Usually, the customer churn rate is every SaaS company’s worst enemy. But in this article, we’re going to show you how to not only deal with churn effectively but also how you can use your customer churn data as a valuable tool to build your business.
Voluntary churn vs. involuntary churn: What’s the difference?
Before looking at customer retention strategies that can help reduce customer churn, it’s essential to understand the difference between voluntary and involuntary churn. These are defined as follows:
- Voluntary churn: This type occurs when a customer chooses to unsubscribe from your product or service. The reasons motivating this type of churn can vary. It might be that your customers are having problems with bugs in your software or an important feature they’d like to see missing.
- Involuntary churn: Involuntary churn is the second type and occurs without your existing customer’s formal knowledge. The most common situations behind this churn involve a problem with your payment processing or an expired credit card on your customer’s end of the transaction.
Now that you know the two basic types of customer churn to look for, let’s go a bit deeper. What trends and patterns of concern should catch your eye if they appear, and what can you do about them?
Spot and act on usage trends
Modern SaaS subscription accounting software makes it incredibly easy for SaaS companies to catch small, negative changes in customer behavior before they have the chance to develop into full-scale problems. As a SaaS CFO, this strategy of early detection followed by corrective action should be your go-to mindset for customer churn.
More specifically, you’ll want to take the pulse of these two revenue-based churn metrics regularly:
- Churn MRR: Monthly recurring revenue (MRR) churn is expressed as a percentage and informs you of the revenue you lost to churn over a given month. To find your churn MRR, subtract the amount of recurring revenue you lost to churn from your starting MRR for the month you’re measuring. Divide that by your starting MRR to find your churn MRR.
- Downgrade MRR: Your downgrade MRR is almost identical to your churn MRR but describes the revenue you lost to downgrades rather than churn. The formula used to find this metric is the same as the one described above. Just plug in your downgrade MRR instead.
A streamlined and automated approach to your accounting department will help you quickly identify any negative revenue developments. You’ll also be able to run detailed forecasts on various MRR scenarios.
Outside of staying vigilant around your SaaS metrics and drafting proactive strategies, what else can you do to cut down on customer churn?
Automate your renewal process
As a general rule, you should always look at your business processes and ask yourself the following question: Which can I automate, and which can I delegate? Once you’ve answered those questions, you’ll be able to focus intensely on a few central tasks rather than rushing around in a hectic haze.
For now, we’ll focus on automation, specifically as it applies to your renewals. Putting this aspect of your SaaS accounting department on autopilot can free up your team to field much more important issues around customer satisfaction, revenue, and other profit drivers.
Depending on the scale of their operation and payment processing, many SaaS companies have found that just sending automated renewal emails can do wonders for boosting efficiency.
It’s also become common for companies to set up automated email notices that alert customers when their card fails to go through for payment. Usually, the email will tell the customer they have 7-10 days to update their card info before it gets charged again.
This is an excellent strategy because it offers customers a window of time to get the situation straightened out instead of automatically churning customers. It helps with reducing revenue churn, but it’s also thoughtful to your customers because they’ll avoid the hassle of signing up again after involuntarily churning.
Build customer loyalty and incentivize commitment
Offering incentives for customers who stick around is a fantastic way to build loyalty for your brand while strengthening ties with your happiest buyers. Accounting software built for the cloud can help you chart your course of action while planning your customer loyalty campaigns.
With the power of automation at your fingertips, you’ll be able to:
- Chart strategic risks and benefits: See how your loyalty campaign plans impact your short-term and long-term revenue. This is very important because the long-term cost-benefit details of these arrangements can be time-consuming and complex to calculate manually.
- Compare different scenarios in depth: With accounting software, you can instantly compare different “if-then” scenarios just by entering your data and pressing a button. This will enable you to arrive at insights and opportunities you might have missed with manual calculations and planning.
We’ve said it before, but it bears repeating. An automated accounting suite isn’t just another purchase for the office. It’s a long-term investment in your SaaS company’s growth and ongoing elimination of customer churn.
Take a modern approach to customer churn
Embracing a streamlined and modern accounting workflow is one of the best things you can do if your goal is to leverage finance into a true revenue generator. If you’re not careful, though, the switch to automation can also come with some costly mistakes that might even boost your customer churn numbers.
This article was originally published by Sage Intacct, and republished with permission.