SaaS Customer Success: 6 Strategies to Reduce the Churn and Grow Your Business

We all know that we should not confuse user experience with customer experience but… What is the real difference?

There's nothing as tricky as specific terms that sound "obvious" and make us feel like we know exactly what they mean since everyone knows what is user and what is experience, right?

To put it simply, UX (user experience) is about all the interaction that end-user  has with a website or app. CX (customer experience) is the interaction with all the facets of business: sales manager, customer service assistance, website, and so on. Here is a visual representation of CX and UX:

Another abbreviation that might add to the confusion is UI, which stands for user interface. User interface is all that’s in between human and computer: menus, icons, sounds, animation, and so on. UI goes hand in hand with UX. To learn more about the difference between them, read our article “UI vs UX. Ketchup, Chicken, and Egg”.

UI, UX, and CX are all part of the same pie. For now, let's focus on CX and UX differences.

Marketing vs design

However close these terms might seem, UX and CX specialists belong to different departments. Customer experience is the responsibility of the marketing team, while user experience is the object of product design.

For both departments, experience is one of the key focuses. Nowadays businesses know that people are willing to pay 4,5 times more for a good customer experience. The vast majority of people check reviews before making buying decisions and trust them more than any other marketing message. The feedback economy is taking over the business world.

As a design agency, we deal mostly with user experience, but communication with the marketing team in order to better understand customers’ needs and problems is a must for our work.

User vs Customer

One of the simplest ways to explain the difference between customer experience and user experience is to understand what is the difference between customer and user. These terms are easier than CX and UX, but still, some people think that they are interchangeable. Especially those who work with digital products often call customers users and vice versa.

For them, the word user is quite clear: these are the people who use your websites, apps, and whatever other things you produce.

What about customers? This is a much older term. Each business has customers: banks, shops, medical institutions, and so on. In digital products, there are customers, too. They are the people who buy the product.

An example: if you are creating a B2B solution, and your sales manager is working with one person on the client’s side. This person is the customer. The rest of the client’s team are the product users. In this case, there can be one customer and 50 users.

Of course, the customer and the end user can be the same person. However, their experience can be different, as we have explained above. Users may find the website great but be disappointed by the price change or slow tech support. On the other hand, a customer can suffer from a badly designed website, while still loving the product (though bad UX would surely affect CX).

Objectives. WHAT are they doing?

What are the ultimate goals of user experience design and customer experience management, except for “improve the experience”? Let’s see one by one.

UX

All the main objectives of UX professionals are related to human/ digital product interactions. Here are some of them:

• Improve app usability. Usability means that the navigation is understandable, people can find what they are looking for, and they enjoy the process of interaction. It is called human-centered design.
• Analyze the process of user interaction, find weak points and the ways to improve them. This process starts with UX research and goes through various iterations of the design process and user testing.
• Decrease bounce rate (a number that shows how often users give up on a task, such as registering on the website). This is an example of a more concrete goal. We’ll talk more about UX metrics later.

CX

While UX objectives are laid in the product design field, CX objectives are closer to business goals.

• Build brand loyalty of the customers by providing them with a superior experience. Knowing that the brand provides a much better experience than the competitors, customers will be coming back again and again, sticking with the brand even when others provide similar products at a cheaper price.
• Turn customers into brand ambassadors. Loyal customers bring value not just by buying products, but also by recommending the product to others. In an environment oversaturated with ads, word of mouth is one of the cheapest and most efficient means of marketing.
• Increase ARPU (Average revenue per user). This is the ultimate business objective that every product hopes to achieve with the help of customer experience. The principle is simple: happy customers are likely to buy again and more.

Tools and methods. HOW do they do it?

The most important thing in both customer and user experience is the research. To improve the experience, we have to know what the customers/users’ needs and problems are. We can't assume what are the problems of the customers if there was no research conducted. 

Both CX and UX research rely heavily on interviews. Some other common tools include field research, questionnaires, and competitor analysis.

UX

• Usability testing implies having a group of people using the product while the researcher observes their interaction and asks them to complete tasks. Analyzing the usability of the product is the basis of the UX research.
• Empathy mapping is the process of listing all the insights that researchers gained during user interviews. Here is an example of a map that we made during our work with Gridle, a CRM platform.

• Digital tools for eye tracking, mouse tracking, or similar stuff to help you find specific things in the app that need improvement. Check out the list of top UX research tools that our designers use.

To better understand the UX research process, read our article about UX research methods.

CX

• Customer journey map (CJM) is a visualization of all the interactions that a customer has with a product/business from discovery to the moment when they tell their friends about the great experience they’ve had. Check out some examples of CJM to grasp the idea.

• Reputation Experience Management (RXM) systems monitoring is one of the most efficient ways to keep track of basic CX metrics, watch trends, and gather feedback. For smaller companies that don’t have a whole CX department, CRM systems can also be used as a tool for customer experience management.
• Social media monitoring. Watching reviews on the App store is essential, but a look at brand mentions in social media can give more insights about personal relations with the product.

Key metrics. How do they MEASURE success?

One of the biggest achievements of the CX and UX profession is finding a way of measuring such an intangible thing as experience. And these experiences are measured in different ways when we talk about customer and user experience.

UX

• Time per task, TPT. How much time does it take for an average user to complete a task? Some examples of user tasks: buy a pair of sunglasses, register for an online event, find information about pricing. This metric is based on the results of user testing with many participants.

• Error rate. How often do users enter incorrect information? The error rate is measured in percentages, based on the results of user testing. The number is calculated as the average of the number of errors divided by the number of attempts.

• System usability scale, SUS. The scale consists of ten standard questions that users ask as a part of the questionnaire. Adding more questions and customizing the questionnaire is recommended, but the standard scale is useful for comparing your product with the competitors.

These are just a few of the UX metrics. To learn more, read our article on measuring user experience.

CX

UX metrics have an impact on customer experience, so CX professionals usually keep track of them as well. In addition, there are exclusively CX KPIs, such as:

• Customer satisfaction (CSAT). This metric requires no complicated formulas: it is basically the 5-star ranking that you can leave as feedback on different platforms such as the App store, Facebook, Clutch. As simple as this, CSAT is arguably the most popular customer experience metric.
• Churn rate shows the percentage of users who stop using your services and is typically measured yearly. Although there might be different reasons for customers to leave, making them stay is one of the principal responsibilities of the CX professionals.
• Net promoter score (NPS) is a way of measuring customer loyalty and clients’ willingness to recommend the product to others. It is calculated based on the questionnaire, defining the number of fans (promoters) and detractors (unsatisfied customers). Customers are asked a single question:

Conclusion

Hopefully, after reading this, you'll never confuse customer and user experience again. To sum up, the principal differences between CX and UX are the following :

• CX is about marketing, UX is about product design.
• UX is about the interaction of end users with digital products, CX is about the interaction of customers (buyers) with business in all aspects: sales, customer service, offline store.
• CX includes UX but has a larger scope.

As product designers, we take into account customer experience specifics, metrics, and objectives, but focus on the user experience. If you want to learn more about UX design, read our article on the UX design process.

How many times you've heard: "Churn is bad for business"? Of course, it hurts when customers leave your product. But well, nothing remains unchanged, neither in life nor in business. No need to panic. Let's better make it clear how to deal with the churn and benefit from it.

What is churn rate?

In essence, the SaaS churn definition is pretty simple. It means the percentage of customers who left your product over a certain period. Customer churn is a crucial indicator to understand if your business faces problems that threaten its growth. Churn rate directly influences financial metrics, such as recurring revenue, lifetime value, and customer acquisition cost.

Let's see how these metrics are all connected.

Monthly recurring revenue (MRR): when customers leave, they take your income with them. In this metric, "recurring" is a key – a SaaS company needs to have a stable and predictable cash flow for constant business growth. We dedicated a separate article to MRR metric, so take a look to learn more.

Customer lifetime value (LTV): the longer a user stays with a company, the more money they can bring. Customer churn impacts LTV as it naturally decreases possible revenue that could have been earned.

Customer acquisition costs (CAC): if customers churn before you get back expenses spent on their acquisition, your loss will exceed the gain in the long perspective. By the way, if you want to know more about CAC, check CAC SaaS metric article on our blog.

OK, now we know the churn rate basics, so it's time to move to its calculation.

How to calculate churn rate

Here is the simplest way you can calculate the churn rate:

Number of churned users / Total number of users

In this SaaS churn rate formula, the number of churned users means how many people left your service within a certain period, whereas the total number of users implies all customers you had during this period.

At first glance, this exercise may seem as easy as pie. In reality, though, you need to consider lots of nuances making your calculation show a real picture.

Firstly, you need to define what you will take as the moment of churn.

It can be either:

1. The moment a customer doesn't renew the subscription, or
2. The moment of the cancellation (in this case, there is always a chance to get customers back before their subscription ends)

Also, before the analysis starts, it will be useful to decide:

• Exact time frames – a month, a quarter, or a year
• Sample size (so-called cohort) – it defines how representative and predictive the results will be
• Customer segment – low-tier and high-tier plan segments may have different churn numbers.

Thus, an aggregated figure will lack accuracy and lead you in the wrong direction.

Imagine, you did all the homework well. And now you're looking at the final churn rate number with a few questions on your mind: "What on earth does this percentage mean? Is it low, high, or normal? And what is a good churn rate for SaaS?"

Keep calm. The truly awesome story begins!

SaaS churn rate benchmarks

Though there are lots of opinions about the average churn rate for SaaS companies, most experts support the idea of the 5% - 7% range ANNUALLY as a benchmark. I will explain a bit later why the word "annually" is capitalized. Just note that this is important.

Whereas you can take this range as a reference, the churn rate "norm" depends much on a company's revenue growth.

Here is a graph to see the correlation between the churn rate and the revenue increase.

In this research, high growth companies are those that increase revenue by 75% year-to-year. Medium growth and low growth are businesses with 25% - 75% and less than 25% increase correspondently.

The percentage of each pie shows how many companies in a particular growth segment have a churn rate of less than 5%, from 5% to 10%, and greater than 10%. According to these graphs, the larger companies occur to be much closer to the desired 5% - 7% SaaS annual churn rate. This observation seems reasonable. Big SaaS companies usually focus more on enterprise customers with annual billings, high yearly contract value, and long-term contracts, making it more complicated to churn.

For the smaller businesses, the much higher rate is typical. Unlike the large companies, the earlier-stage companies target SMBs with monthly billings, shorter contacts, and, overall, lower contract value.

Do you remember I emphasized the word "annual" talking about the SaaS churn rate benchmarks?

You will get it right away.

Monthly vs. annual churn rate

The trickiest thing in the churn rate calculation is whether to stick to the annual or monthly churn rate numbers.

Let's see the difference in calculation.

For example, we assume that a startup has 1000 customers. A 5% annual churn will result in the loss of 50 customers within a year, which is not so dramatic, right? At least, this loss is easy to recoup with new customers.

But what's happening with a 5% monthly churn rate? Our startup will lose 460 customers in one year because the monthly churn compounds over time and reduces the number of customers by 5% every month. The loss of almost half of the customer base can be difficult to quickly compensate.

For early-stage SaaS companies or those primarily selling to SMBs, the expected churn rate will be closer to 3% - 5% monthly. However, the larger customers you target, the more your business matures, the closer you get to the "ideal" 5% - 7% annual churn rate.

Eventually, your progress should look like on this graph:

Why customers leave

Here are some possible reasons why customers decide to part ways with your product.

• Users have different expectations from your product
• Your product does not have the features or services they need
• You bring wrong customers on board (that's a question to sales and marketing teams)
• Poor onboarding and support
• Price offering doesn't fit the customers' budget
• Your product has critical bugs you fail to fix

Sometimes, everything is OK with your product and service, but the value is not fully uncovered, so customers don't comprehend why they should pay for it.

We will now get into one SaaS company churn analysis to see the real-life example.

Churn analysis example

The company is a SaaS startup that provides a subscription-based service mostly for SMB companies.

The data was gathered through a customer survey, covering recently churned users.

The graph below shows how much time the customers had spent with the company before they churned. "Fresh" customers, which were using the service less than a year, fall into the most considerable churn portion of 36,3%. Probably, they didn't feel the service satisfied their needs or didn't find the value they would be willing to pay for.

Another significant portion includes those who stayed with the company for more than two years. They had enough time to interact with the product and, chances are, were frustrated with bad customer service or switched to the competitors with a better price offering.

More than half of the churned customers - 57,2% - are small businesses with up to ten employees. As we already learned in the paragraphs above, monthly contracts, cash flow volatility, and low contract value, typical for SMBs, make it easy to churn.

Poor customer service is the top churn reason. Further go price, low service quality, sales, and implementation issues.

If we dig deeper into what poor customer service means, we see that sales process failure makes up a significant portion.

The SDRs inaccurately explained the functionality and failed to qualify the leads, which eventually led to churn. That's a widespread problem SaaS companies face. All marketing efforts and costs will be in vain if sales and support cannot qualify and retain customers.

How to reduce churn rate

To a certain extent, it is quite fair to claim that churn is inevitable. Indeed, you cannot appease everyone. However, to secure the company's profitability and revenue growth, your sacred duty is to minimize the churn rate, pursuing the target of 3% - 5% annually.

Here are a few tips to help you improve your churn rate.

Get to know your customers better

It may seem not obvious, but your "anti-churn" campaign starts long before you win a customer.

You have to know who your ideal customers are, how to reach them, what they need, and how much they are willing to pay for your product. The best way to see the total picture is by creating a customer persona based on users' characteristics such as demographics, industry, income, and jobs-to-be-done.

When your marketing team does this homework, the ball goes to sales.

Lead qualification is what your sales representatives must brilliantly perform. During a discovery call, SDRs should scan a lead and flawlessly determine if your company's service can fully satisfy a customer's needs. At every stage of the sales pipeline, you have to make sure your value proposition is exactly what the customer is looking for.

Engage users

Starting from a free trial over the first six months, you should track customer engagement and make sure your product meets the customer's expectations. It is up to you whether you will build your in-house system to monitor and manage the engagement or leverage a third-party tool.

The paramount goal is to help users engage with your SaaS product by constant communication, active listening, gathering their feedback, and working on users' experience improvement. We gathered 11 user engagement strategies you can try implementing for your SaaS business.

Get user feedback

Customer feedback is the principal source of valuable information. Sometimes, it is not easy to get an honest response from a churned customer, but it is worth trying. Assign your best sales reps to contact those who left and get their feedback through specific questions.

You can also gather responses via in-built customer surveys, which answers you will later turn into actionable insights.

Key takeaways

• Churn is inevitable, but you can control and improve it
• An average churn rate benchmark is 5% - 7% annually if you are a mature SaaS company
• You can expect around 5% monthly if your business is young or if you target SMBs
• Poor customer service, insufficient lead qualification, and bad user experience are among the reasons why clients leave your company
• Customer satisfaction based on monitoring and analysis will help reduce your churn rate

Also, we're more than sure that customer-oriented design and great customer experience can help reduce your SaaS churn rate.

Churn is only one of the essential metrics you should monitor to ensure your business growth.

In the Best Books on SaaS Metrics article, we selected the books that share priceless advice on how to run a successful startup.