Research has shown that, on average, it costs 5x more to acquire a new customer than to retain an existing one. And, just a 5% increase in retention rate has been shown to increase profits by 25% to 95%. Happy customers stick around longer, spend more, and are an excellent source for word-of-mouth business.
For SaaS startups, these statistics translate to higher valuations and better fundraising success. Reducing customer churn improves LTV, ARR, gross margin, and related KPIs that prospective investors will scrutinize.
With that in mind, this article provides a list of strategic tips to help reduce SaaS churn.
Develop a Customer-Centric Culture
Reducing SaaS churn is all about customer centricity—listening to customers, thinking like a customer, and understanding and optimizing the complete customer journey. This requires developing a culture that makes the customer the focal point.
- Exceed customer expectations – The best way to lose a SaaS customer for life is to set expectations too high and fail to deliver on them. Instead, set expectations low and score an early win by exceeding them out of the gate.
- Invest in an amazing onboarding experience – First impressions are everything, and for SaaS companies, this includes onboarding. Understanding the mindset and needs of a new user and investing in a first-class onboarding experience improves retention by simplifying the learning curve, reducing friction, and amplifying key features, benefits, and value points.
- Listen to potential customers – One powerful way to reduce churn with existing customers is to listen to potential customers. As a SaaS founder, it’s worth your time to join sales calls occasionally, to hear the types of needs, questions, and concerns that are top-of-mind for new prospective customers. Understanding these will help you hone your value proposition, set customer expectations, optimize onboarding, and prioritize your features roadmap.
- Conduct exit interviews – On the flipside, when customers leave, take the opportunity to understand why. Incorporating an exit interview process is a powerful way to get data to help you improve your product and related services. The responses may be a little hard to hear sometimes, but it will be worth it in the long run.
- Conduct meaningful surveys – Ask customers what they value most about your product , their frustrations, and what they’d most like to see improved and added.
- Invest in continuous product improvement – To stay competitive and retain customers, you must constantly invest in product improvement. This means rolling out new gotta-have-it features, finding ways to increase stickiness, investing in the best possible user experience, and being meticulous about data security.
- Measure customer satisfaction – An easy and effective way to measure customer satisfaction is through a regular NPS (Net Promoter Score) survey. This simple one-question survey asks, “How likely are you to recommend our product to a friend or colleague?” Likelihood to refer has been shown to be the single best measure of customer satisfaction. By asking this one question, you can understand customer perceptions and spot your biggest promoters and most likely detractors. At Burkland, we conduct an NPS survey with our clients each quarter.
- Optimize your pricing model – This doesn’t necessarily mean lowering your price or giving things away for free. In fact, pricing a SaaS offering too low can work against retention and increase churn by lowering the perceived value of your product. The key is to find the optimal pricing model that makes you competitive in your market while maximizing revenue and value perception. Your finance team should be able to help here.
- Foster a community around your product – Everyone wants to feel like they belong, and brands that develop a strong sense of community benefit from increased customer loyalty. What are meaningful ways you can foster a community around your SaaS offering? Social media, email newsletters, user groups, webinars, and in-person events are a few good examples.
- Make customer success = team success – Think about how to connect bonuses, incentives, and other team rewards to customer satisfaction and success. Your People Operations partner should be able to help you explore and pinpoint creative ways to apply your customer-centric culture to talent operations.
I hope this article gave you a few good ideas you can use to reduce SaaS churn at your startup. You don’t need to apply them all at once. Start with a couple you think will have the most impact, and go from there. The key is understanding your customers and keeping them front and center.
Also, see these related articles on SaaS Churn from Burkland’s blog: