This post will explore how to reduce churn in SaaS businesses and use Salesforce to retain the right customers.
What is customer churn, and why does it happen?
Customer churn is when customers stop buying your products or services for a specific period. One of the leading reasons churn happens is a lack of strong alignment within an organization.
Churn prevention isn’t a single team’s responsibility.
For instance, it’s not just a Customer Success problem. Nor can it be solved by just making a tweak to your product. Or an anomaly with Marketing and Sales.
To reduce churn, you must shift your mindset to see churn prevention as a shared responsibility.
Companies with low churn rates understand this and realize that if they’re building a subscription business and their customers cancel their subscriptions, they’re not building a sustainable business.
So, to keep hard-won customers and invest your dollars and effort in the right places, churn needs to become a company metric.
It starts with understanding how each team and individual role influences churn to increase retention.
Next, let’s look at the different types of churn and how you can increase customer retention with Salesforce.
Types of Churn
There are multiple types of churn and three heavily impact organizations.
1. Customer churn rate
Companies track customer churn because of the high cost of acquiring new customers. It can cost up to 7 times more to acquire a new customer than retain one. If your organization has a high customer churn rate, it results in high operating costs because customer acquisition is expensive. A high churn rate can reduce a company’s value if left unchecked.
How to calculate customer churn rate
You can calculate customer churn by taking the number of customers you lost at the end of a specific period, dividing that number by the number of customers at the start of that period, and multiplying that number by 100.
2. Revenue churn rate
Also known as Gross Monthly Recurring Revenue (MRR) Churn Rate is the percentage of revenue lost to cancellations or downgrades in products or services. Another metric to look at is the Gross MRR Retention rate which measures month-to-month retained revenue.
Alexander Bruehl, an Angel Investor at BM Advisors, says, “… if the Gross MRR Churn is above 1-2%, there seems to be an issue with the product or the ROI story.”
How to Calculate Gross MRR Churn Rate
To arrive at your gross MRR Churn Rate, you need to divide the total MRR churn at the end of the month (or a specific time period) in your currency by the Total MRR at the start of the month (or a specific time period) in your currency and multiply that by 100.
3. Employee churn
Employee churn rate is the number of employees leaving a company during a specific period.
This type of churn is expensive, with the average cost of replacing them amounting to six to nine months of an employee’s salary.
Employee churn is a problem because it means your business is losing institutional knowledge and puts a heavier strain on experienced employees, creating a domino rate for turnover.
How to calculate employee churn rate
To arrive at your monthly employee turnover rate, divide the total employees that leave in a specific month by the average number of employees in a month and multiply that result by 100.
While all three types of churn are essential, this blog will primarily focus on customer churn.
So let’s explore how to identify customer churn.
How to Identify Customer Churn
At Neocol, we help our customers proactively prevent churn by solving three fundamental problems:
- Fixing a lack of visibility or awareness of unhappy customers that leads to cancellations or downgrades.
- Addressing inefficiencies from manual processes to manage high-volume requests by introducing automation and self-service features.
- Uniting fragmented customer experiences, which, if unchecked, lead to ineffective communications, products, and services.
Proactive Churn Prevention with Salesforce
- Calculating churn helps companies gain visibility into the health of their recurring business, and
- Once that visibility is identified, companies can uncover which areas are breaking down and causing churn.
For instance, let’s say marketing is funneling prospects to sales, but they are not converting. To solve this issue, teams must own churn across the whole business, not just one department.
Salesforce’s holistic ecosystem is built around the customer experience. The multi-cloud solutions provider offers tools that connect fragmented experiences and allow teams to work together toward a common goal—like churn reduction.
Reducing churn comes from a deep understanding of customer behavior and understanding the people who are consistently seeing value in your services.
In other words, Salesforce helps companies niche down to their ideal customer profile (ICP) and provide the highest quality experiences across the entire customer lifecycle, giving each team visibility and the ability to work together to reduce churn.
Ready to Reduce Churn?
Discover how Neocol and Salesforce can make customer experiences easier, more unified, and more meaningful. See how you can:
- Automate workflows based on customers’ actions,
- Automatically add customers to personalized marketing campaigns,
- Enable no-touch renewals for customers directly in your product – that’s just the tip of the iceberg.
- Learn about Product-Led Growth (PLG) to increase customer engagement and reduce churn.
To learn more, get in touch with a Neocol churn reduction expert.