The Cost of Churn: How to Calculate and Mitigate Its Impact with Automation

Every business, regardless of size or industry, understands one thing: Keeping customers happy is a key factor of success. This is especially true for software-as-a-service (SaaS) businesses, in which customer happiness directly influences the ability to minimize churn, drive recurring revenue, and achieve sustainable growth. As SaaS companies operate on subscription-based models, maintaining high customer satisfaction is crucial for retaining customers and reducing churn rates. 

However, determining the true impact of their churn rate is an ongoing challenge for SaaS businesses, which must continuously adapt to evolving customer expectations, technological advancements, and competitive landscapes. In this blog post, we’ll shed light on how to calculate the cost of churn and strategies to mitigate its impact, particularly through automation.

Churn Detection and Management

Customer churn, in a nutshell, is the percentage of customers who stop using your service during a given period, directly affecting your company's bottom line and growth. Keeping existing customers is often cheaper than acquiring new ones, making customer retention a top priority for SaaS businesses. 

According to Gartner’s 80/20 principle, 80 percent of future profits will come from just 20 percent of existing customers. By focusing on nurturing and retaining their existing customer base, SaaS companies can unlock significant revenue potential and achieve sustainable growth.

So how can you calculate and reduce your churn rate?

Calculating churn rate is straightforward: Divide the number of customers you lost during a specific period by the number of customers you had at the start of that period. Understanding the reasons behind this churn, however, is a more complex task, requiring vigilant monitoring of customer behavior and the identification of dissatisfaction before customers choose to leave.

Leveraging Automation to Reduce SaaS Churn

Remarkably, only 1 out of 26 customers unhappy customers will actively voice their dissatisfaction. Most often, they will quietly leave, and by the time you discern the reasons behind their departure, they're typically beyond recovery. This is where automation can be a real game changer. The integration of cross-application tasks can enable your support, sales, and marketing teams to take immediate action based on the most current customer engagement data.

For instance, consider a situation in which a customer's utilization of your software starts to decline. Decreased product usage is an early warning signal that can prompt your team to reach out to the customer, assess their concerns, and potentially save the relationship before it's too late. With the right automation platform, you can trigger a notification in your customer relationship management (CRM) solution, simultaneously alerting your customer success team, sales team, and marketing team. 

Product usage is merely one of many potential churn indicators. Other red flags could include late or no payments, ongoing software glitches that haven't been addressed, or a decrease in the frequency of client contact. Comprehensive dashboards that present an overview of all customer interactions can be invaluable in spotting these indicators.

Automating for Efficiency and Flexibility Across Departments 

To promptly address these indicators, workflows must be constructed to trigger an automatic reaction across departments. Customer success teams can leverage automation platforms to connect their key applications, such as Gainsight or Zendesk, with CRM systems like Salesforce, payment platforms like Stripe, marketing automation tools like Marketo, or collaboration software like Slack.

Automation platforms act as the glue between disparate software, drawing data from various enterprise solutions—such as CRMs, survey platforms, and work management apps—and facilitating automatic trigger actions based on the latest information. Automation platforms empower customer success teams to react swiftly and effectively to any churn risk without requiring a dedicated dev team.

Using Automation to Enhance Customer Education and Engagement

Often, customers churn because they are unaware of how to use the product to its fullest extent or certain features that can solve their problems. Automated educational emails, regular product training sessions, webinars, how-to guides, and personalized onboarding sessions based on user behavior can reduce churn and boost customer satisfaction. 

Automating Customer Satisfaction Surveys and Boosting Client Retention

Automated customer satisfaction surveys are an effective tool to gauge customer happiness and identify potential churn risks. By triggering these surveys at key points in the customer journey, you can gain valuable insights about the quality of your product or service, customer support, pricing, and more. Feedback can then be automatically sorted and analyzed to support decision-making around churn reduction strategies.

Simultaneously, an alert might be triggered in Slack when a customer satisfaction survey comes in, allowing the team to share feedback with the sales and marketing departments. Prompt responses help prevent any immediate churn and foster long-term customer relationships.

Churn Mitigation: A Balancing Act

Although churn is an issue that every SaaS business grapples with, it can be efficiently controlled and minimized. Understanding your customer churn rate, monitoring behavior indicators, and employing automated workflows complemented by customer education can significantly reduce churn. Remember, in the quest to acquire new customers, it's equally—if not more important—to keep your existing ones satisfied and loyal. Learn more at Tray.io.