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6 Ways Every SaaS Company Can Reduce Churn Rates

One of the biggest challenges for most online software businesses is churn rates -- here's how to improve it.


If your business provides SaaS (i.e. software as a service) or online software, there’s a lot to think about including making sure your product aligns with new trends in technology, ethical business practices and industry standards. Still, one of the biggest challenges for most online software businesses is churn rates (i.e., attrition rate or the number of customers that discontinue their use of a service divided by the average number of total users).

Before you resolve this, it helps to understand why churn rates occur in the first place. Many existing customers simply vanish with every new subscription and don’t renew. And although churn rates are unavoidable, they are controllable. Many professional SaaS providers will increase efforts to attract enough customers in one fiscal year in order to outweigh losses. This will not only result in more stability, but also improved net gains of equity and profit.

Beyond controlling churn rates, there are measures you can take to ensure customers stick with you. In fact, some of the tactics discussed below can reduce churn rates from 50 percent for 1,000 customers to just 20 percent. In the world of SaaS services, that’s quite impressive. Let’s take a look:

 

  1. Be proactive.

    Observe and evaluate your competitors. Study them closely while looking for specific flaws in their product design. This will allow you to identify reasons why your service is superior to theirs.

  2. Develop a marketing strategy.

    Once you’ve identified weaknesses in your competitors’ design, plan a marketing strategy. Let potential and existing customers know why your service is more reliable and efficient than the competition. Show customers they are making the right choice by choosing your product. This will ensure customers are not tempted by the illusion that competitive products are superior due to lower prices, etc.

  3. Don’t charge unnecessary fees.

    Don’t charge renewal or termination fees. This is one of the most important steps you can take to reduce churn rates. Without these charges, a customer will feel less wary about coming back to your business.

  4. Reward customers.

    Rewarding or incentivizing your customers is quite powerful. In the past, customer loyalty programs have shown tremendous success in helping businesses keep existing customers and attract new ones. Rewarding customers not only helps you gain recognition, but it also builds long-lasting relationships.

  5. Encourage customers to try the competition.

    As strange as it may sound, you can encourage customers to try your competition. When they come back to you within a fixed period of time, offer them an incentive. This will show a lack of greed on your part. Moreover, it will portray tremendous confidence and show customers you’re not afraid of competitors. This is viewed as an impressive move on your part.

  6. Exhibit confidence.

    Keep your customers interested in your online software and SaaS products by remaining confident. It can be a bit risky, but if you’re providing exceptional services at affordable rates, it’s a guaranteed win. Present valid proof through sharing relevant reports and documentation, including white papers, case studies, analyst reports, etc. on why you are worthy of their support. Even young startups without approved case studies can share use cases to detail how their product has worked in various examples.

Regardless of the competition, many SaaS providers want to keep their churn rates at 5 percent. However, this is virtually impossible, because when your customer base grows, the ratio of loyal customers to passing customers will fluctuate regularly. Thus, even if a majority of your customers decide to stay with your online software, the churn rate would stay at 20 percent. Be realistic and understand that this is as low as it can get. There are not many SaaS providers who get even close to that figure.

 

This article has been edited and condensed.

Dan Adika is CEO and Co-Founder at WalkMe, an online guidance and engagement platform. WalkMe provides a cloud-based service designed to help professionals – customer support managers, user experience managers, training professionals, SaaS providers and sales managers – to guide and engage prospects, customers, employees and partners through any online experience. Connect with @DanAdika on Twitter.

 

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