Customer acquisition is an important part of a successful SaaS company’s sales strategy, but it also cannot be your only focus. High sales numbers may keep your SaaS business afloat in the short term, but eventually those numbers will plateau. If you don’t have a way to reduce churn rate when that happens, you will begin to sink.
That begins with an understanding of what causes churn, along with the role the customer onboarding process plays in retention.
When a customer terminates their relationship with your company, you lose the recurring revenue stream that customer represented. Churn rate measures those losses over a given period of time — typically a month, quarter, or fiscal year. Expressed as a percentage of total subscribers, churn rate can be an excellent barometer of your company’s overall health, particularly if contextualized against its growth rate.
Particularly in B2B, customer churn and revenue churn are also closely related, and should generally be measured alongside one another.
Userpilot notes that a good churn rate for smaller SaaS companies is between five and seven percent annually, and less than five percent annually for larger companies. The average churn rate in 2022 was 5.9 percent for customers and 7.7 percent for revenue. Note, however, that this is the average for all SaaS companies — each niche has its own average, and what constitutes a positive churn rate in one sector might be abysmal for another.
It costs between five and 25 times more to acquire a new customer than it does to retain an existing customer. With a high churn rate, you not only lose recurring revenue, but you also need to spend more on customer acquisition. Conversely, increasing customer retention by only five percent can increase profits by as much as 95 percent.
Customer onboarding and customer retention go hand-in-hand — onboarding is essential in combating churn. A strong onboarding process shows customers that your company is committed to their success by helping them get as much value out of your software as possible. Remember that per Wyzowl, 86 percent of people tend to stay loyal to a business that invests in onboarding, customer enablement, and customer education.
Effective onboarding can also reduce the amount of time your sales and success teams spend on each lead, driving sales growth while also creating new upsell opportunities through increased customer engagement.
A great customer onboarding experience is about maximizing the customer’s return on investment for your software. It’s also the bedrock of customer relationships, as a well-educated customer is more likely to recommend your company to professional colleagues and rely on your products and services. Effective client onboarding is generally:
According to Hubspot, the two most common reasons for customer churn are a lack of understanding and a lack of value. We’ve already discussed how onboarding heads off both of these problems. A well-educated customer not only understands how your product works, but also knows exactly how to derive value from it.
Other reasons for churn include:
Some churn is inevitable. There will always be customers for whom your company isn’t a good fit. There will always be customers who leave for a lower-priced alternative. There will always be competitors who poach a customer here and there.
With that said, there are many steps you can take to reduce avoidable churn.
We talked a lot about customer enablement and customer education today. But there’s still a great deal more to be said on the topic, particularly with regards to virtual training. To that end, if you’re interested in learning more about both VILT and self-paced training, we recommend downloading The State of SaaS Virtual Training.
By interviewing the top SaaS training leaders in the US, our ebook takes a comprehensive look at the role training plays not just in customer onboarding, but also in sales enablement and retention. You’ll also gain insight into how your company can overcome some of its most significant training challenges, the importance of learning management systems in customer retention, and how to assess and lower the dropout rate for your training.
Finally — and most importantly — you’ll gain a window into how and why to integrate hands-on training into your customer retention strategies.