What is a SaaS churn rate?
A SaaS churn rate refers to the rate at which clients cancel their subscriptions over a specific time frame.
Most SaaS companies will record this data every month or every quarter. If you are assessing potential contributing factors to higher-than-usual churn rates, or the success of app updates you’ll probably consider weekly recordings.
[Are there other metrics you should be looking at? Yes and we have compiled a handy SaaS growth metrics list for you!]
Why understanding your churn rate is important
Recording your churn rates over time will give you historical data, which is a great tool for forecasting revenue and cash flow.
Your data can also indicate when something much deeper is happening.
Let’s say you notice higher signups in January for your exercise planner, but you get a high percentage of churn in March. That information is telling you something. It might be as simple as being able to forecast those new year resolutions gone bad, or it could be there’s a missing step in your user flow that fails to keep customers motivated and engaged.
Either way, your data allows you to investigate further. Who are these people and why did they choose to leave? As a result, you might design a new update specifically targeted to heighten engagement around February and March.
How to work out your SaaS churn rate formula
To work out the SaaS churn rate formula you need to divide the total number of churned customers by the number of customers you had on day one. Then multiply it by 100 to get a percentage.
For example, if you started the month with 100 customers and ended with 75, then your churn rate is 25%.
The SaaS churn rate calculation looks like this:
What is a good SaaS churn rate?
Churn rate benchmarks for SaaS companies will vary based on whether you are B2C or B2B, your industry type and even your niche. Typically, if you are turning less than £8.5 million then you would expect a churn rate of around 20% annually. For the majority of larger businesses, it will be between 5-10%.
Lower-growth companies are likely to see much larger figures than 20%, which is something to keep in mind.
Once you have your churn rate for SaaS we can explore how UX design improvements can impact that figure.
Before we get there, here’s a handy list of why SaaS customers churn.
Reasons why SaaS users churn
There are two types of churn; voluntary and involuntary. Voluntary churn is when a customer chooses to leave and involuntary is when they do not choose to leave, but another factor intervenes (like a failed credit card payment).
Here are the main reasons why customers churn from SaaS products
- Bad customer service
- Pricing
- Payment methods do not work/resubscription fails
- They aren’t your target customer
- Not enough features/too many features
- Product problems
- Bugs
- No option to scale their plan and service offer
- No perceived value
- Customers cannot reach their desired outcomes
- Weak customer relationship (feeling of disconnect)
- Usability or accessibility issues
There is another school of thought here and it simplifies the reasons why users churn, and that is that users either
- Don’t feel your product does what they want it to do
- Or because they don’t realise your product does what they want it to do
That last point is huge.
“… they churn because they don’t realise your product does what they need it to do.”
If you are falling into this category, then you need to get a UX designer onboard pretty quickly, because you need to redesign your user flow so that your customers reach their “A-ha” moment quicker.
Read more: 8 sales challenges every SaaS startup faces (and how to address them)
How churn rates impact your SaaS business
While churn rates indicate how quickly customers leave your business, they also indicate how much harder you have to work to increase your sales leads.
There was an old sales theory that says that attracting and securing new customers is five times more expensive than nurturing existing customers. While there’s debate on the accuracy of that figure from business to business, the general idea is that it makes sense to work on what you have, rather than continually focussing on new sales.
This is where we get to the piece of the puzzle that we know is going to make a BIG difference to your SaaS – your UX design.
How UX design impacts SaaS churn rates
If you look back at our list of reasons why customers churn from SaaS products you’ll realise that most of these issues are product-based. In other words, there has been a failure to provide your user with a product that serves their need to complete a task or fix a problem.
Let’s say a user (we’ll call her Sophie) downloads a video calling app, something we probably all did during the Pandemic. During a call, Sophie struggles to help Mum to work out how to switch herself off of mute. How long do you think before Sophie trials a second software?
It’s probably within minutes of ending the call.
By looking at this failing app from a UX design standpoint you could quickly deduce the problem and fix it. You could go further and add visual prompts, so that Mum can figure out, on her own, how to add Dad to the call, who is sitting in the other room on his iPad.
Everyone comes away from this second example much happier and Sophie has probably upgraded to the family plan.
The common problems we see SaaS businesses making in their UX design
Here at Strafe we get to work on amazing SaaS projects, from tech startups to seasoned brands. In our time we have seen some pretty common problems in UX Design that increased churn.
Common UX problems with SaaS products include
Slow app loading
If the ability to load your app takes too long, this damages the user experience. As users become frustrated with gaining access to the software, they will search for alternatives and unsubscribe.
Complex and confusing product offering
Alternatively, if your app requires too many working parts or does too many different things, then it takes away the value of your original idea.
Remember people are looking for simple and easy answers to their problems – the more simple you are with your offering and how it works, the easier it is to answer buyer objections.
It all comes back to the old adage – do one thing and do it well.
Taking this approach means you can carry the idea of simplicity through to the signup process (one of the biggest churn areas of your app) and provide clarity of those important first steps and your daily engagement hooks.
Missing guidance
One of the biggest draws in continued engagement is the sense of connection a person has with your app. Guides are a great way to do this and are often forgotten. There should be guidance throughout those initial user steps and these should remain accessible to the user throughout their journey with you.
Knowledge centres and user guides are also a great addition to your software and work with those initial guidance pages as an opportunity to layer in essential in-app support. Helpful knowledge guides will cut down on support tickets, reducing churn numbers among longer-standing customers too.
From time to time your guides will need updating as new features roll out. These missing puzzle pieces can have a huge impact on how your user interacts and enjoys their experience.
Making it difficult to get support
If your customer cannot access the help they need, then they will go to a competitor app – it is that simple.
Support options and knowledge bases should be easy to find, navigate and use.
Missing a balance between the aesthetics and functionality of the app
One of the reasons why our favourite app Slack took off, was the way it presented an aesthetically pleasing and clean design paired with uncomplicated functionality. It simply made team communication easy and fun for the user.
At the time there was a lot of competition for Slack. Unfortunately, they all focused on functionality over aesthetics and as a result, most alternatives to Slack were blown out of the water.
Why? Because users want to use something that looks beautiful and works beautifully too. These things have always been aligned with good craftsmanship, which in turn signals credibility and trust.
This is why it is important to make sure you have a balanced team of people working on your SaaS, from UX and UI designers to developers.
Building something for an app because it was easy, rather than building for the user
We see this mistake a lot and it can cause an increased churn and here’s why. Users use your software based on intuition. How you lay out your software needs to be based on your understanding of how users will want to use it to get their desired results. This means building the right mechanisms and functions in the right places, in a way that will feel intuitive to use.
If you choose to slap a function where it’s easy for you to build, you will cause confusion and frustration. With so many choices in SaaS products, you’ll be sending users straight into the signup arms of a competitor.
Failing to produce the “A-ha” moment quickly
Your users are looking for value in everything they do, especially when it comes to software. They are looking for efficient and simple ways to do ‘x’. In signing up with you there is a high likelihood that they will be trialling several other software at the same time. And whether you like it or not they will be working out which is the best value for them.
Your software must deliver the “A-ha” moment first – That moment when your user clearly understands that your product does exactly what they need it to do and better.
Failing to encourage regular use
Again we see a lot of this – SaaS products that expect daily use to continue after the “A-ha” moment hits, without regular triggers, reminders or rewards.
You’ll find many successful apps have these little gems built into their product to increase daily active user rates (DAU) and there is a reason for it. Your customer needs to be reminded to engage with your product over doing something else.
Ignoring clarity of next steps through design
This is where colour theory and colour contrast on-page elements like buttons are important. Highlighting a user’s next step encourages users to do what you need them to do and ultimately get to where they need to be more quickly.
Design tactics like this can help increase the speed of your “A-ha” moment and work towards the balance of aesthetics and functionality that we discussed earlier.
Our top tip for improving your UX design to reduce churn rates
UX stands for user experience and that is our top tip – remember to put your user first and keep them there.
To improve your product and reduce your churn rate you need to put yourself in your user’s shoes, which means taking time to understand them. This is where UX design begins.
Learn what motivates your user, what problems they need to solve and what they expect as a result. Learn how to engage and connect with them to get to their “A-ha” moment quickly and keep them there by providing everything they need to make task execution easy.
If you need a friendly hangover cure for your headache of an app, get in touch using the Project Planner below. We will be on hand with your best churn-saving improvements.
