13 Proven Strategies to Reduce Customer Churn (& Increase CLTV)
The number of customers leaving your platform each month might be just as important—if not more important—than the number of new members onboarded.
Controversial? Maybe. Accurate? Yep, and particularly so for SaaS firms with a high customer acquisition cost (CAC).
In this guide, I’ll break down 13 proven strategies to reduce customer churn for your SaaS product. I’ll cover what churn is, why it matters, and the key causes of churn, before diving into actionable strategies to reduce your churn rate starting today.
What is Customer Churn?
Customer churn rate is the percentage of customers who stop using or cancel a subscription within a specific period of time (usually one month or one year).
For instance, a 6% monthly churn rate means that 6% of your existing customers are canceling their subscriptions each month.
Churn rate is the inverse of retention rate. Thus, a 6% churn rate implies a 94% retention rate.
In the SaaS business, a good churn rate is typically considered around 5% or less for established companies.
Calculating Customer Churn Rate
Calculating customer churn is simple. Take the total number of customers lost during a period, then divide that by the total number of customers at the beginning of the period. Multiply the result by 100 and presto, your churn rate percentage.
For instance, if a firm has 4,600 paying customers on July 1st and 200 customers cancel during the month of July, the firm’s 1-month churn rate is ~4.35% ([200/460] x100).
Why Churn Matters
Put simply, churn reduces MRR, which reduces financial performance and revenue stability. Plus, high churn rates often push firms to spend more heavily on marketing, increasing customer acquisition cost (CAC).
What Causes Churn?
The most common causes of customer churn are:
- Customer service complaints
- Price and value
- Poor customer engagement
- Lack of onboarding support
- Poor product/market fit
- Negative customer experience or poor UI
Many of the customer retention strategies outlined below focus on addressing these common causes of churn.
13 Proven Churn Reduction Strategies
Reducing churn is key to long-term success. A Harvard Business School survey found that a 5% increase in customer retention could increase profits by 25-95%.
Below, I’ll cover 13 proven ways to reduce customer churn for SaaS firms.
Invest in Retention Incentives
Lever being pulled: Retention, customer success, marketing
Action: Provide retention offers, like discounts, personalized training sessions, or even a free month, during the cancellation process.
If customers can cancel online, build automated retention offers directly into your cancellation flow. If customers have to call in to cancel, train staff to offer incentives over the phone and apply promotions on the backend to handle billing discounts.
PS: if you require customers to phone in to cancel a B2C product… don’t. It may create a few more hoops for customers to jump through but it’s actively damaging your brand reputation and decreasing the odds of return customers and word-of-mouth referrals.
Why it works: Cost concerns are a primary driver of customer churn. Keeping customers, even with a hefty discount, is still typically cheaper than acquiring new sign-ups.
Provide Annual Discounts
Lever being pulled: Pricing
Action: Provide substantial discounts on annual and multi-year subscriptions for new customers.
Annual pricing discounts are a way to reduce churn while boosting upfront revenue. Annual pricing locks in subscriptions for a year or more, and can often encourage customers to utilize the tool more, given their upfront investment.
It’s best to offer both annual and monthly plans, as customers like to have the option to pay month-to-month. 52% of SaaS products with publicly listed pricing offered some sort of annual discount, despite only 12% requiring a year-long contract.
Why it works: Annual discounting exploits consumer psychology and the pursuit of an “exclusive” or good deal. And it reduces monthly churn by definition, by locking in plans for at least 12 months. Plus, you can evaluate the variance in the usage of your product through a cohort analysis and comparison of your monthly customers vs annual customers.
Bring Customer Service In-House
Lever being pulled: Customer success
Main action: Investing in higher-quality customer service teams, and ideally in-house customer support with well-trained representatives, is a key churn prevention strategy.
Bringing support in-house also lets departments work more efficiently together. By aligning goals and information between departments—and looping in support agents—you can keep operations running more smoothly and break down information silos.
Poor customer service is a primary driver of customer churn, and it can drive your customers directly to your competitors. After more than 1 bad experience, more than 80% of customers report preferring to do business with a competitor.
Why it works: Poor customer service reduces customers’ confidence in your brand, as well as their ability to properly use your tools. Improving customer service experiences can reduce customer churn.
Re-engage Inactive Customers
Lever being pulled: Product, customer engagement
Action: Send automated in-app notifications to customers who have been inactive for a certain period of time. Alternatively, send automated emails on a routine schedule once customers pass certain inactivity thresholds.
You can test different notification strategies here but in essence, you want to help customers re-engage with functionality they were previously using, or introduce them to similar features that they may not have yet explored. Duolingo is a great example of this. Ever missed a day after setting a learning goal on that app? The owl won’t leave you alone.
Why it works: Unused tools are often first on the chopping block when customers look to cut costs. Identifying at-risk customers and helping them to re-engage with your product (at opportune times) can improve usage stats and reduce churn.
Invest Marketing Dollars in Existing Customers
Lever being pulled: Marketing
Action: Broaden marketing spend to also include engagement with existing customers. This could include upsells to add-on products, or even just re-engagement with existing service tiers for customers who are inactive.
Practically, this could look like exclusive newsletter or content marketing campaigns for existing clientele, or even external ad campaigns targeting users to advertise new features.
Why it works: On average, 65% of company revenue comes from existing customers, but very little marketing budget is allocated to keeping those customers engaged. Marketing to existing customers is also easier and cheaper, given the amount of customer data you already have.
Grow With Your Clients
Lever being pulled: Customer engagement
Action: Evaluate usage patterns of some of your longer-term active customers. Are they engaging with your newer features? Are they even aware of the functionality available to them—or better yet, the functionality in the higher-tier packages?
Similarly, consider whether or not your tools are keeping up with demand throughout the customer journey. If a customer joined you as a small start-up serving SMBs and has since expanded to serve enterprise firms, are the tools you offer keeping up with their growth?
Why it works: SaaS tools evolve over time, but crucially, SaaS users also evolve. A mismatch can be the cause of poor engagement and churn. Onfleet, a last-mile delivery logistics firm, found success in reducing churn by implementing an executive business review model to help firms evaluate performance (and gauge Onfleet’s impact on that performance).
Train Support and Retention Specialists to Be Competitor-Aware
Lever being pulled: Retention
Action: Give your retention team similar training, and similar resources, to your sales team. After all, they’re both having conversations that directly impact your bottom line.
Make sure your internal customer support, customer success, and retention specialists are aware of competing products and how they differ from your own. Ideally, have a fact sheet comparing your own products to your chief competitors, which can be referenced during calls.
Why it works: Many customers leave platforms because they plan to switch to another similar service—either for better prices, better features, or both. You can address the pricing angle by offering retention incentives, but it’s also helpful to train reps to position your tool’s features as superior to competing tools.
Highlight Brand Success Stories
Lever being pulled: Marketing
Action: Collect, celebrate, and amplify stories of success from customers using your tools. Share these as marketing assets, both to existing and potential customers.
These assets are commonly used for external campaigns. But including them in email newsletters or company blogs is a low-cost way to expand their reach to your existing audience.
Why it works: Comparison is a powerful motivator. Clearly demonstrating data-driven success stories (like a customer increasing conversions by XX%, or saving XXX employee hours) from those using your tools shows the value of your service to existing customers. In addition to helping with retention, you should see an increase in product utilization from customers (and if you use consumption-based pricing, you can charge more for that!).
Expand Functionality for Free for Grandfathered Users
Lever being pulled: Product development, marketing
Action: The next time you’re planning a major expansion of key features, consider providing them for free to your existing customers—even if they are set to be add-ons (or even new products) for new clientele.
To get the most out of this strategy, announce the change loud and clear to your customers, highlighting the fact that this will be a paid feature for new customers. If they see value in the tool, which they ought to if your product team did a good job, they’ll be grateful to your firm.
Why it works: Value for money is a key driver of customer retention, with 66% of surveyed customers reporting that value is very important to brand loyalty. Expanding functionality while keeping prices the same helps existing customers feel like they’re getting a better deal. It also might make them think twice about canceling, knowing they may have to pay more if they come back later.
Have an Escalated Retention Plan In Place
Lever being pulled: Retention, customer success
Action: Make a detailed plan for how your customer success team (or your automated cancellation system) will respond when the cancellation process starts.
This plan should be customized to suit the needs—and importance—of the account initiating the cancellation process.
For instance, lower-tier members may be offered an automatic discount or a free month of service. Higher-importance (read: higher estimated LTV) customers could be offered a one-on-one call with a success specialist. For your most important accounts, you could even offer direct access to a member of the executive team to discuss options.
Why it works: Investing resources in reducing churn should be customized to the importance of each customer account. An everyday consumer may appreciate a free month credit, while a representative of a large enterprise customer may much prefer a personalized success call with a SaaS executive. Having a plan in place ahead of time can help your team (or your automated system) respond more effectively to cancellation requests. In other words, less putting out fires and more business-as-usual.
Use Proactive Support Campaigns
Lever being pulled: Customer success
Action: Routinely send out email surveys to gather data on customer needs, customer satisfaction, potential issues, and requested features.
Why it works: This proactive approach helps customers feel heard, helps create loyal customers, and also gives you troves of valuable customer feedback. Instead of waiting for customers to report problems or requests, reach out proactively on a regular basis.
Double Down on User Education
Lever being pulled: Customer engagement
Action: Invest heavily in building out your onboarding process, internal knowledge bases, video tutorials, etc. Build automated workflows for both new customers and current customers.
Why it works: Poor onboarding contributes to about 23% of customer churn. Ensuring your customers know how to use your products effectively helps them extract more value and be less likely to leave the platform.
Add A Human Touch
Lever being pulled: Marketing, customer engagement
Action: Add a human touch to help build better customer relationships. This could look like sending personalized welcome videos to new customers, scheduling one-on-one video calls with key accounts, or sending birthday messages to admins.
Be careful not to overdo it, though; there’s a thin line between a caring vendor and a weird internet person.
Why it works: Customers who feel a level of personalization and human connection with service providers are less likely to leave the service. By adding a custom welcome video and 1-month follow-up, Bonjoro was able to reduce customer churn by 20%.
Reducing Customer Churn Requires A Customized Approach
Most firms will employ a variety of strategies to reduce customer churn. The most effective techniques will also differ depending on your target buyer persona, price point, and industry.
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