What is Churn and Why is Retention Important?

User Retention🕑 Reading Time: 4 Minutes

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The rate at which customers cancel their subscriptions to service is SaaS churn. Every subscription company refers to churn as their enemy. It is the probability of which customers withdraw their recurring subscriptions with your SaaS company.

We regard SaaS churn as a key metric through which companies measure the performance and success of their business. They also use SaaS churn as an essential parameter to forecast future revenues. When used in forecasting, SaaS churn works as the probability rate at which customers will withdraw from their subscriptions within a given period of time.

In essence, a company must exceed its rate of growth (number of new subscribers) by its rate of churn to successfully grow their client base.

Reasons that make customers churn.

There are several reasons that customers cancel their subscriptions and cause the company’s churn rate to increase. This is an inevitable occurrence for companies because, despite their best efforts, there will always be certain customers who will not remain loyal to the company.

Here are a few reasons why your company may lose customers:

These are a number of reasons why your company could experience churn. As evident, many occurrences are beyond your control, and in many cases, there is nothing your company can do to alter the situation.

The good news, however, is that in most cases of customer churn, you can take control of the reasons and work towards betterment. These include price, customer service, and product quality, which you can polish with a little strategy, innovation, and effort on your company’s behalf.

Why is Retention Important?

To put it simply, bringing in new customers rather than retaining will be more costly for your company. This is especially when the company is already facing a challenge. According to a serial entrepreneur David Skok, the reason why newborn businesses fail is that they do not monetize their already existing customers. To be more precise, most start-ups fail to do their math on whether or not the expenses of acquiring new customers would extend beyond the clientele’s lifetime value.

If companies do not make retention a priority right from the beginning, they will suffer in the new future in the SaaS market. To help you understand why retention is essential for your subscription business, we have enlisted the important reasons for you below:

1. Customers are essential to increasing your revenue

According to consumer research, your company’s existing customers spend around 33% more than new clients on your product at an average do. This clearly shows that the old customers are already familiar with and love your products. They utilize them because they believe in your quality. If you try to connect with the segment of new customers who will not be as pleased, you will invite detractors to convert into bad promoters for your business.

In all fairness, we do believe that making your regular customers feel valued is more essential. Some researches even say that it is more important than your product quality.

2. Acquiring new customers is costly

In the SaaS industry, the cost of acquiring new customers at an average is generally 2 to 10 times more than your average monthly clients will spend. You can calculate the rate at which you pay off the cost of acquiring customers very easily in SaaS. Simply put, if your sales and marketing costs totaled to $1000 for every customer you acquire and the recurring revenue per month was $200, you would need at least five months of service provision the re-earn the cost of acquiring a customer.

Retention of old customers is, therefore, a sound way of keeping your company’s financial situation above troubled waters.

3. Offset the possibilities of churn

Typically, churn is a glaring indicator that your subscribers are dissatisfied and disengaged. Experts recommend that your company must actively seek customer retention with the help of behavioral segmentation. This would enable you to quickly spot customers that are at the highest threat of churning.

The SaaS industry crucially depends on identifying which users have gone into the “activity churning” mode. Your company must act with the utmost speed to respond honestly and personally to the situation to re-engage the customer.

Retention Final Thoughts:

Churn is typically poisonous for your subscription service company. Not only does it doom your business to destruction, but there are also fair chances that you may never recover from the situation of bankruptcy, and the company will lose existence. The best way to offset churn right in the early stages is to retain your valued users with little strategic planning.