Every SaaS entrepreneur biggest concern is how to bring in enough leads to the business and how to speed up conversion. But as soon as that hurdle is passed, SaaS nightmare kicks in unmercifully. Oh yeah, you know that we're talking about customer churn.
Did you know that churn is #1 SaaS problem, along with hiring?
Once you've been hit by a churn high-speed train, you start digging into it and learn that there are actually two types of churn, voluntary and involuntary. What? Are you serious? Now I have two problems?! Well, no, it's still the same problem, just two sides of the same coin, or two types of people within your customer base (as I like to say and will explain later).
Let's cover the basics first and make sure we have solid grounds in place before we move forward and dive into latest stats.
Term Churn refers to the number of customers who end their relationship with a company within a given period and churn rate can vary depending on the app category and/or business model.
It is much cheaper to keep existing customers than to keep bring in new one to fill out the hole customers who canceled made. And with the Cost-Per-Lead trends, the cost difference between the two will keep getting bigger. According to the latest analysis, average churn rate varies from 13% to 19% depending of the industry. Companies with churn rate bellow 5% and customer retention rate over 30% are considered successful at this game. But since, churn never sleeps, they would still need to deal with it on a day to day basis, but without running around with their hair on fire. Such companies will have the luxury to focus more time and energy on product improvements, which is for churn what kryptonite is for Superman.
Differences between voluntary and involuntary churn (or differences between types of people within your customer base as I mentioned at the beginning) are:
Voluntary
these are usually customers / users who decided to cancel after using the app, no matter if they just hit the cancel button in your app or reached out asking you to cancel their account.
such users are more willing to communicate with you and actually helping you big time, by pinpointing the reasons for leaving you.
How to fix it? Well, this type of churn can be tackled using several strategies (or even combining them), such as listening to the user base and implementing product improvements or/and having an awesome customer relationship team who can turn them back around. In both examples, you need to help such customers see the value of your product as quickly as possible because that's the always the core reason for them to cancel.
Involuntary
this type of churn usually occurs due to credit card failures during renewal process, but your product or processes should have some a way to help them get back to you if they want to. I'm assuming that every SaaS business in 2024. uses some form of auto-charging for recurring payments. Therefore, the core reason is credit card failure on customers end.
Now, bear in mind that your true customers / users will either react to the e-mail or text message you've just sent them about the failed payment or they will reach out to you as soon as they notice they are not able to log back into the app, because they love the product and they need it.
but there is also a particular group of people that simply doesn't want to engage with you, and whatever you do, no matter how many emails you send them inviting them back, they will ghost you and never tell you the "why". They are usually using virtual or debit cards during the sign up process or they simply turned off auto-collection in your app.
and just when you thought it can't get any worse, you learn that there is a much smaller group of customers, but capable of creating more damage than the ones above, a real horror story we are calling disputers. Those are people who file a dispute without giving you a heads up, no matter if they have a good reason for doing it or not. Assuming that you've provided services that they've paid for, that you haven't mislead them in any way or that you haven't ignored their dispute threats, type of people who do that anyway will create more problems than just being a fraction of your churn percentage. All disputes, whether they’re won or lost, count towards your dispute rate, meaning they are triggering alarms with credit card holders and banks. So whenever you receive a dispute your credit card processors rank is under attack, and no matter if you're right or wrong, no matter how strong your defense case is, the credit card processing industry affects your rank with payment processors.
How to fix it? I understand that the whole thing sounds like a horror story but the fix is actually easier to implement than fixes needed for dealing with voluntary churn, especially when you look into variety of add-ons every payment processor has.
make sure you have auto-collection turned on (and it's part of your terms and conditions).
it's OK to prevent users from accessing the platform if payment didn't go through, but make it available for them to either access billing details where they can update credit card on their own or to get in touch with your customer support team easily.
implement a dunning campaign process for communicating with such customers, via automated emails or text messages, to ensure your users are aware about their payment is overdue timely.
implement payment and credit card fraud prevention systems your payment processor has (such as Stripe Radar) or 3rd party apps that are dealing with these problems, that will either block potentially fraudulent credit cards or notify you about potentially at risk disputes.
have understanding for the people that will reach out to you and ask for refunds of payments, no matter if they are right or wrong. Remember, winning or losing a dispute doesn't matter. With every dispute filed against your business increases dispute activity which triggers negative points with the payment processors, credit card holders and banks.
and lastly, but definitely not the least important piece of advice, no matter if the customer churned voluntarily or involuntarily, keep asking for a cancellation reason until you get it. Remember, negative reviews can sometimes provide better product improvement ideas than loyal, happy customers will tell you.
Best customer retention program is and always will be, the product itself. Products that are intuitive, that show the value to the customer quickly, with nice onboarding flow, and companies that are keeping a human touch with their customers by any means will keep topping competition.
Why human touch? Because in today's world of AI, everyone is chasing the same thing, to provide 100% AI-robotic services to the customer, even in communications with the customers. But we've all experienced chatting with a bot that gets lost at some point, keeps you in the same loop over and over again, which results with being even more frustrated because of the lost time in that so called AI limbo. We mustn't forget that humans are still humans, and people would like the ability to chat or to get on a call with trained and kind customer service representative, that can feel the emotion or the level of customer frustration on the other end. AI can definitely help, by reducing workload of your customer support staff, but human must remain core ingredient of a quality customer service.
That is why the ChurNO Team, which has been fighting churn successfully for more than a decade, is building a game-changing customer retention platform, that removes Artificial from the Intelligence and make it human-like, in the simplest way for You & ChurNO to become a symbiotic customer retention team! And that's not all, our team is providing an exclusive done for you consulting services - Churniverse, to help SaaS businesses reach their potential quicker!
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