by Chargify Blog
One of the most prominent hurdles SaaS companies face is how to track and reduce customer turnover, or churn. If you’re not careful, your business could find itself stuck on the dreaded “customer acquisition treadmill” and bleeding cash.
While churn can be measured monthly or annually, no matter how you cut it, churn is bad for any company no matter their size. According to a SaaS industry survey conducted by Pacific Crest, median annual churn for companies with revenue under $2.5 million stands at about 10 percent. Based on work by Tomasz Tunguz, small and medium-sized SaaS businesses could have annual customer churn rates between 31 and 58 percent. In other words, your business is not alone.
So while subscription billing can seem like a golden ticket for many businesses, customer churn can slowly siphon away all of your gains. Therefore, it makes sense to invest in lowering your customer turnover. In fact, according to Bain & Company, an increase in customer retention of just 5 percent can lead to a 25 percent increase in profits. That’s because loyal customers tend to:
- Buy more than one product or service
- Bring in more business by word-of-mouth referrals
- Spend more overall
So where do you start? In this article, we will explore three ways for your business to tackle its customer churn challenges and take your success – and revenue – via a subscription based billing model to the next level.
3 Ways to Reduce Customer Churn
While a turnover rate close to zero is ideal, it is understandably not realistic. In some cases, churn is voluntary, such as when a customer actively chooses to cancel a subscription to your product or service due.. In others, the churn is involuntary as is the case when technical glitches or payment discrepancies cause your business to lose customers that would otherwise continue to subscribe.
However, no matter how your business’ churn rates compare to industry benchmarks, there will always be room for improvement. Here are three strategies to help drive your customer churn rates down.
1. Build Trust
To establish loyalty and prevent customers from jumping ship at the first sign of a better deal, you’ll need to build trust. How do you build trust? Be transparent, especially when it comes to how you bill. No one likes a surprise charge showing up on their credit card statement. Your billing solution should be able to clearly present to each customer how much of your services they used and their pricing model so they can clearly link their usage levels to the value of the services your platform provided
Even better, show trends in usage, note recent changes to service plans or pricing models, and even offer recommendations on other services that your customer may benefit from based on their usage. Your billing solution should also be configured to automatically send customer notifications, transaction receipts, and notices about upcoming subscription or payment method renewals.
In other words, take advantage of every opportunity to communicate with your customers via methods as personalized as possible. If you do, they will be more likely to stick around.
2. Plan for Payment Failures
Automatic billing can make life easier for both you and your subscription customers. Unfortunately, recurring payments can also result in payment failures—the biggest cause of involuntary churn.
A common example is when a customer forgets to update their payment information after their credit or debit card is lost, stolen, or expires. When a payment is due, the customer’s card gets denied and their subscription gets canceled.
The easiest way to reduce involuntary churn from payment failures is prevention. Taking just a few proactive steps can make a big difference. Some examples include:
- End-of-trial notifications: Let customers know when their free trial is nearing its end, especially if they need to enter their billing information to continue service.
- Credit card expiration alerts: Send out alerts to customers about upcoming expirations, and include a link to easily update their credit card information.
- Customized renewal notices: Remind customers when their account is about to renew.
You can’t prevent every payment failure. For those cases, make a plan and modify your payment process to automatically respond by using a billing management solution with built-in Dunning functionality. Instead of freezing people out of their accounts, Dunning functionality automatically attempts to retry payment at regular intervals or with predefined back-up payment methods while simultaneously communicating with past-due customers after a transaction fails. By offering a chance to settle up failed payments, you’ll lose fewer customers to payment issues.
3. Be Flexible
Having a flexible billing process makes life easier for your customers and reduces turnover. Two ways to give your customers flexibility include:
- Customer-controlled payment preferences: Make it easy for your customers to change their subscription and payment preferences so they can keep their billing info up to date.
- Multiple payment options: Offer more than one payment option. Not everyone wants to use a credit or debit card. Plus, multiple options allow customers to pay with a different method if another fails. You may need to shop around to find the right payment processor that fits your customers’ needs, but the effort is well worth it.
Flexibility in your payment model and offering your customers more customizable payment preferences not only helps to control some of the factors that influence voluntary and involuntary churn, but they help your business to be more attractive to customers that require agility. Whether it is the agility to scale up or down in service usage to save costs or to meet their customer demands or to obtain additional savings upon reaching different usage tiers, your business can match the capabilities of titans of the SaaS industry.
Fighting the Churn
While closely tracking customer satisfaction is vital for every business, this is not enough for subscription-based businesses. Your company needs to take advantage of the built-in customer churn prevention features present in today’s modern billing management solutions to remind, update, and communicate with customers about the status of the billing information. Not only that, being able to anticipate and accommodate the different payment method preferences customers have can also help retain a more diverse customer base.
So if you want to take more control of your subscription billing process and drive your churn down, we welcome you to participate in a demo of Chargify. Our team is ready to help you make your subscription billing not only simple, but proactive.