Churn for Business: Although SaaS is an acronym that refers to software, subscription services are increasingly common and range from streaming to wine, clothing, and automobiles.
In these businesses, companies maintain a monthly revenue stream, but they must be able to retain active customers for as long as possible. In this sense, creating strategies that lead to negative churn can be the key to success. Want to understand how this is possible? Stay with us and learn everything that involves reducing cancellation fees.
What Is The Churn Rate?
Churn rate is the metric used for the churn rate during a given period. Every time a customer cancels a contract, the churn rate increases.
Precisely for this reason, companies seek negative churn. After all, it is a sign that the company is financially healthy. This metric is ordinary in companies that work in the software (SaaS, or software as a service ) model.
Usually, these companies sell software subscriptions, where customers pay monthly for usage. This model differs from the old format where consumers bought a license. However, the churn rate is not restricted to SaaS companies but involves all models that work with the offer of services or products by subscription.
How To Calculate Churn Rate
To calculate the churn rate, you need to have two numbers: the number of customers who cancel during the period to be analyzed and the total volume of customers. Thus, the churn rate will be the percentage equivalent to the Number of canceled customers divided by the Number of active customers.
Churn rate = Number of customers who canceled / Total active customers in the period
The excellent churn value is as low as possible. The lower this metric, the better the company’s retention capacity and the greater the chances of maintaining financial stability. Fees vary according to the market in which the companies operate. In SaaS, keeping the churn rate between 5% and 7% is considered positive. But this will also depend on the profile of customers the company works with.
In the B2B market aimed at enterprise customers, the churn rate tends to be lower, as customers of this size generally have more extended plans and are less price sensitive. Thus, they do not cancel contracts as often as smaller customers. Ideally, the company should be able to achieve negative churn. See how this is possible below!
How To Achieve Negative Churn
Negative churn is achieved when the increase in revenue from current customers outweighs the loss in revenue from lost customers. To achieve negative churn, it is not enough to avoid contract cancellations. It is necessary to increase the amounts spent by current customers with up-selling and cross-selling strategies.
Upselling happens when there is an upgrade in a customer’s contract. In other words, an already active client starts to pay more for the contracted services. This usually happens when switching from a basic plan to one with more features.
Cross-selling is when a product or service is offered that is complementary to the effect that the customer has already purchased. That is when other benefits from the product mix are contracted. For example, there is the addition of a consultancy to use the platform that had already been hired.
In this way, even if the company has lost customers and revenue, it will be possible to achieve the long-awaited negative churn if the payment becomes higher than in the previous period.
How To Reduce Churn
The best strategy to reduce churn is to ensure good customer service. Often, companies stop following up with the customer as soon as the sale is completed. However, to ensure retention and increase loyalty, it is essential to offer an excellent after-sales service.
Especially for businesses that work with subscription plans, the company must follow the customer journey while using the service. Many companies work with “customer success” teams, also known as customer success. CS professionals have the mission of advising the client during the implementation period and ensuring that he can make the best use of the contracted product or service. The CS team also analyzes which customers are at risk of cancellation and the opportunities for up-selling and cross-selling.
Given the mission of preventing churn from growing, it is recommended to monitor the entire customer journey closely and centralize information on all contacts made with the company. This will make it easier to develop action plans to correct objections and avoid cancellations.