SaaS Customer Success: 6 Strategies to Reduce the Churn and Grow Your Business
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Customer success contributes greatly to the company’s opportunity to grow. According to Hubspot research, prosperous businesses are 21 percent more to state that customer success is very important than businesses in decline. Forward-looking business owners understand that customer success is something that can differentiate them from others and make a person choose exactly their company.
As a design agency, we’ve been working with a wide range of different companies. The thing that we’ve noticed is that most businesses, especially startups, focus mainly on closing the sale and not on providing a good user experience that leads to customer success. Don't be like them.
The reason people use your service is the value they get from it. Once they fail to receive it, they leave. One of the main objectives of your company is to make sure that your customer receives all the value of your service. Customer success helps to reach this objective.
The good news is that applying customer success strategies is not that complicated. In this post, you will find six strategies you can use at different stages of your customer’s journey to ensure the client is happy and satisfied.
But first of all, we want to answer "what does customer success do?" and what is SaaS customer success in particular.
The core of customer success
Customer success is about providing everything you promised to your customer (and even more) when they bought your product. It means you should help your clients get the value out of your product as quickly as you can and continue helping them getting benefits while interacting with your product.
The goal of customer success is to hear from your clients: “Wow! It is so much better than I expected.”
That's the reason to be proactive in providing the best solution to the issue before it even arises. It’s easier to take measures to prevent the fire from happening than to react when it already occurred.
Customer success is essential to every existing company, but it is especially relevant in the SaaS industry. Read further to learn why.
Why customer success matters in the SaaS industry
Fifteen years ago software companies sold differently and they had different business models. Customers spent the money upfront and then it was up to them how they met their business needs with the help of this product.
SaaS stands for software as a service. The basics of SaaS lay in the word “service” which means it is not a one-time deal, but a continuous experience that provides the clients with value.
To be profitable, those who own SaaS need to take care of constant customer satisfaction. SaaS businesses sell a subscription, which means they need to present an invariably valuable service over time. Otherwise, the customer can leave and stop paying.
What is more, SaaS companies tend to monitor how customers use their services and gather feedback. In case your client buys a monthly subscription to your service but hardly uses it once, the chance that he/she will cancel it soon is very high.
Companies strive to do their best to be able to prevent possible service issues and provide the best SaaS experience for their users. It makes customer success extremely important for them.
To help you apply customer success in your SaaS business, we’ve prepared six strategies worth implementing.
Customer success strategies
Breathe out! Customer success is not something that requires a superpower to implement. Of course, making it a part of your company culture is not a one-day process, but in case you are ready to stick to the right strategy and make some operational changes in your organization, you will achieve success both for your clients and your business.
The following strategies can help at different stages of your customer’s journey.
Create a positive first impression
Nowadays, we can access a huge amount of information in just a few clicks. No wonder that people prefer to do their own research before picking some service.
Usually, before contact your company, prospects already know a lot about you and the service you provide. That’s why customer success should start before the user signs up for your product. In most cases, the first acquaintance starts on your website.
Here comes the design. The job of design is to provide a clean, simple, and consistent experience for product users. Once the visitor is on your website, he or she should see the value at a glance. A good website should combine an appealing look, relevant content, and a consistent user experience. In case you fail to make a positive first impression, your customer’s journey may stop right there.
If you want to create a design that speaks its value, you should know your customers well. Learn how they differ and what they have in common. Understand their pains and needs and define the way you can help your customer. In other words, identify your user personas.
Identifying the user persona is the first step to implementing customer success, as it means you care about the needs of your clients.
We were working on Handprinter, a startup that helps people make a positive impact on the environment. The problem was that because of the poor UX visitors didn’t convert into users. It was an innovative startup with no analogs and to keep customers, we first needed to understand who are our clients and what are their needs.
We conducted research and identified three main types of clients to understand their goals.
Defining user personas helped us to create an intuitive user flow and make Handprinter easy to use (check the case study). With the help of user personas, we managed to anticipate the challenges that customers may have faced later. That’s how we contributed to customer success.
Despite the great website, some customers may still be not confident of your credibility, or doubt if you can help them. Some of your potential clients may even not know that they have a problem your SaaS can resolve.
You need to educate your prospects to show the value and gain trust. The best way to do this is by providing useful information about the field you work in, about your company and team for free. Start publishing relevant posts in your blog, add some video tutorials on how to use your product, conduct an interview with an expert in your industry, and so on.
A good example is Hubspot, a cloud-based platform for marketing, sales, and customer service. In addition to dozens of educational articles and researches, this SaaS company has got an entire educational platform - Hubspot Academy.
A user can pick a free course, watch video lessons, and learn how to use Hubspot tools for different types of companies.
Educating your customers makes your service more user-friendly. This enables customer success because it reduces potential obstacles your customers may encounter while using your service.
If you decided to implement customer success but don’t know where to start always start with your employees. Maybe you are wondering how to set up a customer success team. Remember, each member of your team should adhere to the chosen direction and strive to increase the customer satisfaction rate.
No matter if your lead communicates with a customer support representative or sales team, they should receive the same high-quality service.
Teach employees to be attentive listeners and build a rapport with customers. Through communication, you can learn many ways to make the product better and understand what people expect from it.
For example, Process.st, a process management platform, keeps a record of every request about a particular feature or failure they receive from their support team. They analyze the received data to understand and customers’ main concerns. As a result, Process.st satisfies its clients’ needs quicker and more effectively. With that, the product design team can use this information to think about possible product improvement that results in client success.
The above information seems very simple, but often companies neglect team education. As a result, employees don’t have a mutual goal and don’t possess enough knowledge of the service to provide appropriate customer service. You should educate your SaaS team not to face retention issues later. It’s very important for each team member to have a customer-focused mentality.
Let’s suppose your SaaS client has bought the service and can’t wait to start using it. As the product is new, he/she will have many questions while learning how to use it.
To make the first acquaintance with your SaaS simple and pleasant optimize the onboarding process.
Primarily, users sign up for your service. Where do you direct them next? To the dashboard or maybe the thank you page? Both variants may confuse your customer on what to do next.
It feels like you buy a ticket to the gallery at the ticket window, and then no one tells you where to go and what kind of exhibition takes place today.
Even in case, your SaaS is highly intuitive after signing up you should immediately guide your users on their next steps.
For example, Google Drive offers to watch a video to guide the viewer through the software. It’s very important, as well, that the user has got an opportunity to skip it, that's how such onboarding definitely won’t irritate users.
Next, don’t forget to send a welcome email that includes further actions the user is supposed to complete. It helps to ensure the customer will get back to your SaaS.
Help your customer to use your product to its full by providing a high-quality onboarding.
If you've optimized the onboarding tour, you are on the right way to customer success but still, users will probably have more questions arise with time, and here comes the customer support.
Very often, entrepreneurs think of customer support as a synonym for customer success. Customer support is just one piece in the customer success puzzle, but an important one.
As your business grows and acquires more users, more new issues appear. The way you cope with those problems influences your customer success.
Your support team should be ready to help clients with questions of different complexity on their first request. It’s important to provide the user with a quick and complete solution. You can prevent 67% (!) of the churn rate in case the support team provides a solution to your client’s first request.
You can use customer service tools to help the support team or create a guide on your website (most frequently asked questions) so that users can find a solution to some issues without calling you.
Upsell and cross-sell
Over time you will get your loyal customers, who interact with you quite often and regularly use the service you provide. If you listen to such clients and build a rapport with them, you probably know their needs and attitude toward your product.
Evaluate how often the customer interacts with your software and decide if he/she is ready to expand relationships with your organization.
Offer a better version of your subscription that will be more beneficial for this user. As well, show a related product that can be especially helpful with the one that your customer already bought.
It's likely that after reading this post, you realize that you are already using some strategies for SaaS client success. And that’s great!
Every strategy that we've mentioned is very useful, as they help to reduce the churn and turn your users into devoted advocates of your company.
All strategies can be especially effective if you understand what stages your client goes through while interacting with your service.
Read about the SaaS customer journey to implement them correctly.
CX vs UX in the Era of Experience
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.
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.
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.
- 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.
- 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.
- 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.
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:
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.
SaaS Churn Rate: Essential Aspects Business Should Know
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:
- The moment a customer doesn't renew the subscription, or
- 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.
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.
- 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.