Today I interview Val Geisler and we talk about the impact of customer churn on your SaaS business.
Val Geisler is the founder and CEO (that’s Chief Email Officer for the rest of you nerds out there) of Fix My Churn. With an obsession for customer communication, Val spent over a decade inside companies from non-profits to 7-figure businesses to tech startups. She brings her background in content creation, CX, and digital strategy to her clients every day.
How to start analyzing SaaS customer churn metrics
Churn is typically examined on an annual basis however there is a case to be made for looking at it on a monthly basis. You need to know where your customers are dropping off and this depends on what your product does as well the value it provides your customers. In some case you might see a sharp drop off in 3 months while in some instances it could be 9 months or 11 months.
The generally acceptable annual churn rate for SaaS companies
On average an annual churn rate of 7% to 8% is a really good churn rate because that is the natural churn rate for a really strong product. Churn is one of those things where a 1% reduction in your churn rate so perhaps from 15% to 14%, will make a huge difference in your MRR and ARR.
What is the next step to take if your churn rate is more than 10% a year.
It is important to look at how you onboard your customers. After working hard to acquire new customers with your marketing and the solid product you have built, if those customers don’t have an amazing experience right away, they will naturally abandon it.
Enjoying the experience goes beyond how your product looks and functions. You might have an ugly tool that is missing some crucial features however if you have a great customer experience behind it, if you do a great job onboarding your customers and treat them as human beings while helping to feel like they are seen and heard, you will be able to keep your customers longer.
It is easy to walk away from a software but it is hard to walk away from a person we know, that has sent us emails, that has called us by our name and introduced themselves by their name. Your customer might send a support ticket and the person that they got an email from is the one that responds to their ticket. Building human relationships is very important because it is easy to walk away from a software but hard to walk away from a human relationship.
Onboarding is very important, you need to look at what is happening in your free trial if that is what you have, if you have a freemium product then what is happening within the first 30 days. Once they are paid either immediately or post trial you need to decide what happens in the onboarding of the paid user.
Most SaaS products often stop emailing customers the moment the customer converts to paid because they don’t want to disturb the customer. Some founders are afraid that if they show up in their customers inbox, they will remember that they are not really using their product so they will cancel their subscription.
How the dinner party strategy can help you onboard customers
The dinner party is a term she coined and it sees onboarding in a similar vein to having somebody over for a dinner party.
When someone comes to your house for the first time at a dinner party, imagine greeting them at your home with the fully plated meal, spaghetti and meatballs and a fork when they just got there.
This is exactly what SaaS products are doing, we are showing up immediately they get there and we are saying, here is our product, isn’t it great, you need to try it and this is the wrong approach.
You need to think about what would happen if somebody came to your house for dinner. You would probably make sure the front porch light is on so that they know where they are going, they come in the front door, you take their coat, you offer to get them something to drink and if they have never been there before you show them around, like hey, here is the kitchen and let them settle in a little bit.
You are creating an ambience when somebody comes over for dinner. You don’t just have the main course, you don’t just have steak and it is sitting on the table, you have potatoes and salad and green beans and you have things together with the side dishes that go with the meal. As soon as everyone has finished eating, you don’t just grab their plates and say, okay, everyone has to go.
There is a process to having people over for dinner and it is important to think about that kind of process when you are looking at customer onboarding.
Using your free trial as an example since it is the most common. In your welcome email, you don’t need to talk about any of your features or push them into the product.
You can simply introduce yourself by saying, Hi, I’m ____, I made this product and it is so nice to meet you. I’m glad you’re here, because I was in your shoes six months ago, when I was worrying about this thing and I have figured out some solutions for it, which I am going to walk you through, but right now I just want to say hi, and thanks for being here.
Maybe you can then go ahead and ask them something like, hey, if you have a second, can you tell me what is bothering you most about this particular thing that’s happening. If you have a scheduling software, you could ask, what is bothering you the most about your schedule, about your calendar, and let them send you a reply.
After you have welcomed them properly then you can start serving them appetizers. These are things like, Hey, here’s a download on this particular topic, here’s a blog post that we want you to read before diving into our scheduling software or here is a video on our YouTube channel.
In your third email, you can start talking about your product and it is important to place less emphasis on how wonderful your features are. You need to focus on the problems your customers are facing and how your features solve them.
You can then make an offer to your customers by introducing bonuses to them, these include options such as would it make sense to extend your trial?
Would you like to join our affiliate program so you can actually earn free months on your bill for referring our products to other people.
If you have a 30-day trial you need to send more than 5 emails within that period.
What is the normal email open rate
In most ESPs you can set up goals for each email or for an entire sequence. Typically, 20% to 30% is considered a good open rate, but that also depends on how the size of your email list. If you have 20% to 30% and your email list is 1000 people, then that is not a great open rate but if your email list is 25,000 people then it is. It is also important to consider how big your list is and the industry you are in.
Open rates should be measured cautiously because they are pretty inaccurate. Open rates don’t really matter, click rates and conversion rates matter. Open rates are sometimes low in ESPs because there is a little image in the email that the tracking pixel doesn’t see if your users have images turned off so it would show as unopened.
How to use successfully videos in your welcome email
It depends on the brand and what your product ultimately does. Without any actual numbers she believes some kind of video in your welcome email converts better.
In the videos, how the screenshot looks really matters. A branded highly produced screenshot is less likely to get clicked than a screenshot of just a person talking.
It is advisable for Founders to be in that welcome email but sometimes they don’t want to be in it, so the head of customer success can appear in it. Having the human element in the email really makes a huge difference.
The importance of looking at what your SaaS customers are doing
Your customers can’t churn until they are paying customers. You need to discover what successful customers are doing and find the opposite of that.
You can take someone who churned in the last month and look at their activities in the couple of months leading to the churn, the pages they checked, whether they were actively signing into their dashboard.
Maybe they sent more than three help requests or they were searching your documentation a lot.
A major problem most brands have is once they have a paying customer they only send them invoice and feature releases. Building a community around your product is very important, you can do this by offering events your customers can attend and various ways to them to connect with your team and other users.
A lot of goodwill is built through just talking to your customers on a regular basis beyond whatever you are doing.
You need to talk to them about what they are doing, offer to show off what they’re doing. Tell them you want to hear their success stories, and you want to feature their company on your page, or in your next video series, or in whatever you are doing.
When you have told someone’s story, it is really hard for them to say I don’t use that software anymore.
The best tools for tracking SaaS user behavior
Mixpanel and Segment are great tools for tracking user activity. Once you have properly set up all the tracking elements you can discover where people are dropping off and what they are doing or not doing prior to dropping off. You can also see what your really great customers are doing which can inform your product development going forward because you can focus on the features your customers need.
Resources
Fixmychurn – Reduce SaaS and eCommerce churn
Mixpanel – Product analytics to help you convert, engage and retain more users
Segment – Collect, clean and control your customer data
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