B2B SaaS Churn Reduction
In the B2B SaaS industry, churn is inevitable and can severely damage your company’s bottom line, even if you have a strong acquisition strategy. Regardless of pipeline, keeping your existing customers and users (even free trialists) happy and helping them achieve their goals is fundamental to having sustained growth. Without measuring and understanding your churn properly and having an active strategy in place to address it, you will end up with a big leak in your business that will only get harder to plug as you continue to scale.
When the churn becomes too problematic to ignore, it results in an abrupt and urgent reprioritization of product feature roadmaps, and companies end up having to move backwards just to fix systemic problems that are at the source of their customer churn.
To prevent this from occurring to your SaaS business, read this eight-step guide that will provide actionable tips on how to identify, measure, and reduce customer churn, along with some potential tools that can help accelerate and simplify your progress.
Before we get into the 8 strategies & tactics, we will briefly cover the terminology and formula for calculating positive (bad) churn and negative (good) churn. These categorizations are based on the net changes to your existing monthly recurring revenue (MRR) after summing up the loss of revenue from churned customers and the revenue gains from upsells/cross-sells/expansions of existing customers.
The formula is as follows:
MRR of churned customers - MRR growth of existing customers = Net churn
Net Positive Churn (Red Flag)
When the topic of churn is brought up, positive churn is generally what people are referring to. While there’s a common perception that losing even a single customer can be considered net positive churn, it does not take into account the possibility of generating additional revenue from other existing customers within the same period, which is why the MRR growth portion of the formula above is important. However, ultimately most SaaS businesses experience positive churn, whether they realize it or not. From the formula above, here’s an example of a company experiencing positive churn.
$20k MRR (customers who churned) - $12k MRR (from upsells/cross-sells) = $8k existing MRR churn
Net Negative Churn (The Goal)
Net negative churn is where you have positive monthly recurring revenue (MRR) growth from existing customers. This occurs when the recurring revenue you generate from upsells/cross-sells/expansions outpace the revenue you lose from customers are churning (through leaving or downgrading plans). Here’s a simple example based on the formula:
$15k MRR (customers who churned) - $20k MRR (from upsells/cross-sells) = -$5k existing MRR churn
Getting to net negative churn is a clear path to sustainable growth. In fact, studies have demonstrated that upselling and cross-selling existing customers is much easier than landing new customers (and 5-10X less expensive). This growth will compound over time as these customers have demonstrated continued loyalty and willingness to pay more for your product.
Long term impact of net negative churn
Bain and Company found that net negative churn can increase a company’s profits by over 25% (even with just a 5% decrease in churn), and David Skok of For Entrepreneur exemplified the compounding effects of net negative churn by modelling various levels of churn and its impact on a company’s growth even when acquisition remains constant. In the graph below, you can see the exponential impact on MRR growth with even the slightest differences in churn %.
Source: David Skok - For Entrepreneurs
With the same starting point, in just five years, the company with -2.5% churn would be nearly 3X bigger than the one with 2.5% churn.
Even a company with 0% churn enjoys nearly 60% more MRR than one with 2.5% churn after 5 years, so you can see how the impacts of churn can accumulate over time and significantly impact the revenue and lifespan of your company.
Combating Churn Is Cumulative
Given everyone’s familiarity with customer success, companies often default to developing customer success strategies as the main lever for addressing churn. However, building a customer success function is just one piece of a much more complex puzzle. There's no "silver bullet" to managing churn for any company, but rather, it is an endless game of optimization and needs to be approached from all aspects of the business with a focus on value add and the customer experience.
Now, we will outline eight strategies and tactics you can start applying today, to get your churn rate down into the net negative territory. Regardless of what stage of growth your B2B SaaS company is in, the earlier you start implementing these strategies, the quicker and more sustainable the growth of your company will be.
The 8-Steps to Reducing Churn
1. Track Everything
As with everything, you can’t improve what you can’t measure. Beyond just measuring your churn rates (which is one dimensional), tackling churn will require you to analyze product usage metrics (ie. how often do users use your product before going silent). By setting up a robust product measurement framework, you will be able to map out your users’ behavior, and surface early warning signs of potential churn. This will help you identify areas of friction, or conversely, milestones that indicate success.
The individual events and actions to focus on will be unique for every product, however here are some universal stats you will need to consider to figure out your retention health and baseline churn numbers, and frameworks for identifying key in-app actions to monitor.
Every product has what the industry refers to as the ‘Aha’ moment, which is the moment when a new user experiences the core value of your product for the first time. In every scenario, the more time that passes before the user makes it to the "goal action" that you’ve defined, the more likely they are to churn. A few common examples of this are:
- Users connecting your product with their CRM so data from your app syncs with the rest of their workflow
- Creating and launching their first campaign or sequence from your platform
If you offer a free trial, analyze the percentage of users that don’t become paying customers, and identify the steps that they most commonly go quiet on within the set up / onboarding journey.
Retention Health Metrics
Once users have passed the setup / onboarding phase, the metrics you will need to track become more expansive, often outside of your core product. These should include:
- The number of open support tickets and the average time it takes to close them. Logically, higher ticket volumes / response times indicate that customers are experiencing continuous friction while using your product, and/or are not getting the support they need to resolve issues in a timely manner.
- Your net promoter scores (NPS). This indicates how likely your customers are to recommend your product to others. To measure NPS scores, you should be sending surveys to customers frequently to discover their satisfaction with you, your products, and your services.
- Your recurring revenue rates by cohort (months/quarters/years using your product). It’s also important identify when changes were made to your product/support and whether or not it had impact on your recurring revenue
Although this can feel overwhelming, there are various SaaS tools that exist to help gather this data and automatically generate reports on them, such as Qualaroo for NPS score surveying and Mixpanel/Heap for product analytics just to name a few. These tools will allow you to gain visibility into how your customers use your products to identify what's working and what's not.
2. Collect Direct Feedback from Customers
To get a comprehensive picture of why your customers are leaving, quantitative data alone is not sufficient. Collecting qualitative data by directly asking customers why they are churning will prevent you from making incorrect assumptions that you’d otherwise be forced to rely on.
One prominent use case would be for customers who sign up for a free trial, yet don't follow through with a paid subscription. While the data can tell you where users may be getting stuck or losing engagement, you can only make assumptions as to why. It could be that they are getting lost on what actions to take next, or that the free trial features are too limiting and do not allow them to fully recognize the value of your product. These assumptions can be costly if used to inform your product iteration roadmap, which is why it is extremely important to collect direct feedback from your customers.
On top of the insights gained, based on research done by SuperOffice, 68% of customers leave because they believe their vendor does not care about them. As a result, asking them for feedback will also act as an opportunity to retain these customers and rebuild the relationships.
In the early stages, you can have your customer success team reach out to these customers manually. However, scaling will require you to collect this qualitative feedback data through automated surveys. It’s important to implement these surveys within your product at various points in the customers’ journeys, to help you gauge customer interest and identify how challenges may change over time. If nothing else, make sure to build an exit survey and implement it as part of the offboarding process - this will provide an abundance of insight as to why customers are churning. Many companies use Intercom to collect feedback from their customers and provide a channel for them to ask support questions, but there is also an abundance of alternatives including Zendesk, Pendo, and Productboard that have user feedback and surveying features.
3. Focus on the onboarding experience
An effective onboarding process will ensure customers experience the benefits and value of your product immediately with minimal to no friction. This will set the stage for a positive customer experience, and should be a continual focus even for existing customers as you release new features. In fact, when it comes to short term retention, up to 75% of users will churn within the first week.
Luckily, there is an abundance of solutions that can help you improve various aspects of your customers’ onboarding experience.
Product adoption software, such as Userpilot and Appcues, will allow you to build interactive walkthroughs that guide your users through your platform and drive them towards achieving their goals. This will eliminate any guesswork around how to navigate your app, which can often be a frustrating process when users are signing in for the first time.
The benefits don’t stop after optimizing the initial user onboarding either - these solutions will allow you to continue adding value to your long-term customers especially when it comes to product updates or the launch of new features. This can be through informing existing customers of new updates/fixes with in-app popup modals, building walkthrough tours for new feature launches, and even sharing advanced tips and tricks that will help them unlock additional value or become more efficient with your product.
SaaS oriented email automation platforms like Userlist will allow you to leverage user behavior data to trigger sophisticated onboarding email journeys. This enables you to not only provide them the right information at critical points in their onboarding journey (ie. sending useful tutorial videos or notifications on specific in-app events), but also re-engage users who have not logged into your app for a specified period of time.
Experiencing the value of a product often requires users to import their existing data, which can come in various shapes and sizes. For many, data onboarding can act as the greatest point of friction, because manually formatting and cleaning data into CSV templates is almost always complicated, time consuming, and crowded with errors. Solutions such as Flatfile automate this process, by leveraging AI to learn over time how data should be structured, and automatically match fields without manual intervention.
However, beyond initial data onboarding, users often need to have data flow continuously between the dozens of SaaS apps that they use, most commonly with their CRMs in the B2B context. This brings us to our next step - making your product stickier with native integrations
4. Methods to make your product stickier
The B2B SaaS landscape has shifted dramatically over the past few decades, with a shift from companies adopting a single, enterprise wide tool such as Oracle, to companies now using dozens to hundreds of SaaS solutions, each serving a specific set of needs. With traditional SaaS like Oracle, it was very difficult and tedious for customers to switch to a different platform, as they would have to essentially uproot all their processes and the impact would be felt across the organization. However, nowadays customers can switch between alternative products relatively easily as they are often used in silos with the rest of the company’s tool stack. Not only does this limit the value the customers get from using the solution, it also makes their switching costs negligible. Companies are beginning to tackle the issue by providing native integrations with their customers’ other SaaS apps - with the 15 largest B2B SaaS companies offering a median of 347 integrations.
When your SaaS product becomes a seamless part of your users’ workflows and integrates in real-time to the rest of their other tools, it will not only create synergies and allow your product to add more value, but more importantly, make it much harder for customers to unplug your product from their stack and switch to a competing product.
Integrate with your customers’ SaaS apps
Make sure to understand what other SaaS applications your customers and prospects commonly use that can be synergistic with your product. For example, one of the most common use cases are sales & marketing tools unlocking significant value and efficiency for their customers by integrating with their customers’ CRM tools, allowing more data to be available on each customer account to drive better decisions and follow ups.
However, when prioritizing customer integration requests against core product features, integrations almost always go into the backlog. This is primarily due to how time consuming building integrations can be, as well as the endless maintenance that they require, as changes/updates to APIs can cause integrations to break. On average, we’ve found that building a single native integration can take anywhere from 3 weeks to 6 months. Multiply that by the dozens of popular integrations that your customers have requested, and you’re looking at years of development purely for integrations.
That’s precisely why we built our integration-platform-as-a-service (iPaaS) solution, Paragon Connect. It will allow you to ship dozens of integrations in minutes with a unified API and configure workflows for the end users with our low-code visual abstraction layer. With Paragon, Quantcopy shipped a production-ready Salesforce integration in 5 days, whereas it would’ve taken them over a month of development to build it themselves.
If you’re interested in seeing Paragon in action, book a demo with us!
5. Develop Good Customer Success Practices
No one will question the importance of having a customer success function when it comes to combatting churn - however rarely is it executed well.
Simply hiring a customer success team and having them check in with customers is no longer sufficient in the current environment. Lincoln Murphy of Sixteen Ventures says, "Most SaaS companies overthink customer success." - while conceptually this may be true, proper execution is not nearly as straightforward. It’s important to build an extensive customer success strategy and implementation system that is oriented around ensuring your customers feel supported at the most critical points in their journey, and to help accelerate their progress towards achieving their goals.
Here are a few tangible goals you should aim for with your customer success function:
- Make your customer success function feel like an extension of your customers’ team(s). This means having a framework for documenting and understanding their business goals and how they expect your product to help them achieve those goals.
- Provide insightful and actionable tips as that can further unlock value for your customers. You customers are likely unaware of all of the advanced features or shortcuts that are available in your product, so you should be able to unlock additional value and tactics that will help accelerate their progress.
- Co-create and align on a measurement plan with KPIs that are relevant to how they are using your product. This will ensure you have full visibility on whether or not they are receiving the value they desire, which can be a proxy for customer satisfaction.
- Proactively identify when customers aren’t using the product effectively and check-in whenever they become inactive, as these can be signs of friction which can ultimately lead to customer churn when left unattended.
- Share product feature requests from your customers with your product team, and keep them in the loop on progress of getting those requests on the roadmap. For example, if customers have requested an integration with their CRM, be transparent on when they can expect that integration to be built out.
Dedicated customer success tools such as Gainsight and Totango embed these frameworks right into their application, which can be extremely powerful as you scale. However if you are in the earlier stages, the same outcomes can be achieved by designing a workflow and process to keep track of customer health that works alongside your product analytics and CRM tools.
When customer success is executed properly, not only will you be able to retain your customers in the long run, they will be excited to tell others about our product and much more willing to be tolerant of bugs or other issues they experience. This leads to our last step - customer support.
6. Deliver Exceptional Customer Support
There is almost nothing worse than not having access to support when dealing with an issue, or waiting for days for an answer to a question only to realize your question was misunderstood. Customer expectations are higher than ever, and B2B customers want to maximize their return on investment with each purchase.
One of the largest drivers to customers churning and switching to a competitor’s product is having a bad customer experience, even if the competitive alternative costs more. One study found that 68% of consumers are willing to pay more if a vendor offers better customer service experiences, and 86% of customers say that good service will convert them from one-time buyers into long-term brand ambassadors. Having good support processes and people can make all the difference.
Simply put, good customer support boils down to two factors:
1. The time it takes to receive a response
2. The accuracy/helpfulness of the response
Only having one of the above is just as bad as having neither - getting a quick but unuseful response adds no value, and waiting for days before getting the right response can lead to extreme frustration.
Luckily, getting there is extremely straightforward. The obvious answer is to have sufficient staffing for your customer support function, however not every company can afford scaling headcount. This is where automation, efficiency and prioritization becomes extremely important.
Oftentimes, customers reach out to customer support due to questions from their lack of knowledge on how to use the platform. Generally, the same questions will come up consistently from different customers, which is why it’s important to build resources and documentation that you can programmatically direct users to. This can be executed through leveraging a chatbot such as Intercom that can help direct users towards specific documentation based on keywords from their inputted questions, or in its most barebones form, building an indexed FAQ section.
This will act as a gatekeeper so that your customer support team can focus their efforts towards actual bugs and issues that other customers are experiencing, and secondarily, the longtail of extremely specific questions.
However, even with these systems in place, your customer support team will find themselves overwhelmed with tickets as you scale, which is why you need to have a clear framework for prioritizing tickets.
The parameters that should be factored into your framework are:
1. Severity of the ticket - ie. Impact on your customer’s business
2. Effort required to look into and fix the issue
3. How long the ticket has been open for
Accuracy and Quality of support
Providing your customer-facing teams with the right training, resources, and information on your product is table stakes, but being able to pass complex issues to the team most equipped to handle it can be a challenge, especially as your company grows.
By having the right triage structure in place, you’ll be able to have the right team support the request from the beginning, which will be crucial for keeping customers at ease. The last thing you want the customer to think is that your support team does not have the skills required to help them resolve their issues, which will lead them towards losing confidence in your product and your team.
Besides Intercom which we already mentioned above, tools like Freshdesk and Zendesk can help you capture and analyze your customer support data so you can be proactive at all phases of the customer lifecycle, improve retention, and reduce churn.
7. Align Teams Around Retention
In most organizations, each team has their own internal north-star metric, Whether that be the volume of qualified leads (MQLs) for marketing, volume of new deals closed for sales, or shipping new features on time for product teams. These metrics are no doubt important for measuring the performance of each team, but having siloed objectives makes it difficult to align everyone in the pursuit of reducing churn.
By aligning each team and their work with improving retention and communicating the impact of churn on your company’s bottom line, it will help them re-evaluate their prioritization of projects/tasks that may otherwise fall to the bottom of the list. This may lead to important shifts that can look like:
- Developers prioritizing bug fixes over new features which lead to fewer support tickets.
- Product managers prioritizing shipping commonly requested native integrations over net new product features, which leads to up to 40% lower churn and more recurring revenue.
- Customer success emphasizing common support questions in the onboarding process to remove friction and reduce support workloads.
- Sales focusing on upsells and cross-sells as much as net new acquisitions when their incentives and commissions are aligned as such.
- Product teams aligning feature update prioritization with relevant support ticket volumes.
- Marketing crafting strategies and campaigns targeted at existing customers instead of purely focusing on net new customer acquisitions
Once your teams are strategically aligned on the importance of your existing customer base, collaborate with them to develop the relevant metrics that uniquely quantify and demonstrate progress towards reducing churn. This takes us to the next step, which covers how to build an experiment roadmap so that your teams can begin hitting these key performance indicators (KPIs).
8. Define your churn goals and build experiments
Defining concrete and actionable goals for reducing churn will help you make measurable improvements to your bottom line. While the end goal will always be to hit specific churn metrics within a certain time period (reduce churn by 3% within 6 months), it’s important to set shorter term milestones that will be stepping stones in getting you there.
Here are just a few examples of these shorter term milestones to get you started, along with examples of experiments and strategies to achieve them.
As these milestones are designed to be measurable, it’s important that you have the right tooling in place (from Step 1) to monitor the performance and impact of your experiments. While not every tactic will be successful, building an iterative roadmap of experiments will drive you towards achieving negative churn.
Managing churn effectively and achieving net negative churn will be powerful growth catalysts for your B2B SaaS company. While you can go much deeper on each of the strategies/tactics we’ve outlined above, we hope this guide has sparked some ideas on how you can immediately begin taking steps towards improving your retention. Thankfully, there are now dozens of SaaS tools that have been purpose-built to help simplify the process, and can serve as fundamental building blocks for executing your churn reduction strategy.
Here are the 8 steps summarized, along with our recommended tools to look into:
Remember, reducing churn is a never ending journey - as you scale your customer base, learn more about your customers, and add new features to your product, you’ll need to continuously re-evaluate your approach and identify ways to continue delivering additional value and an exceptional customer experience.
If you’ve ever wished that all the tools and data in your tech stack were seamlessly integrated with each other, you’re not alone. Your customers and prospects feel the same way, which is why you constantly get requests for new integrations.
Paragon aims to unify the SaaS ecosystem with our integration platform as a service (iPaaS). With a single SDK, your team can build customer integrations in less than an hour through our visual workflow builder, while retaining access to all API endpoints for more complex workflows.
If you’d like to see how Paragon can help you ship your most demanded integrations, book a demo with us!