Getting a new customer is half the battle. Hanging on to them is the other half. Understanding customer churn for SaaS apps is key to keeping it from getting out of hand.
Customer churn for SaaS is usually calculated on either a monthly or yearly basis. Even the best SaaS apps have a churn rate above zero. According to Woopra, the average annual churn for a SaaS company is 32 to 50%. That's a substantial turnover.
Acceptable churn rates vary according to your particular circumstances, but ChartMogul ran the numbers and determined that the top 25% of SaaS apps have a customer churn rate of less than 2% per month. However, even that means you lose over 20% of your customers yearly. Even a relatively low churn rate means you are piloting into a headwind.
Customers churn when they are unhappy, but that's too broad a definition to be helpful. More practical reasons for customer churn can be grouped as follows:
- Functional expectations don't match reality
- Value proposition doesn't prove out
- Customer service is lacking
- Customer needs are no longer met
- Competitor's app is more attractive
Let's take a closer look.
Customers expect certain functionality to be available based on marketing materials, product demos, and onboarding discussions. When they cannot replicate steps they saw in demos or do the tasks they expect, customers see a disconnect between what they were told and the reality of the app itself and don't stick around.
Businesses generally purchase an app with an expectation of the value it will bring them. "Reduce data entry time by 4 hours a week." "Tie out monthly accounting reports in 1 day." Very few customers will buy an app that doesn't promise significant value over their current way of doing things. As a result, they churn when the facts do not support the value proposition.
Poor customer service is a common reason for customers to exit. When customers have issues, they expect them to be addressed quickly. And this expectation often exists despite an SLA or other limiting agreement. It's human nature. We have an issue; we want it solved now, not later.
Sometimes customers exit because their needs have changed. This is inevitable and necessary to an extent. If a customer's needs have changed enough that your product can no longer provide value to them, then the last thing you want is to have a dissatisfied customer regularly calling on support because of all the things your product can't do.
And then there are those customers who find your competitor's app more attractive. Sometimes this may be a “grass is greener” situation. But maybe your competitor's product is a little fresher, more up to date with the latest trends in UX, or has some capabilities yours doesn't. Or perhaps your competitor has a more attractive pricing model, where it's easier to draw the connection between the value the customer receives and what they pay for it.
A big part of managing customer churn is simply being aware of what's driving it. When customers leave, they're usually open about what caused their departure. But before they get to that point, it's good to have some regular feedback from your customers, beyond the support tickets they submit, to keep track of how they are doing and catch early indicators of churn.
And, although we've talked mainly about churn as a negative, some churn is healthy – both for your company and your customers. Not every customer is a good match for your product, and the faster they figure that out and move on, the faster you can free up the resources needed to keep the rest of your customers productive.
But these are a minority. Most of your customers are worth keeping. And a powerful strategy for minimizing customer churn is to create product stickiness. There are different ways to achieve product stickiness, but using an embedded integration platform to build, deploy, and manage your native integrations is a proven approach.
An embedded integration platform can help reduce customer churn by making your product essential to your customers by connecting it to their other critical apps. Along with this, the platform can elevate native integrations in both visibility and value, establishing them as key product differentiators.
Let's break this out into the following benefits and see how it all works:
- Make your product central to customer productivity
- Provide an end-to-end integration experience
- Draw attention to the value of integrations
- Increase the cost of switching
If your customers rely on your product to orchestrate their daily workflows, that's the very definition of stickiness. A product with multiple integrations to your customers' other apps, enabled by an embedded integration platform, becomes deeply ingrained in their day-to-day operations. Your product has become essential: eliminating redundant data entry, automating tasks users need to complete in other systems, providing access to data from other sources, and making it easier to share information.
Integrations often feel like afterthoughts. And they are often provided as a bundle of services sometime after onboarding and are not recognized by software companies as valuable in their own right. But it doesn't have to be this way.
An embedded integration platform includes all the tools necessary to provide your customers with an end-to-end integration experience that moves those integrations from afterthoughts to essential product functionality. The platform has everything needed for development, testing, configuration, deployment, monitoring, and support. And at every step of the process, you can involve your customers, making them essential to the process.
Another way to increase stickiness is to help customers notice and appreciate the value they receive from your product, which makes it easier for them to justify the cost. You can provide significant additional value to your customers with native integrations, and an in-app integration marketplace helps to highlight that value. This integration marketplace, typically white-labeled and embedded into the product, features lists of available integrations and access to self-service integration tools for enabling, monitoring, and troubleshooting integrations.
Stickiness increases further when customers recognize that it would be difficult to switch to a different product while retaining all the benefits they currently rely on. For your customer, leaving a product with multiple integrations means removing not just that app but also a hub of their technology ecosystem and all the connected workflows it powers. Finding another vendor with a product comparable to yours, plus the ability to provide all of those integrations, and then working with the vendor to recreate all the integrations and related workflows, represents a high switching cost involving considerable effort and disruption.
Customers churn for all sorts of reasons, and sometimes for no obvious reason. However, you can limit that churn. And one way to do so is to use an embedded integration platform to provide native integrations with your customers' other apps.
From the in-app integration marketplace to built-in self-service for configuration, monitoring, and troubleshooting, an embedded integration platform makes your customer a pivotal contributor to native integration success. As a result, they increase their commitment to your product and its integrations as essential elements of their tech stack.
Contact us, and we'll be glad to talk with you about how an embedded integration platform can help you reduce customer churn for your SaaS app.
Prismatic is the integration platform for B2B software companies. It's the quickest way to build integrations to the other apps your customers use and to add a native integration marketplace to your product. A complete embedded iPaaS solution that empowers your whole organization, Prismatic encompasses an intuitive integration designer, embedded integration marketplace, integration deployment and support, and a purpose-built cloud infrastructure. Prismatic was built in a way developers love and provides the tools to make it perfectly fit the way you build software.
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