Beyond User Acquisition: How To Grow Through User Engagement and Decreased Churn
SaaS companies that achieve the elusive product-market fit and successfully scale their sales processes encounter a new problem - churn. Churning customers and lost revenue at scale have far greater financial impact and strain on sales teams which need to replace the lost revenue.
Sales objectives will change with each organization's growth stage. Early stage startups are more likely to focus on top-of-funnel activities, acquiring more bookings, and conversion rate optimization. However, once these processes are established and work, the focus often shifts on aspects which were somewhat neglected and not finessed to the same extent. At this stage, companies take a more serious look on aspects such as their onboarding process, churn, user engagement or time to first value.
This simple model below published by David Skok demonstrates the impact of different churn rates across revenue growth.
The red and yellow lines indicate lost revenue due to churn at 5% and 2.5% respectively. We see that as revenue increases, 5% in comparison to 2.5% churn represents a significant dollar amount difference. For instance towards the end of Year 5 (Month 58), 5% churn represents $90,000.
Great SaaS companies keep monthly revenue churn at around 0.58%, that’s only about 7% revenue churn a year
The very best SAAS businesses have a negative churn rate and will have a Dollar Retention Rate greater than 100%
How to increase user engagement
Decrease Time to First Value
Time to First Value (TTFV) is the amount of time it takes for your users to receive and realize value of your product. TTFV is not to be confused with the time it takes for the vendor to receive value (money) from their users.
Decreasing TTFV is important, as quickly and consistently delivering value will stimulate continuous product use, therefore doing so quickly and faster than your competition will be a critical aspect in delivering enough value which will eventually lead to purchase.
The competition in the SaaS world is intensifying with conservatively estimated 10,000 SaaS companies in the marketplace today. And as a result of competition, customers benefit from increased quality and number of vendors.
The image above shows a typical SaaS customer purchase journey. Your users are most likely to be in the evaluation stage when they sign-up for a free trial.
Given that you're being evaluated against your category competitors solving the same problem, you're never too far from a churned user.
To answer the problem of bringing users to value faster, we need to define what value means in the first place. The simplest explanation is that value refers to the promise your product makes - why users start to use the product in the first place.
Sometimes referred to as the Aha! moment, it's the point in time when users realize and experience how product solves their problem.
While defining the promise of your product should be quite clear, you need definition of the Aha! moment to be supported with further customer feedback, interviews and user questionnaires.
Churn and the time it takes to reach and experience the Aha! moment are closely linked. The longer it takes to receive value from your product, the chances of churning increase.
The image below shows customers' interest in your solution and the time it takes to achieve the Aha! moment.
The image shows different times to realize value, where with increased time the likelihood of churn significantly grows. Every product will have different TTFV, however, it's important to proactively review this metric, and work on reducing it.
The first step is to analyse all the necessary steps that users need to take to receive value and reach the Aha! moment.
For example, users of a landing page building SaaS will reach the Aha! moment not when they sign-up and see all the beautiful templates, but when the page is actually live. This is the value they want to receive. These can be the steps they need to take to reach the Aha! moment.
It's necessary to map out your steps to the Aha! moment and work on eliminating all the in-between steps that are not necessary. Mapping out the least required amount of steps will aid further TTFV reducing strategies. For example, forcing your customers to fully complete their profile before they move on to select a template would be an unnecessary step in receiving value.
Another aspect that will help to reduce TTFV is the UI/UX of your product. Clean UI and latest trends in product design play a major role in how your users perceive and interact with your product.
Even if you have all the features your users need, bad UI where using the product presents a major pain will inevitably cause more churn. Reducing the number of steps to realize value in combination with beautiful design will set you apart.
Follow the latest trends such as:
- Global navigation
- Hierarchy of importance in navigation - manage complexity of features through planning and simplicity
- Clear visual data
- Font that is easy to read represents your brand
Lastly, providing adequate support as your users interact with your product for the first time will significantly ease the onboarding process.
Direct users to the next required step to realize value, or at least set them on the right course of action. Achieve this by sending documentation, walk-through videos, in-app messages or chat pop-ups that will outline the next necessary steps.
You can use products such as Intercom to set URL specific messages. This will allow you to identify when users reach different stages of onboarding and point them towards the next require action.
Encourage user engagement through behaviour-based reminders
Some users will abandon the necessary process to realize value even if you have beautiful design and optimized path to the Aha! moment.
The only way for your users to realize value and then purchase is through rejoining the journey to their Aha! moment.
Analysing individual product use will allow us to identify different drop-off stages and create behaviour-based campaigns.
If we consider the example from above, our users need to complete 3 success milestones to receive value.
However, through identifying the drop-off point, we can send targeted messages that will directly and in a relevant way remind the user to complete the next step.
This return path can be then repeated for all major success milestones. One important consideration is the frequency and positioning of these re-engagement messages. You need to very clearly understand how your users use your solution to gauge when is the right time to send the re-engaging message.
For example an HR SaaS like breezy.hr which allows users to create and publish recruitment adverts on job platforms will have different timeframes to reach major milestones than a social media automation tool like Hootsuite.
There is notably more effort involved in crafting an entire job adverts than integrating a product with social media profiles (requiring just few clicks).
Understanding the necessary time for your users to reach different milestones will help to create relevant and non-intrusive or annoying reminders.
A great example of this is Facebook's suite of business tools.
Facebook uses multi-channel return path, targeting their users via email and Facebook notifications.
The end goal for Facebook is to collect advertising spend of their users. On the other hand, business users want to acquire more clients or gain visibility using Facebook. Therefore a major success milestone is creating the first post, as that will set them on the path to receiving value by gaining initial visibility.
When crafting the messages, it's important to focus on a variety of aspects of your product, and speak to your users' motivation to gain but also not to lose out, just as offering multiple support avenues (email, call, live chat) and education on how to complete the next step.
Use education to bridge the gap between users' capabilities and their desired outcome
Your product is a vehicle that will bring your users from the current situation (pain) to their desired outcome.
However, the journey from the "before" to "after" state is hardly ever this simple. One element many SaaS organizations don't take into account is user's ability to perform the necessary actions outside the scope of their product which directly contribute to the desired outcome.
There is therefore a "user capability gap" between your product and the desired outcome.
To increase retention, it's vital to strategically close the gap and increase user capability. While you're probably already publishing top-of-funnel and bottom-of-funnel content that is required for acquiring new customers, your content strategy needs to also focus on resources that will close the gap.
Knowing your customers' pain points will help to understand what obstacles they encounter on a daily basis as they're trying to achieve their desired outcome.
If we consider users of a landing page SaaS, the value they receive from your product is a live page. However, the desired outcome is to acquire new leads, subscribers or sales through the landing page.
While the provider can offer a great product, the outcome (number of leads, subscribers or sales) falls outside their control. Therefore the question becomes how can we help them to achieve their desired outcome in addition to using our product?
Some useful content is most likely to be around topics such as:
- Landing page best practices
- Conversion rate optimization
We can then map out the journey from pain to desired outcome in this way:
This approach content marketing approach is seen across all leading SaaS companies:
Shopify - their survival and growth depends on successful merchants. Providing only an ecommerce platform doesn't lead to their users' desired outcome (successful ecommerce business). Shopify's blog educates merchants on how to generate sales, and therefore reach their desired outcome.
Hubspot CRM - Hubspot customers' desired outcome is easier sales management and increased sales of sales teams. Hubspot provide resources on sales, marketing, account management.
Great SaaS companies achieve 5-7% annual revenue churn - equivalent to a loss of $1 out of every $200 each month
If your Net Revenue Churn is high (above 2% per month) it is an indicator that there is something wrong in your business; this will become a major drag on growth
The first action step towards decreasing churn is identifying what your churn rate is. In some cases however, it may be difficult to pinpoint what constitutes "churn" in your business.
We could identify churn as the loss of a customer – they became unsatisfied with your solution, or their need was satisfied. However, it’s not always this simple.
Here are just some examples of how the definition will vary and that you need to be very clear about how your users use your product.
- Cart abandonment plugin for Shopify (ecommerce) – this product will work on the “set it and forget it” model, therefore churn can be identified as deactivation and then subsequent uninstall
- Landing page builder – infrequent sign-ins or less/no new landing pages being built, or complete deactivation?
- Form builder such as Typeform – in some cases users have one-off need, or infrequent need to build information collecting forms. For example, form for a monthly or annual company event. If this user stops their subscription, just to reactive in 6 or 12 months, is that churn?
- Market places – similarly to the example above, if an HR marketplace platform (such as Upwork.com) loses a user that had one-off hiring need for a long-term project, is that a churn, despite the goal the purpose of the goal has been fulfilled and goal of the user met?
Once we identify whether the business model is subjected also to the “other churn”, we want to identify why and what are the causes - the churn drivers. In the case of Typeform for example, many of their churned customers are happy with the solution despite churning (according to NPS and questionnaires), but they simply solved their need to create a questionnaire by using Typeform.
There are many ways to segment your customers to understand churn. You can start by looking at different user segments (e.g. size, revenue, product use), or you can start by analysing retention to understand what types of customers are likely to churn at different time frames.
We can then create categories based on the churn timeframe.
Once we segment users based on retention, we can start looking into important metrics such as:
- What percentage of your users fall into each category?
- Is the percentage breakdown of users in each category consistent over time?
- How much revenue does each segment bring?
- What is the ROI for each segment? Based on the segment which has the greatest ROI, you can start focusing on attracting this customer segment more over others. Below is a visual representation of plotting different retention curves in relation to customer segments
- How does the total number of accounts in each segment compare to ROI they generate? (example, segment 3 and 4 could have similar amount of total users, but ROI could differ)
Segmenting the user base by retention curve and identifying commonalities among the customer profiles can far more greatly improve the ROI possibilities than looking at different customer segments and trying to infer why they churn.
Once users with the best ROI are identified and common characteristics mapped out, you can start implementing lead generation initiatives to attract the type of users who are most likely to provide the best ROI.
Secondly, given this information is now available, there can be greater confidence in spending more to attract a specific type of user. On the other hand, sales and onboarding process can be made less resource consuming for prospects which are likely to bring less, or even negative ROI given their profile.
As companies scale their growth engines, a slightly-above-average churn rate becomes harder and harder to offset with net new revenue growth, especially when the goal is to outpace it by 4x
55% of SaaS companies rate Customer Retention Cost as the key metric to measure
Optimize onboarding and minimize churn in your organization
App Marketing Minds specializes in onboarding, retention and monetization for SaaS companies. Schedule a confidential call today to discuss your current approach and challenges.
About the author
David Kanika | Founder at App Marketing Minds
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