Imagine you're in the desert with only one bucket of water to quench your thirst. But, that bucket is filled with holes. So, you're losing water when you need it most.
For SaaS companies, churn is like the holes in that leaky bucket. You're wasting revenue by fixing it.
Maybe you’ve heard this metaphor before, but today I'll reveal the holes (aka churn) you might not even know are there—and how to fill them.
The silent killer of your subscription business
Churn—when a customer cancels a product or service.
Some think it’s better to focus on acquiring new customers rather than retaining existing ones. But, preventing churn doesn’t mean you stop acquiring new customers. It means you’re not leaving money on the table.
So, let’s walk through the top three hidden areas of churn you might not be thinking about: failed credit card payments, lack of annual contracts and not utilizing value metrics.
Failed credit card payments
The first hidden area of churn: failed credit card payments—when a card is expired or maxed out.
Looking at our data—failed credit cards account for 20-40% of churn when looking at both B2B and B2C companies; and no matter the company size, only 30% of those failed payments are recovered.
A lot of the times—customers may not even realize their card is outdated.
How do we fix this?
- Email a customer ahead of the payment failure, notifying them to update CC info
- Email after a payment fails with links to where they can re-enter CC info
- Always include a clear CTA guiding them straight to the update payment page
To put it simply, let customers know when a payment might fail and make it easy for them to fix it and prevent it.
Lack of annual contracts
Onto the next big area of churn—annual contracts—or the lack thereof.
Companies seeing a lot of churn may not be optimizing annual contracts enough.
Our data shows that companies with annual contracts sometimes see as much as 5x lower churn. The reason being, it’s only one purchasing decision a year, versus twelve.
When you’re signing a new customer—push for a year-long contract. Because that’s 12 months of them being locked in, meaning no churn.
Not using a value metric
The lack of use of the value metric. Your value metric is what you charge for—it could be per user or per 100 videos, basically something that theoretically aligns with where your customer gets the value from your product.
Companies using a value metric see half the gross churn of their feature differentiated counterparts. When you have a value metric, customers are paying for what they’re using—and, naturally, if they’re using more, they’re going to pay more.
A little deeper than that—maybe the customer is using less so they’re going to pay less. I know this doesn’t sound ideal, but having a value metric makes it clear customers can downgrade if they need to. Because downgrading is better than canceling altogether.
Say goodbye to churn
Churn doesn’t have to be as deadly as everyone thinks. Monitoring it and understanding why customers churn will not only help you recover lost revenue, but it will reveal areas of improvement.
Remember—the three things you can do to reduce churn are monitoring and preventing credit card failure, taking advantage of annual contracts, and ensuring you’re providing the value your customers are paying for.
How is the B2B SaaS market trending?
📈7 day +0.83% | 📈30 day +4.45% | 📈90 day +11.56%
MRR GAIN -0.29%
Your B2B SaaS Index is at +1,585 points—with overall growth increasing 0.83% over the last week.
The MRR gain Index, aka upgrades and new revenue, has gone down 0.29% over the last 24 hours, while MRR loss (namely, representing churn in the market) has gone up 0.76% over the last 24 hours.
Be sure to check your subscriber newsletter for regular updates to your index.
You can also share the data with friends and fellow industry players that could use it right now. Send me their email address to email@example.com and I’ll get their name on the list. Or they can subscribe directly at index.profitwell.com.
Building a more diverse future
When you look at venture capitalists as a group—it’s predominantly white and male. People have been calling on more diversity in the VC community. Our friends over at Notion are stepping in to make that happen.
Notion is now part of a VC fellowship promoting inclusion. It’s called Included VC—tackling the lack of diversity in venture capital head on.
Currently recruiting 40 people from the black, asian and minority ethnic, or BAME., in this second year of Included VC. The 40 people selected will then be trained to work as venture capitalists.
Chris Tottman—one of Notion’s founding partners—says:
“The simple truth is, diverse teams win big and diversified funds win bigger as success comes with finding, investing and rapidly scaling outlier founders in under-invested markets.”
Recruitment is currently underway. If you like to learn more about Included VC and how to apply → click here.
The [remote] capital experience
And speaking of Notion–Notion Now is right around the corner—mark your calendars for July 17th at 7:30 a.m. EST.
Notion Now is a virtual gathering of SaaS founders and industry experts—so you can get the Notion Capital experience, remotely.
And—you’ll hear a familiar voice—ProfitWell’s very own Peter Zotto is giving a SaaS Pricing MasterClass, lessons from 18,673 companies.
If you’d like to attend → click here
Looking for a little peace of mind? Giving you just that, is today’s ProfitWell’s featured user —Yoga Girl.
Yoga Girl provides support for healing and expanding self-love for a modern lifestyle, all in the name of productivity so that we can continue working it.
They offer meditation, mindfulness, healing and health practices on video, podcast, and in reading materials—of course, I’ll link to it all in your subscriber newsletter.
That is a wrap on this week’s B2B SaaS happenings. Catch you back here next time with more news and more data. Make sure you're subscribed at recurnow.com or wherever you listen to podcasts.