Customer attrition is a certainty for any SaaS company. The simple truth is that you will lose customers over time. Sometimes this attrition is out of your hands. However, at other times, you can directly impact whether or not it occurs. This post will explain customer attrition and how you can proactively mitigate it.
What is customer attrition?
Customer attrition is the natural process of customers leaving a company or product for one (or more) reasons. Customer attrition can be broken down into two categories: voluntary and involuntary attrition.
Voluntary attrition is when the customer chooses to end their subscription. A customer may decide to leave for various reasons. Perhaps that customer is dissatisfied with your service and has moved on to one of your competitors. Maybe they no longer require the service you're offering.
Involuntary attrition is when a customer fails to make a payment, leading to their subscription being canceled. Maybe your customer has been acquired. Alternatively, your customer may have stopped paying bills and is on the verge of going out of business. Involuntary attrition is arguably more frustrating since there's little you can do to prevent it. For that reason, SaaS companies tend to focus on managing voluntary attrition.
Whatever the reason, SaaS business leaders should not take customer attrition lightly. Why? Because customer attrition impacts the bottom line. According to Invesp, it can cost companies up to five times more to acquire a new customer than to retain an existing one. Moreover, Totango's Guy Nirpaz states, "70–95% of SaaS revenue comes from retention and expansion of existing customers." For SaaS companies, net dollar retention, or NDR, is the lifeblood of the business.
NDR provides a revenue-based view of customer retention. NDR is increasingly important as you scale from small to medium-sized businesses and beyond. For example, a $5MM company that churns 20% can replace that $1MM with net new business when it's growing by +50% a year. But when a $30MM business needs to return $6MM due to customer attrition, this becomes significantly difficult if the growth rate slows.
It should go without saying that improving customer attrition rates should be a top priority for SaaS business leaders. But how? Where should they start? Here are some tips.
Six strategies to combat customer attrition
1. Listen to customer feedback and act on it.
Listening to your customers is more complicated than it sounds. And yet, customer feedback is the single most crucial element in reducing customer attrition. SaaS companies collect daily customer information but need to convert it into valuable, actionable data. Let's face it, NPS and CSAT scores hardly tell the whole story. Usage Data is excellent but can be misleading without context. Survey data is unreliable. That's where Customer Intelligence (CI) tools like Sturdy come in. Customer Intelligence is collecting and analyzing key customer-generated data to glean crucial insights such as risks, trends, and opportunities—all of which help drive revenue. CI is critical in unlocking customer insights, often using advanced data sciences like artificial intelligence, machine learning, and natural language processing. CI allows you to distill the insights from the noise so your team can take the following best action. Without CI, you're only half-listening to your customers.
2. Make sure customers are getting value.
One way to keep your customers is to make sure they understand the value they're getting. You can do this through effective onboarding and by setting expectations appropriately. Another way to ensure value is to go above and beyond expectations. This could mean offering extra features or benefits at no additional cost. It could mean providing superior customer service or simply doing whatever you can to ensure your customers are happy. By focusing on value and exceeding expectations, you can ensure your customers are satisfied with their purchase and more likely to stick around.
3. Keep communication open and transparent.
Keeping communication open and transparent with customers is essential for success. Through transparent communication, businesses can ensure customer attrition rates remain low, and customer satisfaction remains high. A ZDNet study concluded that "Organizations can reap rewards from being transparent. Nine out of 10 people (89%) said a business can regain their trust if it admits to a mistake and is transparent about the steps it will take to resolve the issue. A similar ratio (85%) are more likely to stick with them during crises."
4. Maintain product-market fit.
Product-market fit describes your product's ability to deliver value to customers. If your customers stay with you and keep paying their subscriptions, you're in a good place. However, product-market fit is by no means the end of the line. It isn't a box you can check off and then forget about. To succeed, your product needs to continuously evolve to meet customers' needs.
Early on, your top priority is feedback when you are working towards validating product-market fit. While collecting quantitative data like engagement metrics and survey scores is helpful, capturing your customer's unbiased, unabridged, and unsolicited voice is the most important thing to do. This is only possible with the help of a Customer Intelligence platform.
5. Offer customer incentives and loyalty programs.
We've previously explained why incentive programs are essential and provided five steps to build a successful one at your company. Customers loyal to a company are more likely to recommend the company to friends and family. Customer incentives and loyalty programs can be a great way to show customers that you appreciate their business. They can also be a great way to encourage customers to continue doing business with you.
6. Provide a reliable and proactive customer experience
Customer attrition is a "rearview mirror" metric. Traditional reports and surveys capture what's happened in the past. With Customer Intelligence, you have valuable insights at your fingertips to look forward through the "windshield" and to see around the corners along the way.
Our research shows that 65% of accounts with an executive change churn within 12 months. Teams that act on executive change signals within the first 48 hours of discovery have a 33% higher likelihood of renewal.
Using innovative data sciences like AI, ML, NLP, and deep learning, Sturdy analyzes every email, support ticket, chat, and more for specific insights. This empowers your teams to focus on relationships that drive revenue.
Conclusion
By understanding customer attrition, SaaS business leaders can proactively address customer dissatisfaction before it becomes an issue and continually improve customer loyalty and value. This is a critical factor in any business's success, so it should be noticed. By listening to customer feedback and implementing strategies that keep customers engaged and satisfied, companies can ensure customer attrition rates remain low, and their bottom line remains healthy.
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