Editor's note: This article was originally published in 2017. It has been updated with fresh content and insights in May 2020.
If you're responsible for your SaaS company's growth, you've probably had a churn-related nightmare or three. That's because customer churn—sometimes called customer attrition or turnover—can be a scary thing.
Admittedly, not all customer churn is bad—after all, bad-fit customers are bad for business. But lowering your overall monthly customer churn rate is essential and improves just about everything related to your revenue—from lifetime value to growth rate, virality, and CAC payback period. In fact, research from Bain & Company found that a 5% increase in retention can increase your profits by 25 to 95%.
Most product managers understand the importance of customer churn, and how reducing churn is crucial to SaaS growth. But far too many teams put their efforts into adding new features and attracting new subscribers, without fully understanding how those changes will impact existing customers and reduce their SaaS churn rate:
Should we improve our onboarding? How about adding that new feature everyone has been asking for? Offering a discount when customers try to cancel should help, right?
When you're struggling with rising churn across the board, it's hard to know which levers you should pull to bring things back under control.
A good place to start? Knowing that different churn reduction tactics work best at different stages of the customer journey.
Start by understanding the stages of retention
Many teams make the mistake of waiting until the actual moment of attrition to deal with their churn problem, instead of recognizing that the most effective churn reduction strategies are proactive. Retention efforts should begin at the moment of customer acquisition, not when customer satisfaction begins to wane. As Kristen De Costa of Churn Buster argued on this very blog, churn prevention should be part of a positive customer experience.
In his 2015 presentation at SaaSFest (the former name for Profitwell's annual Recur conference), Dan Wolchonok, Head of Product and Analytics at Reforge, outlined three lifecycle stages of customer retention:
- Early-stage retention (week 1): Can you get your users to use your product more than once?
- Mid-term retention (weeks 2 - 4): Can you establish a pattern of usage?
- Long-term retention (weeks 5+): How does your product become an indispensable tool?
Dan explained how improvements made early on tend to cascade through the second and third stages of the customer journey, affecting retention across the board. The more you can engage users on their first visit, or through the first week, the more likely they'll stick around for the long term.
He also described how improvements made in the later stages tend to slow down the retention curve—keeping the long-term retention rate from trending towards zero, and ensuring a sustainable subscriber base (and sustainable growth for the company).
Now, let's go through each of the 3 stages in turn, and look at how different churn reduction strategies apply.
Increase activation: Reduce customer churn in the first week (days 1-7)
The biggest drop in retention usually happens in the first week. Depending on your product, the time frame might be a little different—anywhere from the first visit, to the first day, week, or even the first month. You'll want to do a cohort analysis (grouped by acquisition cohort) to understand when users drop out of your own product and define the time frame that constitutes early-stage retention. But regardless of how you define it, improving early-stage retention is crucial to minimizing churn in the long run.
Ways to reduce early-stage churn:
1. Improve your user onboarding experience
Reducing early-stage churn requires shortening time to value and getting more customers to experience your product's core value, or aha moment, as early as possible. And that means improving your user onboarding experience.
You can check out more user onboarding best practices right here, but the following best practices will get you started:
- Identify a single workflow that demonstrates your product's core value, and then design your onboarding to guide users through it
- Keep product tours simple—don't overwhelm users with unnecessary details before they're ready
- Use tooltips and hotspots to guide users towards key actions within your app
- Optimize your UX copy to reiterate your product's value and benefits
SaaS solutions are a dime a dozen. If your users don't find value with your product quickly and efficiently, there's a very good chance that they'll abandon your product in favor of another. But if you can shorten their time to value, and help them find success early on, they'll be far more likely to stick around. In fact, a 15% improvement in user retention in the first week compounded into nearly twice the number of retained users after 10 weeks.
2. Send a personalized welcome email
Welcome emails have some of the highest open rates of any email, and a personalized, friendly onboarding email can help build trust with new subscribers and encourage them to get started with your product. Your welcome email should remind users who you are and how your product can help them, as well as explain their next steps.
Here's a great example of a welcome email from customer Analytics platform Clearbit:
Be personal—never send from a no-reply email. Instead, send your welcome email from the CEO, the head of customer success, or a similar role in the company. Ask customers to respond to your email directly:
- What would they like to get out of your product?
- Do they need help getting started?
- Do they have ideas for new developments?
Show them that you care about their experience and that you welcome customer feedback.
3. Test different mediums for educating new users
Video, written content, tooltips, product tours, and static images can all help educate users, bringing them closer to your product's activation moment. But finding the right types of content to use takes some experimentation. The team behind Hubspot's Sidekick (now HubSpot Sales) had to perform over a half-dozen growth experiments before they were able to reduce their customer churn rate by 2%.
Iteration is key. Tools like Appcues make it fast and easy to experiment with different onboarding content and learn what works for your customers.
Improve engagement: Reduce mid-term customer churn (weeks 2-4)
Now that you've helped your customers experience the core value of your product for the first time, you need to turn your attention towards building customer loyalty and continued engagement.
Again, customer attrition is best dealt with proactively. Just because a user has started using your product doesn't mean they'll keep using it. Increasing mid-term retention means getting customers to create habits around your product so that they continue experiencing the core value it provides.
Ways to reduce mid-term churn:
4. Overcome feature blindness and increase new feature adoption
As users become more familiar with your product, they build habits around certain features, and tend to ignore other areas of your product. They might try out each feature a couple of times before forgetting about them altogether, limiting how they use your product to a single, narrow use case.
It's a phenomenon known as feature blindness, and while it may be fine for some users ignore the bells and whistles, it can spell disaster when users ignore core functionality. Getting users to build habits around your product is crucial, but it can be difficult to break them out of their routine and encourage new behaviors in an existing product.
To combat feature blindness, try using tooltips or hotspots to point out features in context, when a user is most engaged. Addressing the need as it arises, instead of when users are focused on more familiar activities, makes it much more likely they'll pay attention to what you're trying to show them. Here's an example from Github:
Github uses a simple tooltip to introduce a new feature, allowing users to see how the feature works within the context of their normal use.
5. Measure customer satisfaction and collect feedback
Maintaining open lines of communication with your customers is key to reducing churn. The more they use your product, the more important it becomes for you to understand why they love it and continue to use it.
Sending a carefully timed survey can help you get to know your users and their needs—but be careful with how you position your ask, especially in the early stages of the relationship. Many users simply aren't willing to spend extra time completing a long survey before they're fully invested in your product. Consider offering subscribers an incentive, like entering them into a giveaway to win a prize. See below how Auth0 does this with their survey email:
The survey itself should include mainly open-ended questions. Ask each customer:
- Why did they first start using your product?
- How does it fit into their existing workflows?
- Are they experiencing your product's core value?
- If not, where do they think you could improve?
Use the customer feedback you collect to improve your retention efforts.
6. Celebrate customer successes
After the excitement of the first few days, users' interest in your product starts to wear off. But everyone likes to feel like they're the center of attention, and celebrating their progress with your app is a great way to remind them about the long-term value your product provides.
You can trigger celebratory messages or emails on any kind of event, whether it's using a feature for the first time, inviting a friend to join the app, or the 500th login. YouTube, for example, congratulates users when they pass 100 subscribers:
YouTube's email rewards users for engaging with the app, providing positive reinforcement and encouraging them to send more emails. Small gestures like this add a human touch and can be surprisingly effective at improving customer loyalty.
7. Provide valuable content on a consistent basis
“...we kind of found this [by] accident with content. We were auto-subscribing some of our users to the content that we are producing on our blog. And one day, I don’t know how we stumbled on this data, but we looked at this and we kind of broke this down and we realized that users who were receiving our blog content — it wasn’t even about the product, it was about a bunch of other things — actually retained significantly higher for us.”
Sometimes retaining customers extends well beyond your product. Blogs, email newsletters, etc. provide extra value and let users engage outside your app, making them more likely to notice the ongoing value inside your app. If you're already creating content on a consistent basis, look for retention trends in your analytics data. Are churn rates lower for subscribers who frequent your content? Leverage your top-performing content and make it part of the onboarding experience, distributing it to users via in-app messaging or drip emails.
Maintain value: Reduce long-term customer churn (week 5+)
The spark your product once ignited in a user eventually dims. Even after you've worked to make your product a part of users' daily habits, you still need to continue demonstrating your core value to users as often as possible.
Ways to reduce long-term customer churn:
8. Build retention hooks into your product
Retention hooks are built-in features that give customers a reason to encourage other users to return to your product over time. Many social media sites have mastered this tactic. For example, LinkedIn encourages users to reach out to connections within their network, bringing those users back into the app and helping them rediscover its core value.
Since the reminders are coming from people they already know, inactive users are more likely to re-engage with the app. And the best part? Retention hooks act like a flywheel, bringing inactive users back to your product without any extra effort on your part.
9. Maintain personal relationships
Sales reps are great at getting to know new customers, learning their needs, and working to understand their business problems. Unfortunately, that information often gets lost in the hand-off to the product team. Without the personal touch they experienced at the beginning of their journey, subscribers can easily become unhappy.
The solution, of course, lies in better, more proactive customer service. To improve customer satisfaction well beyond the sales experience, some companies are assigning a retention specialist to certain accounts. The retention specialist works to keep each customer happy, following up after each interaction and answering any questions they might have. By maintaining a close relationship and treating your customers more like partners, your churn rate will drop over time.
If you're constrained by resources, you can easily get by without a dedicated retention team. Instead, have your PMs make a habit of reaching out to customers regularly—not to upsell them or to grill them for customer feedback, but just to say “hi” and keep the lines of communication open. This open approach helps improve customer loyalty and reduce attrition rates by creating a sense of ownership and personal investment in your product.
10. Identify at-risk customers using NPS surveys
Don't let yourself get caught off-guard by negative feedback. Tracking your Net Promoter Score (NPS) lets you keep your finger on the pulse and can help you collect valuable customer feedback on why users love your product—and why they don't.
The true value from NPS surveys doesn't come from the individual scores, as Ondrej Sedlacek, co-founder of SatisMeter, explains:
“NPS is not about the score itself. It is about listening to your customers and helping them solve their problems. It is often overlooked to follow up immediately on every response. You can resolve unsatisfied customers' problems and effectively reduce their churn with NPS.”
Ask follow-up questions—especially to detractors—and use the feedback to guide your churn reduction efforts and hone in on possible solutions. Take a look at how Norwegian healthcare portal PatientSky used Appcues to follow up with their NPS detractors by targeting the following flow to users who responded to the NPS survey with a score of 0 to 6:
11. Encourage customers to upgrade to annual contracts when possible
Monthly subscriptions likely make up the bulk of your SaaS company's accounts, but for long-term retention, nothing beats an annual contract.
Annual subscriptions give you more time in which to demonstrate value, and a longer time frame makes it much more likely that your product will become a part of your customers' routine. Data from ProfitWell shows that companies with a higher percentage of annual contracts experience lower churn rates, since customers on an annual contract only have one purchasing decision to make each year instead of 12.
For most companies, it's best to offer an upgrade to an annual plan after a subscriber has some experience using your product. Investing in an annual contract is a daunting decision for new customers who don't yet understand how your product can benefit them, so make sure they get to experience the benefits you provide before you make the ask.
12. Re-engage inactive customers with retention emails
When it comes to re-engaging customers outside your app, email is often your best bet. A well-written retention email can help bring inactive users back from the dead, reminding them of the value you provide and reducing the chances they'll abandon your app forever.
Check out this example from Blue Apron. It coaxes users back into the app without coming across as spammy or demanding:
One of the best ways to resurrect inactive users is with a new feature update. Take this email from Asana, for example:
This email shows off a new feature to lapsed users and, in the process, highlights how the project management tool is constantly getting better—which gives unengaged users a reason to return.
13. Optimize your cancellation flow to retain at-risk customers
No matter how proactive you are, or how phenomenal your customer support is, some customer attrition is inevitable. Thats why it's important to have an effective cancellation flow in place. A well-optimized cancellation flow can actually help prevent churn.
A great cancellation flow includes 2 essential elements:
- Allow subscribers to self-cancel, but remind them what they'll lose by performing this action—the value they've built inside the app in the form of customer data, historical communication data, sales, and so on.
- Suggest a compelling alternative to canceling. It could be a downgrade to a lower-tier plan, which is better aligned to the needs of the customer, or a few hours of consulting with the customer success team that will allow the subscriber to take advantage of the product.
Mailchimp uses these principles in their offboarding experience. Users are given the option to either pause their account and disable key functionality, or delete their account and lose all historical data:
The first option essentially allows customers to keep all the value they've built inside the app for free—a no-brainer for most folks. And because they've kept their account, Mailchimp can still re-engage these users and guide them back to a paid plan in the future. But if they do opt to delete their account, Mailchimp offers a cheaper solution, while also acknowledging their customer's decision to leave and politely asking for feedback.
Customers churn when they don't achieve value
Every SaaS company is different, and every subscriber has different needs, but customer churn always comes back to the same root cause:
Customers churn when they don't achieve their desired outcome.
Reducing your churn rate doesn't mean getting better at putting out fires as customers leave. It means getting better at helping your customers achieve their goals by delivering more delightful and effective experiences—from onboarding to offboarding and everything in between.