The Retention Funnel Every SaaS Product Needs Right Now
Why giving your product away may actually be a smart business move.
At TRU, we have a number of clients using a SaaS subscription model. For most SaaS companies, MRR (Monthly Recurring Revenue) and Churn (Recurring Customers who Leave) are everything for the company.
The problem we all face:
With COVID 19, most SaaS products have seen a sharp decline in MRR, due to an increase in churn. Customers have been forced to trim expenses for the duration of lockdown and the ensuing recession.
The nasty problem with Churn is that once a user is gone, re-acquisition is a nightmare.
Unless your business model offers some solution for today’s new workforce, or if you offer a tool that helps with working from home, users will be dropping like flies until lockdowns are removed and the economic situation calms.
However… the good news is that it’s not you this time. It’s the economy.
Users are cash starved. They aren’t leaving your product because of poor loyalty or bad product market fit.
Many customers who are thinking of leaving your product still need you.
That leaves us with two options:
- We can continue business as usual, losing cash starved customers to churn (and losing future revenue with each one of them).
- While short term MRR will look higher, long term revenues will be permanently damaged.
- We can give back to the customers who helped us be successful in the first place, and offer a generous billing pause option for anyone who hits that “Cancel Account” button.
- Although we will take a hit with our Short Term MRR, the wound will heal quickly when business picks back up and our customer base is relatively intact.
When I say billing pause, I don’t mean a hold on the account. I mean we give full access to the product, for free, to users who’ve been loyal to us in the past.
Sure, in the second option, SaaS leaders take a bigger short term hit, but the long term outcome is that when business picks up, MRR will recover quickly. The loss is temporary.
Not to mention, it’s the right thing to do. When we treat our customers right, they will remember it.
When a customer churns, they are gone. Their monthly recurring revenue is cut short, never to be seen again.
When we offer a billing pause, future revenue is not lost, only postponed.
If you’re a numbers person…
Let’s say a SaaS company charges $100 / mo for user access, and they have 100 users. Their MRR is $10,000.
If, due to the downturn, they bear to lose 30% of their current subscribers, they will loose $3,000 not just this month, but every month those users would have stayed on the platform. Looking just 12 Months ahead, that’s a $36,000 loss in revenue.
Now, if, instead, that 30% of customers were prompted with a “Get 3 Months, On Us” option, and for simplicity’s sake they all opted with it, the loss would only be $9,000.
Of course, there are many other variables at play, but I think this gets the point across.
In fact, the billing pause option is so much more lucrative than losing customers, that even if you gave every one of those 100 customers access to three months of your product for free, and they didn’t churn, your losses would only be $30,000. That’s a $6,000 savings over taking the 30% churn in users!
And we’re not talking about giving every user free access, only those who hit cancel.
Disclaimer: The model used above is drastically simplified. The numbers are used to help showcase the business use case for offering full access to struggling customers for free.