Top 10 Churn Factors in Subscription Based SaaS and Technology Companies

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Client retention is a critical component to any organization, but this reality is especially true for technology firms who either have a subscription-based revenue model or are functioning in an economy where new sales growth is harder to come by.  

Over the years, I have learned a lot about churn. My experience has been that most organizations do not take a truly strategic and proactive view to this business challenge. These are some of the most critical elements:

1. Losing an executive champion opens the door for competitive bids at renewal time.

The executive champion, after all, is the one who supported the purchase of your solution. When that person is replaced for one reason or another, know that there is a very high likelihood that the new executive will want to make his/her mark.

What this generally means is that they will scrutinize the status quo and look for ways to improve upon already-existing systems and processes. The more critical your solution is to their group, the more likely that executive will want to see competitive bids or at the very least weigh their options before agreeing to renew.

2. Software companies are surprised when clients renew or leave.

Very often, software companies do not have a good understanding of the customers' success (or failure) in using the vendor’s solution long after the sales is closed.  

Many companies only have a grasp on a small percentage of their customer base. Thus, they are often surprised when a customer renews or—more critically—doesn’t renew. Technology companies need to adopt a customer lifecycle playbook approach that ensures that renewal likelihood is not a  surprise.

3. Understanding the true retention rate.

How are you tracking your retention rates? Many companies look at the total number of clients at the beginning and end of any given year to determine their retention rate. Although this is a good gauge, what is arguably a more important measure is to understand at what year did they not renew.  

The reality is this: Many customers will renew in year two more as a reflex than as a choice. Unless you have failed them miserably, they likely haven’t take the time in the first 12 months to look at alternative solutions. If and when they feel they need to, it will likely be during the second 12-month term, making the third 12-month term less likely.

A measure you need to be tracking is the retention rate per subsequent renewal years. For example, it would be of great strategic interest to know that only 60% of customers renew going into the third 12-month term. This is a statistic that would be hidden if you only tracked the retention rate within any given year.

4. Having high customer retention, frankly, is hard work.  

Customers will not renew out of the goodness of their heart. You need to earn and re-earn their business continuously over any given term. Ensuring retention should be an all-consuming goal of your organization. It takes work and every department has some role to play

5. A disconnect between the purchaser and the user community spells trouble.

User adoption becomes very challenging when the user community had a software/solution thrust upon them, instead of being involved in the decision making process, especially if there was an incumbent solution. This type of scenario results in lackluster and inconsistent adoption rates, if not outright refusal to learn the new system.  

Companies rarely, if ever, renew a solution that is not being properly utilized. When a divide exists, you need to work hard to bridge the void between the purchaser of your solution and users.


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6. The bad news—SaaS solutions are easy to deploy.

Why is this bad news? If they are easy to deploy, they are also easy to remove. In many cases, the risk is very low for companies to switch SaaS providers. Retention is always a risk, when leaving you is painless – relative to the on-premise model.  Don’t take your customers for granted, they can easily leave you in a heartbeat.

7. Customer churn is reduced when your solution is connected into larger business solutions ecosystems.

If your solution can integrate, communicate or otherwise “hook into” other key tools that your client needs—such as financials, CRM, project management tools, et cetera—it will be far more difficult to pull the plug because it now impacts the larger ecosystem, which is of critical importance to your customers. This makes your solution far more valuable (read: more likely to retain) than it was when it was an isolated point solution.

8. Complementary service offerings positively impact customer retention.

Offering complementary services helps to ensure that your software/solution is entrenched in your customers' business process and workflow. This will go a long way to cementing user adoption and overall usage. If you don’t have a mature, complementary service offering, you may want to start considering this option.

9. Sales rarely take an active involvement in customer retention.

Not because they don’t want to, but because they will have a very short career if they are not meeting the new revenue growth targets set by your company.

The challenge is that even though sales is often responsible for all revenue, they cannot (and I would argue, should not) spend the amount of time and effort on customer retention. In other words, protecting existing revenue.

This is yet another reason why you need a customer lifecycle playbook approach that complements the sales team and gives them the confidence to pursue new business while other parts of the organization are pursuing customer retention and revenue protection.

10. Customers will not renew if they think they have chosen a market loser.

Many people will not take the risk to renew with a company that is perceived as a “market loser,” one that has a reputation (correctly or incorrectly) that it is struggling.

Your marketing and PR teams need to communicate your market wins to counter any perceived “market loser” symptoms. As an example, a big reason RIM (Blackberry) lost customers when they were still in the mobile phone business was not because of their products or solutions, but because they are perceived as a “market loser.

So take a hard look at your organization through the lens of each of our Top 10 items, and adjust accordingly.

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Tags: customer service churn SaaS Strategy SaaS

Jeff Bennett

With over 20 years of experience, Jeff is as an experienced technology executive and entrepreneur with an outstanding track record for helping companies grow revenue, reduce churn and create memorable customer experiences that propels them into the next stage of growth.

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