3 Things You Can Do to Counteract Churn in the SaaS Industry
March 6, 2023
There’s no sugarcoating it: 2023 is going to be a rough year for churn in the SaaS industry. Budget reductions have wreaked havoc indiscriminately across organizations and departments, and few industries are immune. SaaS is not one of them.
But inevitable risk is not necessarily inevitable loss. Following are three things you can do to counteract churn and reduce the revenue risk your company faces.
1. Preempt the Churn: Increasing Perceived Value
When a company looks to cut costs and reduce its SaaS subscriptions, it is only going to consider those subscriptions that have an economic footprint higher than their perceived value.
This is important: perceived value. Even if your software fundamentally changes the way your customers do business, helps them earn millions more in revenue, or solves every business problem under the sun, if your customers AND their executive team don’t fully understand that value, you’re in danger of losing that subscription.
As an agency, we work hard to highlight and report on the value we bring to our clients. In order to reduce churn vulnerability, SaaS companies should do the same. You can’t relax and stop selling the value of your software once the contract is signed. Ongoing communication with your customers should highlight that value on an ongoing basis. Continue to emphasize that your software reduces costs, saves them time, improves revenue streams or secures their data. Whatever value you sold them on, trumpet that value throughout the relationship. This ensures that when the time comes for budget cuts, your solution is considered indispensable.
I see that 10 people have already signed into their seats since you signed up with us a month ago. With the average user saving 10 hours per month with our software, Acme Corp has already realized 100 work-hours of return on your investment with us.
Congrats on running your first report in our software. As you continue to use it, I’m confident you’ll find that this improved reporting will help your executive team better understand your department’s value. This insight, coupled with the ...
2. Be the Best Partner: Providing Pricing Alternatives
When cost cutting is inevitable, consider how you can support your customer without losing them. It is much easier to ramp back up than to get a new user in place or reinstate a customer after they’ve completely stopped using your software. If a customer goes without your software for a long enough time, they may forget the value of having it in the first place.
Instead, consider pricing alternatives that allow your customers to scale back costs during tougher times. By offering fewer seats or reductions in access to certain premium features, you can maintain the critical position within the organization’s workflow while still being a responsive, respectful, and collaborative partner.
Critical to this step is to continue to monitor usage and identify when the customer is bumping up against the barriers of their reduction. Continue to market the value of the original tier to ensure that your customer doesn’t get too comfortable with the reduction.
3. Eliminate the Impact of Churn: Prioritizing Upsells
Sometimes, there is just nothing you can do. Sometimes weaker customers churn.
But all is not lost. In the face of customer churn, focus your team’s attention on your best customers and look for ways to deliver more value to them. The solution for churn is to remember that at the end of the day, net dollar retention (NDR) is a significantly more important metric than churn.
Churn is painful—not only for the bottom line but also for your team members. Focusing them instead on NDR and finding creative, additive ways to drive value for your current, best customers can increase your revenue without the investment needed to find a new customer. Cross-sells and upsells not only are a more efficient solution to reducing the impact of churn, but they also make it less likely that those best customers will be the next to consider cutting your service.
No one department alone can solve the problem of churn. Your marketing team should not just focus on enabling sales with collateral for driving new business but should also empower your client services team with cross-selling and upselling tools to drive increases in customer lifetime value (CLV). Your sales leadership can offer discounts for loyal customers. The product team should consider functionality that is complementary and compounding to increase customer investment.
Together, your teams can work to increase upsell opportunities and reduce the impact churn has on your bottom line.
About the author
Kristin Grages is a Senior Director, Marketing Strategy at SmartBug Media. She has more than 20 years of B2B marketing and PR experience and brings to SmartBug a deep understanding of the intersections and benefits of Inbound Marketing and Sales. Read more articles by Kristin Grages.