12 reasons behind churn in SaaS
Churn in SaaS measures the number of customers who cancel their subscriptions to your software. Though there’s no universal yardstick, 5% is around the typically stated “average” SaaS churn rate, while a “good” churn rate is around 3% or less.
So, it’s a given that – even in a healthy, profitable company – a portion of your customers will regularly choose to stop using your software. But why?
There are many reasons why a SaaS customer might churn. And by knowing them, you can work to reduce them.
So, here’s a closer look at 12 of the more common reasons behind churn in SaaS.
1. Bad onboarding process
Customers can churn in a flash — including just after they’ve signed on. After all, they’re not yet loyal to you, or advocates of your software. And a poor onboarding experience can quickly kill their interest.
Bad onboarding could mean difficulty getting the software to work in the client’s systems. It could mean the training and documentation to use it wasn’t good enough. It could mean they felt the service while they get started was sub-par. Perhaps they simply didn’t like the look of your interface.
Whatever the reason, an onboarding customer’s tie to your product remains tenuous. They need to be assured that they can trust you. When the onboarding process is full of hurdles and headaches, it sets a bad impression. It tells customers right away that the business will be difficult to deal with. And so, they churn.
2. Wrong customers
Churn in SaaS is often due to the wrong fit. You’re not right for the user, and they’re not right for you.
It can be easier than you might think to attract the wrong customers — that is, customers that the software isn’t targeted to. This means that these customers are paying for a service they don’t or can’t use.
The customer has found your product, and due to reasons like misplaced marketing or flawed research, they’ve wrongly assumed it’s for them. Only to realise that the product doesn’t, in fact, serve their needs.
In turn, the customer churns.
If customers don’t find value in line with their SaaS investment, they’ll churn. This monetary incentive to leave is caused by factors such as:
- Inflexible pricing packages
- Hidden fees
- High fixed costs
- An increase or change in the pricing model
- Too many premium features or additional in-app purchases
Either way, the customer perceives a lack of value in your product, and cancels their subscription.
4. Payment issues
Another money-related reason for churn in SaaS is payment issues. Such issues include technical issues with completing a payment, or simply forgetting to renew a subscription.
This is a simple problem to fix, however, and one of the more easily avoidable causes of churn. You should make use of notifications to remind customers when they need to renew their subscription. Meanwhile, payment options should be clear and easy to follow, with an available support team at hand to help with payment problems.
5. Lack of features
Churn in SaaS can also be caused by the software not meeting the customer’s feature needs. Or, in other words, a failure to meet expectations.
This typically happens if the customer has been sold futureware (i.e., features that don’t yet exist but are planned.) It can also happen if the sales team over-promise what the software can do, (i.e., vapourware). Or, it can happen when the software simply isn’t complete yet — it doesn’t have enough features to compete with the other options out there or to provide enough value.
6. Too many features
The opposite of a lack of features is another key reason for churn in SaaS. That is, customers will often leave when a software solution has fallen foul of feature creep.
If the software has too many (unnecessary) features, it impacts load times. It clutters up the user interface, making the software more complicated than it needs to be. Plus, it can raise the price for customers — even though they aren’t using most of the features.
7. Scalability and integration issues
Sometimes, churn in SaaS can be caused by scalability issues.
For instance, a customer subscribes when their business need for the software is small. Over time, their business grows — and the amount they need to use the software grows with it. But, the software on offer can’t cope with the increased use or changing needs of the customer. As a result, they churn and look for a better, more scalable option.
Another, similar, reason can be integration issues. If the software service doesn’t play well with the other systems and programs the customer needs to use, it can make things harder for them to scale their business and use of the software. So, they leave.
8. Problems with the product
SaaS customers rely on your software to conduct their business. As such, things like downtime, bugs and so on are not only disruptive to them, but to their customers too.
Problems with the product like this will inevitably lead to churn in SaaS. This is particularly true if they’re common occurrences, or they’re handled poorly.
9. Bad customer service
One of the most common causes of churn in any business is bad customer service – and churn in SaaS is no exception.
A SaaS customer can’t get in touch when there’s an issue with their subscription, for example. Or the customer service rep has a bad attitude. Or they can’t get their problem fixed. When the customer receives poor service and support, they aren’t going to want to keep paying you.
10. Weak customer relationships
SaaS success is built on a foundation of strong customer relationships. If a SaaS business lacks customer centricity, for instance, they increase the likelihood of suffering from poor-no customer loyalty.
Avoiding this cause of churn in SaaS means putting effort into building good customer relationships. This means friendly, accessible salespeople and support teams. It means the collection and use of feedback, and it means knowing exactly where the product meets customer needs.
11. Bad brand reputation
Sometimes, even if a customer has been well-served by a SaaS company, the brand getting a bad reputation can cause them to churn.
This is because a bad reputation is a sign of multiple bad experiences with the vendor. It acts as an alarm to customers telling them that they may have troubles with the software or service down the line. So, they jump ship before that happens.
12. Competitor-driven churn
The final reason for churn in SaaS is that a competitor is out-performing you in some way. This may be that they have a better offering, or that your customers simply believe that they do.
Avoiding competitor-driven churn can be tricky. The key is to display your value to customers as quickly as possible. It can also help if you find a way to specialise the offering for the customer. For instance, perhaps you serve a niche market, or can offer something the competitor can’t, like extra service hours or niche market knowledge.
Churn in SaaS
There are all sorts of reasons behind SaaS churn. It might be expensive and time-consuming to onboard SaaS customers, but it’s quick and easy to put them off and make them want to leave you.
To avoid churn in SaaS, the importance of customer relationships must be recognised. Efforts must go into meeting customer needs, providing solid, helpful experiences and robust software.
Ultimately, SaaS is about supplying software and a service, and both need to be valuable and robust.