How to Calculate Churn

Running a Software as a Service (SaaS) brand is not always a walk through the park. It requires proper marketing strategies and Consumer Relationship Management (CRM) systems to attract and track new leads. While integrating a CRM is critical, most companies' growth is curtailed because of a continued increase in their churn rate.

Understanding Consumer Churn Rate

So, what is churn rate? It is the percentage of clients or consumers who unsubscribe or fail to renew their subscription to a SaaS company over a specified period. It is an essential metric of measurement for any company offering SaaS or other subscription companies, which rely on the monthly fees charged to clients. No matter the profit margins a company achieves every month, if they can hardly retain their clients long enough to gain ROIs on consumer acquisitions expenses, then the brand growth dwindles out. This is why it is important to monitor your churn rate.

‍How to Calculate Churn Rate

When Saas owners go to calculate churn rate, most think of a full-page calculation. Preferably, calculating the rate of churn is straightforward.

First, designate a specific timeframe, say last quarter. Next, determine the total number of clients who've churned and the total number of customers you had at the commencement of the previous quarter. Then, divide the number of clients that have unsubscribed with the total number of customers who subscribed to the service. Finally, multiply the answer by 100 to get the percentage rate of churn.

Formula:

Loss Customer/Total Number of Customer = X * 100 = Churn Rate

For Example: the total number of customers on your SaaS platform is 150 and 5 customers have halted their subscription. The churn rate calculation would be: 5/150 = 0.033 x 100% = 3.3%

Top Reasons Why SaaS Companies Face High Churn Rates

A majority of SaaS providers think that high churn rates are due to high product price. What they fail to understand that consumers are not only concerned with affordable services, but also demand a great consumer experience. Consumer experience encompasses many aspects of why churn rate become too high. Here some of the top reasons for rising churn rates.

Poor Consumer Service

One of the major concerns for consumers is how their software vendors treat them. It is challenging to find a situation where all the customers are contented with the product. Such matters are best handled through consumer documentation and online consultancies. However, as clients are pushed to call their SaaS's help desk, frustration rises and churn goes up. This is a critical stage of the churn reduction effort because poor consumer service makes the client develop disloyalty and a see it as a disregard for their brand. That is a reason enough to make the consumer seek better services elsewhere.

Confusing or Disjointed On-Boarding

To SaaS business, it helps to understand two critical business responsibilities:

• Getting new consumers to subscribe to a tech-service offering; and
• Ensuring that the service rendered help the customer achieve their business goals

During the on-boarding stage a disproportionate number of customers will opt out of the service due to a lack of understanding of the service.  They did not receive value for their money; and experience a loss of interest. An effective means of preventing that is to ensure a smooth and flawless transition during on-boarding.

Poor Consumer Relationships

Poor consumer relationship management makes up 16% of churn rates. While interacting with consumers, we recommend that brands strive to build lasting and enduring relationships. It makes clients feel welcomed and develops trust and loyalty to the company as a credible partner.

How To Fix Churn Rate

One of the best ways to churn rate is to improve customer service, improve on boarding, and improve customer relationships. To do this, you need to identify and understand the issues behind a customer who is about to churn or who has just churned. With Raaft, you can do all these things.

To discover how Raaft can lower your Churn for your Saas, book a demo today!