The average churn rate for the software industry as a whole is 14%. That’s actually one of the lowest churn rates across all industries. That said, industry experts agree that your SaaS company’s goal churn should be below 2%. As a SaaS business leader, reducing software user churn is an important part of maintaining your customer base and increasing revenue. By pinpointing the exact reason for user churn, you can determine how to avoid it and ensure that your business continues to have strong profits.
TL;DR
- The average software industry churn rate is 14%, but SaaS companies should aim for under 2%. Losing customers is expensive—acquiring new ones costs 5–25x more than retaining existing ones.
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Looking to measure churn? Key metrics include customer churn rate, revenue churn, and net revenue retention (NRR). Tracking these through analytics tools helps identify churn risks.
- Lower churn leads to higher customer lifetime value (LTV), better brand reputation, and increased revenue. Happy customers bring referrals, fueling organic growth.
The True Cost of User Churn
Customer churn is more than just an operational inconvenience – it directly impacts a SaaS company’s bottom line. Acquiring new customers is significantly more expensive than retaining existing ones, with studies showing that customer acquisition costs (CAC) can be five to 25 times higher than the cost of keeping a current customer.
To illustrate the impact, consider a SaaS company with a monthly churn rate of 5%. If this company has 10,000 users paying $50 per month, it would lose 500 customers and $25,000 in monthly recurring revenue (MRR) every month. Over a year, that translates to a loss of $300,000—without factoring in additional costs like marketing spend to replace lost customers. However, by cutting churn in half (to 2.5%), the company could save $150,000 annually while maintaining a stronger, more engaged customer base.
3 Reasons Why Software Customer Churn Happens
There are a variety of reasons a SaaS user might churn – and pinpointing a pattern in your churn will help you improve your offerings and reduce churn.
1. A lack of onboarding
Onboarding is critical when it comes to successful user adoption of a new product. Being proactive in making the process as easy and simple as possible can make the difference between keeping a high user adoption rate or customers deciding a few weeks later to look for another software tool to meet their needs.
It is common for customers setting up with your software to need some extra assistance. In some cases, this can be solved with quick instructions. In other cases where the users may use more robust features or come across unique issues, this includes having access to a customer service representative they can reach out to. Even if you believe your technology is easy to set up and use, it may not be for the average person.
If they lack the guidance and support they need for onboarding, then they are more likely to abandon your software from the beginning and go to another provider that offers them ample onboarding materials. This includes knowledge bases they can tap into, videos they can watch, and tutorials they can follow.
By streamlining the onboarding process to make it quick and easy, users will be able to recognize the value upfront. Not only will it help reduce customer churn and get them to get value sooner, but it will also simplify their entire signup process.
2. Your software has bugs
Product bugs and software issues are bound to happen when you’re using any kind of technology platform. However, there is a chance that problems they face while using the software may appear so prevalent that customers believe you don’t have the ability or desire to fix it. This can wreak havoc on your reputation and attrition rates.
These product challenges may also be getting in the way of your customers’ productivity and setting them back. If your customers are losing revenue because of your software, they’re going to leave pretty quickly and find another provider leading to customer churn.
Aside from building a stellar product, you need to be prepared to work through buggy features and the need for modifying existing ones so that customers have little to no downtime. This means having the right technology team in place, setting up ample customer support options, and ensuring that your team is available and trained to address software challenges when they occur.
3. Bad software user experience
User experience is everything when it comes to SaaS platforms. Your product features need to be intuitive and easy for customers to use from the moment they begin using the product throughout every step of their journey. This is especially true when working in a competitive market, as it helps clearly differentiate SaaS products. Even some as the dashboard UI can play a role in whether users define software as complicated or complex.
In many cases, bad experiences can be resolved by making sure you are providing the right experiences at the right times. This helps alleviate confusion. Aspects can include making sure you have the right ticketing system in place for customer support, sending the right follow-ups at the right time, or even ensuring you have a good feedback loop in place.
Software companies that continue to include existing customers in their beta tests, continuously review and identify common issues for feature improvements, and look to resolve user experience issues find greater retention rates long term. Above all else, you need to be dedicated to constantly improving your product in order to succeed.
Signs of Software Customer Churn
If you could spot the signs of customer churn, then you can develop a proactive way of addressing the issues and decreasing them.
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How to Measure and Track Customer Churn
The most commonly used churn metrics include:
- Customer churn rate measures the percentage of customers who cancel their subscriptions over a given period, typically calculated as (Lost Customers ÷ Total Customers at Start of Period) × 100. A lower churn rate indicates higher customer retention.
- Revenue churn focuses on the financial impact of churn by calculating the percentage of lost recurring revenue, taking into account factors such as downgrades and cancellations.
- Net revenue retention (NRR) accounts for expansion revenue from existing customers (such as upgrades and cross-sells) and provides a more holistic view of how much revenue a company retains despite churn. Ideally, a NRR above 100% means the business is growing even if some customers leave.
SaaS businesses can track these key metrics using analytics tools like Google Analytics, which provide real-time insights into user behavior and churn patterns. If you’re using a payments platform like Stax, you can watch these metrics there – particularly if you integrate it with your customer relationship management platform.
Tracking churn isn’t just about numbers; it’s about understanding user behavior and taking action to keep customers engaged and satisfied. That’s where customer feedback comes in.
Customer feedback is one of the most powerful tools SaaS businesses can use to reduce churn – it helps businesses:
- Identify recurring issues that may be driving customers away, such as usability challenges, missing features, or inadequate support.
- Understand customer expectations and adjust product roadmaps accordingly.
- Improve customer satisfaction by making users feel valued and involved in shaping the product.
- Increase customer lifetime value (LTV) by reducing dissatisfaction and enhancing user experience.
When businesses actively collect and act on feedback, they also demonstrate their commitment to customer satisfaction, which itself fosters loyalty and long-term engagement.
Methods for Gathering Customer Feedback
One of the simplest and most effective ways to gather insights is through surveys. Businesses can send out structured questionnaires to users at different stages of their journey.
- Onboarding surveys: Sent after a new customer completes onboarding to gauge their initial impressions and identify any challenges they faced.
- Usage surveys: Periodically sent to active users to understand how they interact with the product and whether they need additional features or support.
- Exit surveys: Triggered when a user cancels their subscription, helping businesses uncover the primary reasons for churn and take corrective action.
- Net Promoter Score (NPS) surveys: NPS is a widely used metric that helps SaaS businesses measure customer satisfaction and predict churn risk.
Analyzing customer support and social media interactions is another valuable way to gather feedback. If a specific issue appears frequently in support tickets, it may indicate a widespread problem that needs to be resolved, whether by your customer success team, marketing team, or engineering.
3 Strategies to Prevent Software Customer Churn
With all of that said, let’s talk about how you can not just stop, but actually prevent it from happening.
1. Proactive customer engagement
One of the most effective ways to reduce churn is to engage customers before they consider leaving. A proactive approach ensures that customers feel valued and have the guidance they need to succeed with your product. Some critical touch points to increase customer satisfaction include:
- Onboarding support: A smooth onboarding experience is crucial for long-term customer retention. SaaS companies should provide step-by-step tutorials, interactive walkthroughs, and self-service knowledge bases to help users get started quickly. Offering personalized onboarding calls or live chat support during the first few weeks can also prevent early-stage churn.
- Regular check-ins: Automated notifications at key milestones can ensure users stay engaged. For high-value customers, assigning customer success managers to check in periodically can be highly effective.
2. Feature adoption tracking
Many customers churn because they fail to realize the full potential of a SaaS product. Feature adoption tracking allows businesses to monitor how users interact with different functionalities and identify customers who may not be getting the most out of the software.
- Usage analytics: SaaS platforms should track which features are being used most frequently and which are being ignored. Low engagement with critical features may indicate that users are struggling to understand them or don’t see their value.
- Personalized recommendations: Based on usage data, businesses can suggest relevant features to users via in-app prompts, emails, or chatbots.
- Gamification: Encouraging users to complete tasks with badges, achievement notifications, or rewards can boost feature adoption.
3. Leveraging predictive analytics & AI-based churn prevention tools
Instead of waiting for users to cancel, businesses can use data to anticipate and prevent churn before it happens.
- Predictive churn modeling: AI-powered tools analyze customer behavior patterns, product usage, and past churn trends to identify at-risk users. These models consider factors such as decreased login frequency, reduced feature interaction, and negative feedback.
- Automated retention campaigns: Once at-risk users are identified, automation platforms can trigger targeted retention campaigns. For example, if a customer’s usage is declining, they might receive a personalized email with a special discount, or a direct outreach from a customer success representative.
- Sentiment Analysis: AI can analyze customer support tickets, survey responses, and social media interactions to gauge sentiment. If a user expresses frustration or dissatisfaction, alerts can notify customer success teams to intervene.
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By having the right tools and systems in place, you can address certain issues without having to interact directly with customers. For instance, you could send triggered emails during the onboarding process at key points where customer churn typically happens.
You could also streamline payment options. Friction in the payment process can be a huge red flag and problem for software users. Sometimes something as simple as making it easy to update their payment info can help you reduce software customer churn.
Software companies need to identify what makes users happy and adopt key features that help reduce any friction that stop them from achieving that happiness and satisfaction.
If customers are satisfied with your product, they’re going to be more likely to recommend it to other potential customers. In addition, you’ll receive positive reviews and generate an organic buzz about your product. Of course, your business will only grow from there.
FAQs about Software User Churn
Q: What are some common reasons for software user churn?
Poor user onboarding: Onboarding is crucial for users adopting new software. Guidance, support, tutorials, and efficient materials to make the process quick and easy can prevent user churn that might occur due to a lack of support.
Prevalence of software bugs: Bugs and software issues can lead to churn if customers believe that the software provider lacks the ability or will to fix it. Constant disruption in their workflow due to bugs can compel users to find an alternative.
Bad software user experience: A complicated or complex user interface and a lack of initiatives to constantly improve the product based on user feedback can lead to poor user experience and subsequent churn.
Q: What are the signs of software user churn?
Software churn rates are a significant indicator, with industry average rates around 5% and a good churn rate being 3% or less. Particularly for SaaS providers, an 8.5% churn rate is on the higher end, while 2.9% is on the lower end.
Any friction in the payment process can also indicate potential churn. Difficulty in updating payment information and dissatisfaction with product features are common signs of users ready to leave.
Q: How can software companies reduce user churn?
Streamlined Onboarding: Simplifying the onboarding process and providing adequate support can boost user adoption rates.
Prompt Bug Resolution: Ensuring a dedicated tech team to resolve bug issues and modify features can keep downtime minimal and retain users.
Improved User Experience: Continuously improving product features, including feedback loops, and maintaining an intuitive, user-friendly interface can enhance user satisfaction and prevent churn.
Q: How important is customer service to prevent software user churn?
Proactive customer service, including a good ticketing system for support requests, timely follow-ups, and customer inclusion in feature improvements and beta tests, is vital for preventing churn and enhancing retention.
Q: What are some effective ways to identify and address signs of software user churn?
Regularly reviewing usage data can help in identifying churn patterns and provide metrics for actionable insights.
Triggered emails could be sent during specific phases of the onboarding process where churn rates are known to increase.
Streamlining payment options and making the updating of payment info easier can also reduce software user churn.
Q: How does reducing software user churn impact a business’s growth?
Reducing churn directly relates to increased customer retention and, consequently increased revenue.
Satisfied customers are more likely to recommend the product to potential customers, generating organic buzz and positive reviews, thereby leading to business growth.
