Reduce SaaS Churn with Integrations
Churn sucks. Losing a customer hurts the business much more than losing a deal, because it eats away at the benefits of having a recurring revenue model.
But unfortunately, churn is hitting harder than ever this year. Profitwell reported an 18% increase in churn in April (compared to 2022) in their May 2023 SaaS index of nearly 3900 B2B SaaS companies.
Every company is now looking for opportunities to cut costs. Finance teams are cutting budgets, making everyone justify their SaaS spend, and teams are looking for reasons to cancel subscriptions to the tools in their stack that they deem “non-essential.”
So even if your sales team is world class at acquiring new customers, an uncontrolled churn rate can still kill your business. To put it into perspective, just a 5% monthly churn rate will lead to you losing 46.1% of your existing customer base by the end of the year.
However, there are product decisions that you can make today that will help reduce your SaaS product’s churn rate, and these decisions should all drive you towards one of the three following objectives:
- Increase product usage
- Create product value multipliers
- Build product dependencies
While I’m sure there are features on your roadmap that can tackle one of the three objectives, I’ll share why native product integrations can meaningfully move the needle in all three.
There’s a high likelihood that your customers will be having internal discussions about the ROI of your product in order to justify renewing it, and the goal is to improve their perception of the return.
I like to use the following ROI framework to help illustrate this.
Value Transfer = Usage * Product Value
Note: We use ‘value transfer’ because only value that is experienced is perceived as valuable. If your product has an amazing feature that a customer doesn’t use, then they will not account for it when they evaluate the ROI of your product.
Evidently, there are only two ways to increase Value Transfer. The first is to increase usage, and the second is to increase the maximum possible value your product can provide.
With that in mind, let’s dive into the objectives we shared above and how integrations can solve for each of them.
Increase Product Usage
A product that isn’t used delivers no value. Even if it has the most robust and useful features, a lack of usage equates to a lack of value transfer.
Referring to the equation above, think of usage as a fractional coefficient, where partial usage leads to partial value transfer.
For example, if your customers only use your product for half of the use cases you make possible, or use it only half as often as they should, Value Transfer would be approximately 50% of the potential Product Value that could be extracted from your product.
However, we can’t limit our usage indicators to metrics such as DAU (daily active users) and MAU (monthly active users), because usage can live outside of your product.
In practice, your customers have dozens of different SaaS applications in their tech stack, but will only want to work out of a few core platforms and rely on integrations to derive value from the rest.
When your product is siloed, your customer will only interact with it when they’re in your app. Conversely, when you’re deeply integrated with their stack, you make it easier for customers to tap into the value of your product via other applications.
Take a CRM like Salesforce for example - sales teams spend the majority of their time in their CRM, and you can’t expect them to go login to five other applications to get specific pieces of information on a prospect. They expect all that data to be in the same place - in Salesforce.
But this does not mean they are not deriving value from the other applications. As long as the data piping into Salesforce is valuable, they will continue to rely on it and perceive it to be valuable.
However, if you don’t provide the integrations they want and require them to login to your application to derive value, you’ll essentially be introducing layers of friction that can lead to a lack of usage.
I’ve actually experienced this myself as a user - quick story.
When I worked at a SaaS growth agency, I handled all my communications with clients (product managers & marketers) through Slack. However, sprint planning and check-ins were set up in Asana, which I found quite disjointed from the rest of my client/team comms as I’d have to login on a recurring basis to check for any updates or notifications, which delayed my response times to inquiries/requests.
I eventually stumbled upon their Slack integration, which brought all the projects, notifications, and threads into Slack. This allowed me to respond in real-time and centralize all conversations around the projects that we were working on together.
It completely shifted my perception of the product, and I ended up moving even more projects over from Notion as a result of the seamless integrated workflow.
This is just one example of how a single Slack integration drastically increased my usage of Asana, and consequently my perception of the product.
Create Value Multipliers
The previous point aims to get Usage closer to 1 (or 100%) to reduce the value ‘leak’ in the framework.
However, value transfer can also be increased by driving additional Product Value. This can be achieved through new product features, and integrations are no exception. Without any changes to your core product, integrations can unlock new use cases, and therefore value, out of the existing data from your product.
For example, take a product analytics tool like Heap. By collecting and surfacing in-app analytics, Heap provides product teams insights into their products’ usage and adoption that are extremely valuable for informing product decisions.
Their CRM integration then takes that same product analytics data to arm their customers’ sales teams with insights into which customers are ripe for upsells or at risk of churn. Without any major changes to their existing product, Heap’s CRM integration essentially doubles the value that their customers can derive.
Without changing their core product, they’ve now multiplied the value their product creates by unlocking new use cases for other teams from the same product data.
So far, we’ve talked about how you can increase value transfer to reduce the risk of customers churning. However, on the other end of the spectrum is this strategy of creating churn friction.
Integrations enable you to embed your product more deeply within your customers’ workflows, which inevitably leads to them designing internal processes and playbooks that involve your product.
This compounds the cost of churning for them, because the more integrations they enable, the more dependencies will be created between your product and the rest of their tools. Replacing your product would require them to:
- Risk breaking business-critical processes that depend on your product to run
- Improvise temporary workarounds to keep their operations running without your product
- Research, vet, purchase, and onboard a replacement for your product in their workflow
- Retrain their teams on the new processes
By nature of stacking on all these dependencies, your customers will be much less likely to churn, even if they have second thoughts about renewing. This will buy you time to help recover their satisfaction with your product, be it through new product features or improved success initiatives.
We know intuitively that all the market leaders including HubSpot, Slack, Brex, and Intercom have invested in building out hundreds of integrations for their products to improve churn, but let’s look into some data-backed insights from specific companies/studies.
Account-based marketing platform Rollworks (185 employees) identified that customers with four or more integrations are 35% less likely to churn compared to those with just one integration enabled.
What’s more interesting is that 32% of that increase was between the cohort with two integrations installed vs. four, demonstrating that the retention impact compounds as you provide additional integrations.
Source: Jill Rowley, GTM Advisor & LP
Crossbeam’s 2023 State of the Partner Ecosystem
Crossbeam is a Partner Ecosystem Platform that has incredible data from their network of tech partners at B2B SaaS companies. After surveying 526 different respondents, their key takeaway was that users with integrations enabled are on average, 58% less likely to churn than those that do not.
Profitwell’s Integration Benchmarks study
ProfitWell’s Integrations Benchmark study of 500,000 companies found that:
- Products with at least one integration have 10–15% higher retention, and 18-22% higher for products with four or more integrations
- Willingness to pay is 20% higher for products with 5-10 integrations, and 30%+ for products with 11+ integrations
MarTech Replacement Survey 2022
MarTech.org conducts an annual study (2023 is underway) on the leading reasons companies replace solutions in their marketing stack (aka churn from existing tools).
Across 300 respondents, integration capabilities was the number one factor for why they switched vendors, a significant increase from 2021.
While this data set is specific to marketing tools, this trend can be directionally applied towards other industries in SaaS as well. For example, according to Capterra’s 2023 US Software Buying Trends, compatibility with existing systems (aka integrations) is the top challenge when it comes to making purchasing decisions.
Tracking the Impact of Integrations on Churn
Now let’s dive into how you can measure the impact of integrations on churn for your own customer base. There are a few ways to implement this, but here is one of the most straightforward options for sales-led companies.
As a prerequisite, you need the following:
- Customer data platform (CDP) that can track integration related events (such as enabling the integration as well as activity)
- A CRM that contains your customer churn data
- A native integration between the two tools above, or APIs so you can build your own automations to pass the event data into your CRM
Tracking Integration Usage
First, you need to set up integration event tracking for your platform of choice.
Most SaaS companies today have a CDP like Segment in place that will allow you to send in-app event data into other platforms - it doesn’t matter what platform your company uses. Just ensure that your engineering team can help you get the integration activation and usage events set up for the CDP.
Note here that integration usage is important, because you may want to exclude integrations with no activity for an extended period of time.
In terms of event labeling/grouping, there are various levels of granularity you can get into, but if possible, track activation and usage at the integration feature level (or Workflows as we call it). This will unlock valuable insights in the future that can help you understand what specific integration use cases have better adoption and a higher impact on churn than others.
Note: If you’re using Paragon, all of this data is already being tracked and provided via the Task History API.
Setting up your CRM
On the CRM side, you need to be able to receive the event data that you’ve now set up.
For every integration, you’ll want to create a field for:
- Integration enabled
- Last usage date
This will allow you to segment your customers into cohorts appropriately, and provides flexibility for excluding integrations without usage.
Then, when a user enables/disables an integration, send the events from your CDP to your CRM via an API or native integration to associate usage of the integration with that particular customer.
Segmenting your customers based on integrations
You now have what you need to segment your customers in your CRM based on the number of integrations they have adopted and actively use. There are numerous ways of doing this:
- You could compare customers who have enabled at least one integration with those who have no integrations.
- You could also create multiple categories, for example one integration, up to five integrations, up to ten integrations, and ten or more integrations.
- You could also make individual segments for each individual integration.
Next, for each segment you created, identify the churn rate over a particular period. You could do this monthly, quarterly, or annually, depending on your situation. If you wanted to do it quarterly, the formula for calculating churn would look like this:
Churn = Quarter-end revenue from existing customers / quarter start revenue from existing customers
Finally, you can compare the churn rate between segments over the time frame you’re measuring. Based on what we’ve argued in the rest of this article, you’re likely to see a higher churn rate for the customers with fewer (or perhaps less strategic) integrations.
Integrating your product more deeply into your customers’ workflows is one of the most effective ways of reducing churn. Not only can integrations help increase your customers’ usage of your product, they can unlock new use cases for your product and create dependencies that make your product incredibly difficult to rip out.
However, one of the biggest challenges companies face as they start to prioritize their integration roadmap is how much effort and time their engineering team needs to dedicate towards building and maintaining them.
Not only are their engineers not domain experts in working with the third party products’ APIs, these integrations are constantly evolving and require consistent maintenance and engineering support to debug when issues come up.
That’s why over 100 SaaS engineering teams rely on Paragon. They want to tap into the value integrations can unlock for their product without the heavy engineering lift that would traditionally be involved in building and maintaining these integrations in-house.
If you’re convinced that you need to invest in integrations in order to reduce churn, book a demo to see how Paragon can help you get there 10x faster.