Addressing Churn in SaaS/Subscription Startups

Pedro Almeida
Sep 20, 2016 · 4 min read

The best way to reduce churn is creating a product and user experience that customers love!

So before investing in customer acquisition and start having churn problems you should double-down on product development.

In case you already have done this and want to minimize churn, this post will (i) help you understand churn root causes and (ii) provide common tactics to improve client retention for SaaS and subscription startups.

I. Understanding customer churn root cases

To improve customer retention in the first place you need to understand what is causing customer to churn. For that you can:

  • Monitor closely churn and the customer lifecycle (e.g. Did the churn increased significantly recently? If yes, in what type of clients, in what step of the process, etc.). This activity will help you understand changes in behavior and identify main pain points to address
  • Ask churners the cancellation motives (e.g., through cancellation questionnaires after the client press in cancellation button). This activity will give you the macro motives for cancellations
  • Process data (customer data, product usage, satisfaction/NPS, etc.). This activity can help you understand churn triggers and client segments more likely to churn (e.g., clients with a specific product are more likely to churn, clients are churning before the end of the contract, etc.). You can do this by using excel or SPSS simple predictive/clustering models
  • Run granular post mortem analysis with a sample of churners in order to infer common problems. This activity can complement the data processing to dig deeper in specific problems

ii. Common tactics to improve retention

Depending on the disease (churn cause) you should give the right drug (lever). Below you can find some common tactics that can help you minimize churn for both “early” churners (new clients that churn after 1–3 months) and “late” churners (>3 months).

A. Early churners

  • Improve onboarding experience — e.g., via more intuitive user-friendly interface, short video clips, brief learning tutorials or dedicated onboarding team — in order to ensure your clients understand the product and you understand early on what the clients think about the product
  • Review price/discounts on problematic channels/products/type of customers (e.g., “30 days free” products or third-party managed channels typically have higher churn)
  • Review sales commission (e.g., introduce charge back) to align your interest with your channels/sales team (and avoid fraudulent sales)

B. “Late” churners

  • Create preventive campaigns for clients with the high value at risk as these clients are more important (high revenue) and more likely to churn given their characteristics (e.g., have several complain emails). Value at risk=probability to churn x revenue and to implement this lever you to have a view on the likelihood to churn per client segment (e.g., leveraging your analytical model in I.) and what to offer for each client
  • Increase perceived value by upgrading/upselling. The higher perceived value (more and better products) the less likely is a client to churn. You can have dedicated offers, in case a client interacts with you (e.g., via call center or chat) or you can create micro-campaigns to promote upselling/upgrading from low value products. Just be careful to not spam the client with products that he/she doesn’t want (as it can counter affect you and increase the churn rate)
  • Create a dedicate team to manage clients with high probability of churn and funnel all communication traffic with these clients to this team. This team should be better prepared to address “difficult” situations such as handling unsatisfied customer, customers that ask for information how to cancel the service, etc. This team have scripts of the most common requests, special offers and be compensated based on retention rate
  • Include cancellation rate KPI on the commissioning from teams that deal with several churners (call center support, onboarding team, upgrades/downgrades team, etc.)
  • Make it “harder” to cancel the service ( e.g., by hiding the cancellation button, making everyone talking with the dedicated team before canceling). Careful with this lever as it might result in lower client churn/satisfaction and might increase clients that stop paying…

In case you have or “can” do contracts with lock-in periods, you can also

  • Create/increase lock-in period (e.g., by offering discounts). Before implementing this lever you should understand the impact on customer LTV and acceptance rate
  • Create dedicated renewal campaigns for clients close to renewal periods as they are more likely to churn
  • Optimize contact funnel for clients with delays on payments (e.g., optimize when to send e-mail, call, etc. for each type of customer type)

Content Bonus: How to win-back churners?

  • Create dedicated campaigns for churners via emails/sms— e.g., after a new product/feature release, with special promotions, etc.
  • Create pop-up/followup mechanisms for churners that logged in website again

Other relevant links

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Portugal startup resources

Hacks and resources to support Startups based in Portugal to fundraise and grow

Pedro Almeida

Written by

Investor and advisor in early stage tech startups based Portugal and with Global ambition

Portugal startup resources

Hacks and resources to support Startups based in Portugal to fundraise and grow

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