers the value of your product, and keep them engaged.

3. Build customer loyalty

We all know that one person who is loyal to a specific brand. The one who wouldn’t dare wear a pair of Reeboks out of their loyalty to Nike. Or the person who refuses to go to any grocery store except Whole Foods.

The reason they’re dead set on only buying from specific brands is because the companies have built customer loyalty, or brand loyalty.

Customer loyalty isn’t just limited to huge international brands that sell physical products. There are plenty of smaller brands (including SaaS companies) that have die-hard customers that are loyal to them.

For instance, one of my personal favorite tools, Ahrefs has a very loyal customer base—as noted by all the love they get on social media.

Ahrefs tweet screenshot

The popular e-commerce software Shopify is another SaaS company that’s built a really loyal customer base judging by this Tweet.

Shopify love tweet

One of the biggest differences between a brand loyalist and someone that just likes your product is customer loyalty is tied to your brand, not just your products.

Someone who just enjoys your product might leave if another company releases a similar product at a lower price. Their main concern is the utility of the product.

A brand loyalist, on the other hand, likes your product AND your company. They consume your content, attend your events, brag about you on social media and send referrals.

Most importantly, they’re less likely to churn.

The million dollar question is, how do you build customer loyalty?

Here’s a hint, it’s more than just building a good product. Here are a few tips and examples from SaaS brands that use customer loyalty to reduce churn.

Be honest and transparent

As an open startup, transparency is something that’s built in the fabric of our company at Baremetrics. We openly share our business metrics including revenue, churn and a laundry list of others. This level of transparency builds trust in a world where 55% of customers now trust companies less than they used to.

All the data your startup needs

Get deep insights into your company's MRR, churn and other vital metrics for your SaaS business.

While that’s one way we’re transparent, it’s not the only way to do it. For instance, Airfocus openly shares their product roadmap so customers can see what new features are on the horizon.

airfocus product roadmap

Customers can vote for the features they’re most excited about, which helps Airfocus prioritize what to work on next.

Making their product roadmap public helped drop their churn three percentage points, according to their co-founder, Malte Scholz. Here’s his insights into why having a public product roadmap has helped reduce their churn:

Malte Scholz

Co-founder @ Airfocus

quote

A lot of times, people will sign up for your product not only because of your current offer, but because of what you have planned for the future.

If they commit to a product, they want to do it long term, and they want to ensure that you will give them everything they need in the future.

A product roadmap is one of the best ways to convince people to stay with you.

If you’re considering doing something similar, Scholz recommends to keep your roadmap to 2-3 months out, and to share as much detail as you’re comfortable with.

In addition to being transparent, honesty can also improve customer loyalty.

Honesty doesn’t just mean apologizing to upset customers. It means being able to admit when your company falls short, and working to fix the problem.

That’s exactly what Groove did.

I won’t dive into the whole story, because their founder already did here. But essentially, the company faced some real growth challenges with infrastructure, design, team structure and even customers being vocal about not loving the product anymore.

Groove Product Feedback Email

Now, they could’ve ignored the feedback they were getting and wrote it off as customers just not being a great fit. After all, they reached $100K in MRR so something had to be working.

Instead, their founder, Alex Turnbull, was honest with himself, the company and their customers, and decided to start from scratch.

They spent over a year (and more than $1,000,000) rebuilding all the work they did in the previous five years.

After the relaunch, things seem to be trending in the right direction, and they’ve gotten some positive feedback from customers.

groove relaunch feedback

Turns out our parents were right all those years when we were kids—honesty really is the best policy.

Celebrate your customers

Raise your hand if you like feeling ignored and neglected!

Anybody?

Well, ignored, is exactly how your customers start to feel if your relationship with them is purely transactional—especially if they’ve been with you for a long time.

Like I mentioned when we talked about brand loyalty, customers are constantly showing their appreciation for the companies they love. But a lot of times it doesn’t get reciprocated. And that could be part of the reason you’re experiencing churn problems.

The good news is that celebrating customer wins is easy to do. Here’s how.

First, you need to identify the customers you’re going to celebrate. If you have hundreds or thousands of customers, it might seem overwhelming to dig through them all and decide where to start. Here are a couple of ways to make it easy.

Option 1: Send Out a Survey

One way we’ve started to celebrate our customers is featuring them in our content.

I recently sent out a survey to our email list (I used Typeform) to see if anyone would be interested in being featured on our website. One of the questions I asked was “Are you a Baremetrics customer?”

Are you a baremetrics customer

This allowed me to get a list of our customers who are interested in appearing in our content. We even had some people who were specifically interested in talking about how they use our product!

Survey response

This is a win-win situation. We get to give our customers exposure to our audience and send some referral traffic their way. In return, we get content to publish on our site.

The survey we sent out was specifically for customers interested in being featured on our website, but you can use this tactic in other ways. It all depends on the questions you ask.

For instance, you might ask:

“Would you be interested in being highlighted as a “customer of the month” on our Instagram page?”

Option 2: Look For Your Highest Value Customers

If you’d rather get more selective about what customers you choose to highlight, another option is to just start with your highest value customers.

These might be customers who have been with you for a long time, the ones that are paying you the most, or even the ones that have sent you the most referrals (if you’re tracking that).

For SaaS companies, you can do this easily in Baremetrics. Just head over to the Customers section. Make sure you’re only showing your active customers.

Customer List

Then just sort your list by MRR, LTV or Signed Up date to prioritize who to reach out to first.

Once you’ve identified the customers you want to highlight, the next step is deciding how to celebrate them.

Here are some ideas to get you started.

I mentioned that we’re going to start celebrating customers by allowing them to contribute content to our website. But another way we do it is by highlighting our customers’ successes on social media.

Baremetrics Customer Win

Sprout Social also uses content to celebrate their customers. In their Always On series, they highlight how their customers solve the challenges of running social media marketing at various companies.

Figma celebrates their users by featuring their work on their Instagram page. In order to promote their Config conference, they asked attendees to contribute a square to a community quilt that visualized what community means to them.

While it’s not a SaaS company, freelance marketplace Fiverr does a great job highlighting their customers through success stories on their blog, as well as featuring both buyers and sellers throughout the website.

As you can see, celebrating your customers can be as simple as sending out a Tweet, or as big as featuring them in a video.

I’d suggest you start by looking for as many smaller opportunities as possible:

  • Tweeting customer successes
  • Highlighting a customer of the week or month in an email newsletter
  • Sending “thank you” emails after customers have been with you six months or a year
  • Allowing customers to tell their stories on your blog

Whatever route you choose, celebrating your customers makes them feel appreciated and more loyal to your brand. And those customers are less likely to churn.

4. Analyze churn by customer segments

One of the biggest challenges with reducing your churn is just figuring out where to start.

Let’s say your churn rate is at 11%. Trying to reduce that entire number might seem overwhelming. Instead, as a first step, figure out where that 11% is coming from.

Is it spread across customers from each plan you offer?

Do you have a lot of cancellations for your lowest price tier, while your enterprise customers stick with you long term?

Or maybe customers who signed up with a coupon are churning at a higher rate than ones that paid full price.

In order to make sense of it all, look at your churn by customer segments or cohorts.

Customer segments are the different ways you group customers together. It could be by their plan level, location, coupon vs. full price, or any other category.

Since most SaaS companies have multiple pricing plans, that’s usually a good place to start. I’ll walk you through how to analyze your churn by customer segments in Baremetrics.

Let’s stick with segmenting churn by pricing plan first.

Just head over to the Metrics section and choose User Churn.

Churn dashboards

If you scroll down on this dashboard, you’ll see a section that breaks out your churn by plan. We show you the churn rate for each plan, and the average time to churn.

Churn Rate by Plan

You can sort from highest to lowest churn to see which plans are cancelling the most. From there, you can start to plan on how to reduce it.

For instance, maybe most of your churn comes from your highest priced plan, but your low and mid tier plans have relatively low churn. It could be a sign that you’re not providing enough value at that top tier plan to justify the price.

As a next step, look at the cancellation reason for your highest churning plans. To do that, you’ll need our Cancellation Insights. There, you’ll be able to download a table with all of your cancellations for whatever date range you choose.

Download Cancellation Reasons Table

Once you download the table, you can sort it by plan level and see the exact reason people cancelled, including comments.

cancellation insights spreadsheet

Following those steps should give you some good insights. But what if you want to segment your customers another way besides price?

Maybe you want to see which countries have the most churn. Or compare the churn rate of customers who came from Instagram vs. Google Ads. You can use our segmentation options to break out your customers based on any criteria you need.

First, you need to setup some segments.

In the Customers area, click on “Add Filter” on the left side, and you can scroll through all the different attributes you have available.

customer segment attributes

We give you some default filters you can apply like:

  • Signup date
  • Country
  • MRR
  • Conversion Date
  • Industry
  • Cancellation date
  • A bunch of others

You can also use Augmentation to bring in data from external sources like your marketing automation software or your CRM. And if you use Intercom, you can use our integration to create filters based on NPS scores, sales rep, acquisition channel or other customer data.

Add any filters you like. Again, as a basic step, I’d recommend creating segments for your different plan levels. So add a Plan filter, and select one of your plans.

Then hit Save and give it a name.

Save Segments in Baremetrics

Repeat the process for each plan level you offer. Now that you have your segments saved, the next step is to find what your churn is for each segment.

So head over to your metrics, then User Churn.

Churn dashboards

Then, choose the segments you want to compare. For instance, I could compare churn for customers that signed up in 2019 vs. those that signed up in 2018.

User Churn Segmentation Example

Contrary to popular belief, customers who send complaints or submit a bunch of support tickets aren’t always the ones you need to be concerned about. The people who are really at risk of cancelling are the ones you don’t hear from.

Customer complaints are a sign of two things:

  1. They’re actively using your product
  2. They want you to improve product so that they can keep using it

That gives you something to work with. But when a customer isn’t logging in at all, it’s a red flag.

It’s a lot like gym memberships. You sign up in January because you’re motivated to make a change in your life.

You go for a month or two, then eventually your motivation fades away. You still pay for the membership, but you go less and less frequently. And then you eventually cancel.

The same thing happens with SaaS and subscription companies. Here’s what usually happens.

People sign up for your product because they just discovered it and are excited about it. Then after a while they use it less and less.

At a certain point, your customers have either lost interest, put you into the “I’ll use it again eventually” category, or they don’t want/need your product anymore and just forgot to cancel.

Eventually, they’ll start to see your product as an unnecessary expense (just like that gym membership) and will probably cancel.

Here’s how to prevent that from happening.

Step one is making sure you have a tool in place to track user behavior in your product. There are a bunch of options. At Baremetrics, we use Mixpanel.

All your SaaS data in one place

Stop switching between 15 tabs to look at your data. You're better than that. Quickly import data from Mixpanel, Intercom and other data sources into Baremetrics!

From there, just start monitoring user behavior and keep an eye out for inactivity. You can even setup notifications in Mixpanel when customers reach a certain period of inactivity.

Depending on the nature of your product, what’s considered “inactive” will vary.

For instance, with a social media management tool like Hootsuite, customers should probably be logging in at least a few days per week, if not daily to monitor incoming messages and to publish content. But with a resume building tool, users probably aren’t expected to login as frequently.

Once customers reach the threshold you define, use email to push them back into your app. You can gamify it by creating triggers that ask customers to complete a certain activity after they’ve been inactive for a while (like the Promoly example we went over in strategy #2).

Or, you can just send regular reminders to push customers back into your tool. For instance, Copper sends weekly updates for new sales opportunities and nudges you to login with the question “Have anything new to add to your pipeline?”

Copper Email Reminders

When customers are inactive, you need to be proactive about engaging with them.

Sometimes inactive customers don’t dislike your product, they just get busy or forget. It’s your job to tap them on the shoulder and remind them how to get more value from your product.

5. Listen to your customers

Remember what I said about vocal customers vs. quiet ones?

When a customer complains or gives feedback, it’s a sign that they want to use your product. They just have an issue, or a suggestion for something that could make your product better (and increase their chances of sticking with you).

When they give that feedback, you need to listen and act on it. Customers really appreciate it, just look at this example from Drift.

Drift listening to customers

Listening to your customers (and acting on their feedback) directly impacts churn.

I talked to Stas Kulesh, the founder of a nifty tool for Slack called Karma, and he clued me in on how they were able to get their churn all the way down to 0.1% last month!

stas kulesh

Stas Kulesh

Founder @ Karma

quote

We tend to spend an insane amount of time talking to the customers. In some cases, we manage to implement features in less than 24 hours.

On average, our NPS score is well above 75 and more than 30% of new customers come through the word-of-mouth recommendations.

As you can see, Karma gets a ton of value from talking to their customers, gathering feedback and then taking action on it. And it’s helped get their churn to less than 1%, so it’s safe to say it’s worth it.

Getting feedback isn’t always easy though.

The problem some companies run into is feedback can come in from all over the place (social media, support desk, personal conversations, etc.) That makes it tough to keep track of.

As a first step, create a process for gathering customer feedback and product feature requests. At Baremetrics, we use Clubhouse and mark any feature requests as “Feature”.

Clubhouse feature request

We also use Slack to talk through feedback and requests from customers. It works great for us, but it’s not the only way.

Here’s another real life example of how one company reduced churn by listening to their customers.

Dmytro Okunyev, founder of Chanty, gave me some insights into how they were able to reduce their churn by listening to customer feedback.

Dmytro Okunyev

Dmytro Okunyev

Founder @ Chanty

quote

We decreased our churn with one simple act—thoughtful listening.

We have quite a few requests for features and product updates, just like most of our competitors. However, we jot down each feature request and once we start working on it, we email the people that requested it.

For example, we recently rolled out threads as a way to communicate in chats, and we messaged each person that requested the feature as we started working on it.

We got in touch once again when we finished and launched the feature. That way, we’ve constantly stayed in touch with people that wanted something more from our product.

It didn’t cost us anything but a few emails sent every day. As a result, our churn decreased from 9% to 7.5% in just a few short months.

The reason Chanty’s approach works is because they aren’t just taking in feedback. They’re using it to help decide what features to create next, and following up with customers afterwards.

Microsoft found that brands are viewed more favorably by 77% of consumers if they proactively invite and accept feedback. So being intentional about getting feedback and putting it to use can help you retain customers and reduce churn.

6. Recover failed payments

Have you ever wondered how much money you're losing out on when your customers credit card payments don't go through?

Well, we got curious and decided to find out. We looked at our entire customer base and compared the amount of failed charges to their MRR.

We found that on average, SaaS and subscription companies lose about 9% of their MRR due to failed payments.

And if you’re sitting around waiting for your customer to realize their payment didn’t go through, you might as well kiss that revenue goodbye.

Typically, one of two things happens when your customer’s payment fails:

  • They eventually realize it and make their payment
  • They go ghost and you lose out on the money (hello churn)

Even if the customer does update their payment info later on, you're still missing out on revenue.

Our very own head of growth gave some good insights into why it pays to be proactive with  failed payments.

corey haines

Corey Haines

Head of Growth @ Baremetrics

quote

By default, most systems automatically cancel a customer (or consider them cancelled) after 30 days of non-payment.

Some founders are averse to a dunning solution because they assume that "some customers end up coming back anyways." 

This is naive thinking because those customers are still churning out. Plus, they may not come back for a while so you're losing out on revenue in the meantime.

This eats into your customer LTV. It's always better to try to recover a customer as quickly as possible so they never even enter the churn equation.

Could you imagine manually checking your payments each month and following up with everyone who’s card didn’t go through? Nobody has time for all that. So start by automating the process with a dunning tool like Recover.

With Recover, you can set up in-app reminders and paywalls that’ll pop up for customers whose payments didn’t go through or are up for renewal. Here’s an example of what ours looks like:

Baremetrics Billing Update Form

You can also setup an automated email sequence to send to customers until you’ve collected payment. And to avoid failed charges from happening in the first place, you can also send out emails before credit card expirations and annual renewals.

recover-manual-reachout

The follow-up emails are super important.

In an ideal world, every customer would get the first email and update their billing info. But always remember, people get busy and can put things off (especially paying bills), so one email isn’t enough.

We’ve seen it first hand. We send our first email for failed payments the day it happens, and then five subsequent emails afterwards.

The first email has the highest recovery rate, but the follow-up emails have helped us recover tens of thousands in MRR we might’ve otherwise lost out on.

With Recover, you also get a bunch of data and insights into how much MRR you’ve saved, why payments fail, and other helpful info.

Recover Screenshot

But enough bragging about our product! (I highly recommend checking it out though)

Once you have your dunning tool setup, decide what frequency you want to email customers whose payments have failed. Here’s what our sequence looks like:

# of days deliquent

Email

0

Hi {Customer.FirstName}⁣!

We've been unable to process your payment for {Company.Name}⁣ using your card ending with ####. Can you please take a moment to update your payment information on our site?

3

Hi {Customer.FirstName}⁣!

We've still been unable to process your payment for {Company.Name}⁣ using your card ending with ####. Can you please take a moment to update your payment information on our site?

7

Hi {Customer.FirstName}⁣!

We've still been unable to process your payment for {Company.Name}⁣ using your card ending with ####⁣. Can you please take a moment to update your payment information on our site?

15

Hi {Customer.FirstName}⁣!

We've still been unable to process your payment for {Company.Name}⁣ using your card ending with ####⁣. Can you please take a moment to update your payment information on our site?

20

Hi {Customer.FirstName}⁣!

I noticed the payment info on file is still failing. Can I help you get it updated?You can update it here: [link]

30

Hi {Customer.FirstName}⁣!

We're still not able to process your payment using your card ending with {Customer.Last4}⁣.For your account to stay active, we need you to update your payment info right away. You can update it here: [link]

It’s usually best to keep these emails short and sweet. The goal is to let customers know their payment failed, and get them to update the information. It’s not the time to lecture them about financial responsibility.

Goodbye churn, hello MRR

There you have it, six proven strategies for reducing churn. We went over a lot of info here. And I want to make sure you actually take action and don’t get stuck in analysis paralysis.

So here’s a quick breakdown of the top three steps you should to take right now to get started:

  1. If you don’t have reliable data around your churn (what’s your churn rate, which customer segments are churning the most, why customers are cancelling, etc.) sign up for a Baremetrics account ASAP. Otherwise, you’re not making informed decisions—you’re just guessing.
  2. If you don’t currently have an onboarding process in place, start writing out a series of emails of the steps customers should take when they first sign up for your product. Refer back to the Encharge, Pigeon, or Promoly strategies above if you’re not sure where to start.
  3. Create a feedback loop so you can start to learn more about what your customers want from your product. Then act on their feedback and follow up with them, just like Chanty did to reduce their churn from 9% to 7.5%.

Take those three simple steps today, and you’ll be in a much better position than you’re in right now.

Just keep this in mind. Even if you’re able to flawlessly put all these tactics into action, don’t expect to go from 12% to 2% churn overnight. It’s a process, but it’s well worth it.