Churn research holds exceptional importance for SaaS companies – more so than for many other organizations. One of the primary drivers for this is the high customer acquisition cost (CAC) compared to other industries. In fact, it costs SaaS companies upwards of five times the cost to acquire a new customer vs. retaining the existing one.
Additionally, many SaaS companies adopt a “land and expand” strategy, where they initially secure customers with a small purchase and then encourage them to progressively increase their commitment by expanding their usage of the product.
So when SaaS customers churn, it results in a dual loss for companies. Not only do they miss out on the steady income from a customer that incurred significant acquisition costs, but they also lose potential expansion opportunities through customer retention and upselling. This all leads to a substantial reduction in the Lifetime Value (LTV) for SaaS companies.
Before it becomes catastrophic to their bottom line, SaaS companies must be able to identify the reasons behind customer churn. SaaS churn research plays a pivotal role in helping to pinpoint the objective reasons for customer departure – and uncover actionable steps to rectify them.
Drawing upon our 17 years of experience as a B2B tech market research company specializing in this type of research, we’ve identified some of the primary reasons why we see SaaS customers churn. More importantly, we reveal what companies can do to turn things around.
SaaS Churn Reason #1: Lack of Value Perception
Perception is key; if users don’t see the value, they’ll seek it elsewhere. In the crowded SaaS marketplace, finding alternatives is often easy, as numerous competitive options are readily available. If a customer finds a better alternative that meets their needs or offers more features at a comparable price, they may decide to switch.
Customers are likely to churn if they don’t perceive sufficient value from the SaaS solution. It’s crucial for SaaS companies to continuously demonstrate the benefits and ROI to keep customers engaged.
Cascade Client Example
We recently conducted a study for a client who was experiencing an unprecedented amount of churn. One of our key findings was that our client’s product’s features and merits were not getting the spotlight they deserved. As a result, they were moving on to other competitors who were offering similar products at a more competitive price.
Our client needed to adjust their marketing and sales strategy so that their value props and differentiation were clear. Once customers better understood the unique benefits they were receiving, they were more compelled to stay.
SaaS Churn Reason #2:Pricing or Billing Changes
Complex or unclear billing structures and unexpected fees can result in dissatisfaction and drive customers away. Transparent and clear pricing in contracts is essential.
Sudden pricing changes can also cause more churn than expected. For example, if your company alters product pricing and shifts from bundled features to pay-for-access, you might experience an unexpected drop in customers during renewal.
B2B churn research can help you stem further losses. You’ll learn why customers left you, how widespread the problem is, and what you can do to retain the customers you still have.
Cascade Client Example
We recently worked with a cybersecurity company whose SMB-focused offering was facing a lot of customer churn. To understand the reasons for the churn, we engaged with several lost customers and discovered that many of the lost customers were using the on-prem version vs. the cloud-based version of this particular cybersecurity solution. In this particular case, customers were switching to alternatives due to what they perceived as a prohibitively expensive cloud-based version of our client’s software. This then prompted them to look for other cloud-based solutions that offered a lower price point.
Ultimately, our client had to decide which was the greater risk: losing customers who didn’t want to pay the current cost for the cloud-based solution or retaining them at a price point that might not be sustainable in the long run.
SaaS Churn Reason #3: Poor Customer Support
B2B buyers, especially those making large purchases for enterprises, look for a partnership rather than a mere transaction. Shallow, transactional relationships can be a significant driver of churn.
This approach not only enhances customer satisfaction but also accelerates issue resolution, preventing dissatisfaction that could lead to seeking alternatives. In fact, about half of customers who left a brand to which they’d been loyal to say it’s due to poor customer experience.
Churn research aids in pinpointing whether poor customer experience contributes to your customer churn. If the problem is a more transactional relationship, churn research can identify the specific points along the customer journey where addressing these concerns would be most effective.
Cascade Client Example
In a recent churn study, we were able to pinpoint that our client’s sales teams were inadvertently driving customers away through a purely transactional sales approach that extended over the entire customer’s lifetime with our client. Overall, this particular sales team was very active until a deal was sold, and then only connected again with the customer when it was time for renewal. This left customers feeling like they were just a number and thereby decreased customer loyalty.
SaaS Churn Reason #4: Inadequate Onboarding Experience
Poor onboarding stands out as a primary driver of churn. When customers face challenges during the onboarding process, understanding and fully utilizing nearly any SaaS solution becomes difficult. This frustration then tends to drive churn.
Insufficient documentation, limited training, and poor customer support further compound the issue, making it challenging for customers to effectively get up to speed on a SaaS solution and thereby limiting its adoption. This perception of not receiving an expected return on investment can contribute to high levels of churn.
SaaS Churn Reason #5: Lack of Product Updates or Integration Capabilities
If a SaaS product becomes stagnant with no new features, updates, or integrations, customers may lose interest and seek more cutting-edge solutions elsewhere. Additionally, businesses evolve, and if a SaaS product fails to adapt to the changing needs of its customers, those customers may outgrow the solution and opt for a more scalable or feature-rich alternative.
Cascade Client Example
In a churn analysis conducted for a software company, we found that a large percentage of customers opted not to renew due to a “lack of missing features/capabilities.”
In particular, this SaaS application proved incompatible with various business applications, making the overall solution less straightforward for users and harder to implement overall. These challenges related to integration and customization prompted customers to seek alternatives that offered a simpler and more cohesive solution.
Limiting SaaS Churn: Research Leads to Retention
“The easiest and most profitable customers you can get are those that you already have.” – Jay Abraham
When a customer churns in the SaaS industry, companies face a considerable increase in the CAC compared to retaining existing customers. Additionally, the foregone income from potential expansion through upsells results in a significant reduction in the LTV for SaaS companies.
So if you’re uncertain about the reasons behind recent customer churn, avoid the costly mistake of delaying action or relying on a hunch, potentially exacerbating the issues. Instead, reach out to us. With over 17 years of experience in conducting market research projects for B2B tech companies, we possess the resources and expertise to provide you with objective insights into what’s causing churn alongside clear advice as to what you need to do to limit it.
This blog post is brought to you by Cascade Insights, a firm that provides market research & marketing services exclusively to organizations with B2B tech sector initiatives. Learn more about our B2B Churn Analysis services.