Imagine This: A CEO of a SaaS business is looking at the company’s dashboard and is seeing favorable new customer counts, CAC (customer acquisition cost) and LTV (lifetime value) metrics for their company. They feel content about the metrics, however, they notice something a bit odd. “Wait a minute, why is recurring revenue not growing? This makes no sense!”
Unfortunately, this scenario happens more often than you can imagine, and like the CEO above, you can find yourself saying “I just never saw it coming” if you’re not paying attention to important metrics like customer attrition.
SaaS businesses are different from other industries because revenue is acquired over an extended period of time. If a customer is happy with the service, they will stick around and keep using it – this is referred to as “sticky” revenue. However, if a customer is unhappy, they will leave (churn or attrition) and seek another business that will meet their expectations.
That is why it is important for a SaaS business to note the early signs of churn.
What are the early signs of Churn for SaaS?
- Customer stops using the product before the subscription contract ends
- High number of help tickets
- Customers voicing their concerns regarding expectations, product and/or service (listen to your customer service and A/R employees)
- Lengthy software implementation
- Low NPS scores
- Customer’s perception that the software has a low ROI
A Typical Customer Attrition Timeline
Early in the growth of a SaaS company, total churn is small and the customer base grows unimpaired at the acquisition rate. As total customers increase, total churn increases. When the total churn equals the acquisition rate, the number of customers joining equals the amount of customers leaving. Growth slows then stops.
A Huge Mistake that is Avoidable
Once a company reaches a certain size and has many customers, the risk of losing alignment with their customer base increases. Management can be so focused on acquiring new customers that it forgets to ensure they maintain customer satisfaction and retention. Whenever you hear the phrase, “Look at all of the new customers we just landed. We must be good!” make an immediate plan on how your business can keep them happy. Observe what reoccurring pain points they face and show them how retaining your services can help them succeed.
Customer acquisition is time-consuming and expensive. Don’t lose the customer you tried so hard to acquire. It’s very expensive and almost impossible and to reacquire a lost customer. Word of mouth can be very impactful. If you start losing customers, word will spread as to why existing customers are leaving, which can negatively affect your chances with future prospects.
Our Recommended Course of Action
- Measure churn monthly
- Identify the reasons for churn (product, service, price, competition, etc.)
- Implement an effective customer support program
- Keep your products up-to-date
- And when appropriate, include an account management program.
This is one of the many reasons why at 9Gauge, we work with our SaaS clients to improve visibility and performance. We help businesses understand the critical performance indicators that are applicable to their business and industry. Our team understands the SaaS business model and adds value by identifying relevant KPIs, providing data management processes, creating user-friendly dashboards and offering real-world recommendations.
About 9Gauge Partners, an E78 Partners Company:
9Gauge Partners is a management advisory and consulting firm that supports business leaders to make better, data-driven decisions as they navigate through growth, pivots, and change. Our fractional business model brings clients the right resources with the right experience at the right time. We offer organizations executive advisory, financial operations, business systems support, expert resource capacity, and M&A assistance. 9Gauge is a business partner that helps companies accelerate their vision, bridging the present to the future. Contact Us today to learn more. Let us help your company scale to new levels.
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About the Author
Kerry Carney, Director
Kerry has extensive finance and operational experience and is a proven leader with over 35 years of experience in high growth software (SaaS), retail, and for-profit education industries. Kerry has created, led and managed the strategic plan for companies ranging in annual revenue from $12 billion to $30 million, cloud and brick & mortar, publicly traded, private equity and founder/family owned.