Involuntary Churn: Tweaking the SaaS Customer Strategy
The growth story of the SaaS business revolves largely around 3 metrics — New MRR, Existing MRR, and Churn. The Customer Success team ensures that the Customer receives the best support for all their product-related issues. PMs constantly strive to make their product more valuable for its consumers. What for? One of the reasons provided by them is — To avoid Churn. SaaS companies still witness churn to a level of 60–70% in some cases. On the other hand, an ideal enterprise-level SaaS tries to achieve a 5–7% churn rate per month. Though it is nearly impossible to achieve a 0% churn rate, yet there have been certain frameworks to control them. In this article, we explore one aspect of the Churn rate which is overlooked by businesses.
The Churn rate branch into two specific types — Voluntary and Involuntary. Voluntary Churn is the loss a company incurs due to the customer or user directly refusing to continue with the service offered due to a specific reason. The reason can out rightly be attributed to a problem lurking within the service engagement and provisioning with certain faults that make the customers unhappy from further continuing with it.
But what is important to discuss is the Involuntary Churn Rate — the passive rate at which a customer loses his or her account and membership to a service unintentionally. This can be due to myriad reasons that are seemingly small but can slowly eat away revenue streams and profits. Some of the most common reasons attributed to it are –
- Credit Card expiration —
This is one of the most common problems that account for an average of 11–15% loss in renewals many times and affects every consumer base generally. People do forget to make a timely renewal of their cards via the banks and thus the post subscription period, the account becomes inactive due to non-payment for services.
Solution — Using a good CRM/Messaging platform — like services offered by Salesforce, Zoho, Freshsales, etc. — that sends out timely warnings and messages — known as pre-dunning — to the specific consumers who are due for card renewals. Moreover, there are several SMS/Mails APIs — like Twilio, Telesign, Nexmo, etc. — that can be integrated into the software to receive and send automated messages to the customers regarding the same quite conveniently. The idea is to keep careful track and post adequate communication at least a month or two before the card expires.
2. Wrong Billing Information —
Users tend to relocate their places at different points of time and fail to update the same with the company’s database. This discrepancy in the billing information can automatically lead to the refusal of payments via cards.
Solution — This can usually be resolved by sending a periodic message that suggests the users update any payment and transaction-related information accordingly. In case of lukewarm or no response at all from their side, it is important to give a little time to assess if they are finally ready to renew. Additionally, follow-up calls and weekly in-app reminders can be more efficient to help the users in this matter. Many also retort to a mandatory periodic revival of billing and personal information of customers as part of updating the database by the concerned company. Lack of awareness and negligence on the part of people can be a loss for the business.
3. Maxed out Cards —
SaaS businesses generally ask for Credit Card information enrolling the user for a plan. This sometimes leads to overshooting their monthly credit card limits. Auto-renewal of the services that they paid for is subsequently stopped and therefore proves to be a major problem.
Solution — Businesses can track those users that have failed to pay for the subscription well before time and contact them proactively and personally for concerns if any. This in turn can be managed by providing a grace period — a small time window for renewal that can be used to repay for the services as soon as normal card transactions resume for that specific user.
4. Theft or Loss of Cards —
A very common problem that plagues many customers daily. Theft or loss can easily lead to non-payments or non-renewals. It is important to note that it takes a sizeable amount of time till the affected user can get a fresh card and updates the same detail as the company.
Solution — Multiple pre-dunning emails, messages, or periodic calls and reminders for renewal or complaints/queries can help the user to easily communicate with the company citing the theft or loss reason for their inability to resume or renew their subscriptions. Following this, appropriate measures can be taken to reduce the churn by provisioning of a Grace Period or flexibility in the payment for the next renewal period. More importantly, the service can be resumed with a roll-over plan with certain flexibilities to pay for the combined periods of usage by the customer. Incentives can also be introduced for the affected period that can systematically be adjusted in the future usage periods.
5. Failed Card Transactions —
At times, the payment gateway site can have some difficulty and problems — like Server Time Out errors, unresponsive systems, or hung transaction operation during billion/processing, etc. — to forward the transaction from the user to the intended company for availing services. This is something that is often neglected due to the non-existence of proper communication or follow up post specific incident.
Solution — In line with periodic communications for subscription renewals, it can be novel to have a good third-party payment gateway provider that can allow for multiple retries or attempts instead of failed transactions. Some errors are short-lived and can be resolved by helping the user to report the same with the Credit Card or Bank issuer. It can be quite fruitful to personally reach out to customers in case of failed payments to provide for an alternative payment option for smooth transactions or even narrow down on the fraud filters enacted by the Payment Gateway System. (Gateway systems use a variety of fraud checkers that make the transaction safer and can result in some valid transactions also being neglected)
Other solutions include using in-app reminders and paywalls to remind customers to pay for their renewals in-time or communicate to the company in case of any difficulty for the same. Keeping the issue-free engagements with periodic emails about offers and tracking of activity logs can help to remind users easily to pay on time to defer from discontinuation of services.
A simple strategy to follow –
It is very important to keep an in-depth track of the involuntary churn rates and concerned ongoing activities regarding service payments for the user base. Moreover, the non-renewals can have multiple impacts on the normal working of the business which can lead to an unnecessary drain of efforts and time to monitor if under-managed.
For example — Impacting Business Metrics –-> Important parameters like Customer Churn Rates, Revenue Churn due to lost users, Customer Lifetime Value, Customer Health and Engagement Scores, and Customer Acquisition Costs are visibly affected if the continued Involuntary Churns are not noticed at the earliest. Eroding of revenues will result in decreased profitability for the service businesses which can lead to efforts to jack up prices to sustain near-equilibrium cash flow from the existing user base. This in turn makes services expensive to be afforded — end-users will switch to a cheaper and better-provided service — leading to more churns that negatively affect the User Health and engagement scores. Irate customers can also relay their unresolved issues to possible new users that might backtrack from using the service for a long time. Moreover, as the user base declines, funds need to be invested in acquiring new customers that will lead to further erosion in margins. Subsequently, the losses pile up which can thwart any opportunities to scale-up or even remain competitive in the market.
There are scores of different examples of how different businesses have devised clever methods to handle involuntary churn rates by keeping them to the minimum level. Netflix and Amazon Prime are the two most common examples that have used Auto-Renewals and periodic reminders to help the users stay engaged for binge-watching series and movies. With cleverly crafted emails and exciting offerings of the newest collection of films and series, they have reaped the benefit of actively having the consumers renew their account automatically by employing a robust and easy payment gateway system.
The inbound marketing software company, HubSpot, is well known among the best for providing a superior Customer Management experience. It does so through –
On a similar line, SiteGround, a top web hosting platform that offers premium services at affordable prices has a well-tuned and dedicated customer management team. Healthy and proactive participation by personnel through direct call-backs and timely follow-ups to resolve issues has been a rewarding experience for new and old users alike. Additionally, they are involved in setting up interactive email offers with an automatic renewal option that allows for periodic subscriptions easily. Incentives for early renewals and the use of a tracking feature that optimizes a follow-up reminder upon a longer period of absence from subscribing within the available time are some tactics it uses for the purpose.
Mailchimp, the All-in-one Integrated marketing and Software tools platform that caters to small businesses, has collaborated with Zendesk — a Customer Software Service company — that boasts of 24/7 Customer Support for resolving any queries or issues (not limited to renewals and subscriptions). Quick and automated trigger emails and chatbots for support and feedbacks at pre and post problems resolution, FAQs, and Pay-as-You-Go Credit Plan for renewals/payments for services has helped it to maintain a healthy user base over the years. With a blistering 92% approval rate among users for good customer relationship management, it has built a robust retention rate that is among the best in its competition.
In the following section, we have a look at how we can maintain a good customer retention process that aims to improve traffic and minimize churns.
Customer Handling Plan for SaaS Businesses –
1. On-boarding — Personalized Email specifying Account details and Service credentials
2. At a regular gap of 2–3 days, the use of some new features or discount offers or the initiation of newer products or services trial can also be provided to generate interest.
3. 14 days before the renewal date, a gentle reminder to the Customer should be communicated via email and in-app notifications
4. 7 days before the renewal date, if the Customer hasn’t responded yet with the subscription, a communication through Email/SMS that outlines the renewal date with necessary payment details should be forwarded to the customer. For problems and queries support, a separate Customer Care Contact information should be specified.
5. In case, the customer has specific problems regarding renewal and payment, one can adopt different tactics to help resolve those issues –
a. In case of Payment refusal due to Wrong Billing information/Card Expiration/Lost Card –An automatic email reminder can be sent to the user to direct him/her towards a linked landing page to update new information with the company database.
b. In case of restricted card payments/issues with Payment Gateway Provider — An inbuilt Retry Logic in the Payment Gateway System can help to resolve issues due to failed card processing transactions.
If the issue persists –
A. Payment roll-over plan can be initiated with the renewal to be charged in the next billing period for the current one.
B. Grace Period can be offered for flexible payment to allow for continued service till the issue is resolved and managed.
6. In case of multiple attempts with no response (1–2 days before the renewal date), from the customer’s side — A direct follow-up Call to the Customer to understand any more specific issues. Use of specific incentive offers and discounts for the services offered can be used to help lure and keep Customers at bay
7. A dedicated traceability system should be installed that tracks the account usage activity of the Customer and develops analytics that try to understand the needs and specific uses. This will readily help to target those users to services that are developed for their expertise.
8. Automatic Renewal mode is a smoother way to ensure that consumers remain valuable members, even if they fail to pay up for the continuation of services.
9. Use of Payment Orchestration System is a definitive boon that aims to reduce Churn by using Risk Assessment Measures, Dynamic Routing System, and Advanced Data Analytics to build a robust Payment Architecture System that can handle Customer Problems efficiently and quickly.
In nutshell, through the article, a clear idea develops in observing an increasing opportunity of managing the customer base by lowering involuntary churn rates that directly affect the present and future profitability of the businesses. Even though it is not easy to have a cent percent guarantee of providing benefits and resolving issues that plague the account handling and subscription payments, proactive steps to know the users, set realistic expectations, and following up consistently can help to unearth difficulties that may improve customer engagement and build a strong reputation.
A successful investment in managing churns can yield a competitive Business Model towards better servicing!
