Whilst churn can be one of the largest negative effects for your SaaS business, there are those in the world who will directly benefit from your high churn rate, entirely at your expense of course - namely your competitors. The level of benefit they achieve is dependent on your client retention strategy - if there is a weak strategy or even no strategy in place to handle this problem, then you could put your SaaS company in a very weak position in the long term, allowing competitors to overtake you, even if their product offering is somewhat inferior to your own. Below, I examine some of the benefits that your high churn rate will offer your competitor, some quite obvious, and some not so obvious.
1. Increase competitor's revenue
If a customer churns, it is likely that the pain points that they endured before using your software to improve efficiency are still an issue - pain points tend to not disappear overnight - so more than likely they will switch to one of your direct competitors. This is essentially a “free gift" to competitors, and the extent of this free gift is inversely proportional to your retention efforts, i.e. the weaker your retention strategy, the higher your churn rate, and the greater the potential gain for your competitors. Whilst there is the obvious loss of revenue to consider here, and gain of your competitor, you are giving your competitor a chance to become more dominant in your market segment - if they are smaller than you, they are getting a chanve to ‘catch-up’ to you in size, or if they are a larger competitor, you are making them stronger and lessening the chance that you will achieve a similar or greater scale than them in the near future. It’s a double-edged sword: if this customer left you for a competitor because of a bad experience as a paying client, it is unlikely that you will use your product in the near future, if ever again. Once a bad reputation has been set in the minds of your past customers, it is very difficult to undo, if not impossible.
2. Your competitor will use your customer’s negative experience to gain a sale
If your customers are considering cancelling their subscription (and eventually do so), it is likely that they will be seeking out alternative solutions. This could happen weeks in advance of cancelling their subscription with your platform. In that time, they probably spoke to a number of competitors and had a few demos of the alternative platforms. During demos, they were likely to have been vocal in their dissatisfaction with your platform, and any problems they had. Your competitor most likely used this information to put a more positive spin on their own product, emphasizing that this will never be a problem with their platform, or pain points with your platform don't exist with theirs. In basic terms, they most likely used your user’s dissatisfaction with your platform to increase their chances of getting a sale - when the customer experienced such dissatisfaction and expressed it so vocally, it was low hanging fruit for your competitor to take advantage of. It was not difficult for them to portray their own platform in a very positive light in this situation - there would not be difficulty convincing the potential user in this demo - most (but, in fairness, not all) companies would take advantage of this to secure a sale.
3. They will gain overall strategic information for the long term on a macro level to become a stronger competitor
This is somewhat similar to the above point, but is more related to the long-term effects of multiple customers leaving your platform for your competitors - rather than the individual effects of one-by-one departures. As long as your churn rate remains high, a large number of customers are likely going to be leaving for a small number of competitors - those individual competitors will likely hold discussions and product demos with all of these churning customers - your competitors will be learning about your customers problems with your software - from more than one source. If there is no churn management strategy, it is likely that the customers are leaving, are doing so for the same few reasons - perhaps they are feeling like they are not valued once they are paying clients, or they are all experiencing the same issues with features, but there is no team or strategy to address their queries or hear their feedback. If your competitors are hearing about problems from more than one customer, they are most likely observing patterns in this information. They will be able to apply this information in their long term strategies, enabling them to optimize their product offering, based on features where customers have experienced problems with your software, or key features your software lacks. They can optimize their demo scripts to hit on your customers' pain points with your software. They can also alter their marketing strategy based on this information - all in all, you are allowing your competitors access to key information that will allow them to grow stronger in the long run - they may offer a product that is inferior to yours, but their intel on your weak points will allow them to grow stronger through strategic optimisation - allowing them to be a more dominant player, despite your stronger product offering.
Has churn been a major focus for your SaaS business? If you want to avoid the pitfalls examine above, and are looking for a starting point on how to manage churn at your SaaS company, you can view Traitly’s blog on building a basic client retention strategy here.
Traitly uses powerful AI algorithms to determine which of your customers are most likely to churn, based on what actions your successful users have done in the past. Traitly will also derive actionable insights on what your customers need to do next in order to remain successful customers to minimise churn. Subscribe below to get updates on how you can maximise customer conversion and retention rates.
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