Cancellation Vs. Churn: What’s the Difference?

Cancellation and churn

Did you know there’s a difference between cancellation and churn?

It’s a subtle difference but an important one. While the two terms are often used interchangeably, cancellation and churn represent two unique decision points on your customer’s journey.

Remember this: A customer who cancels won’t always churn. You have an opportunity to prevent churn, even after your customer has canceled.

Let’s discuss how the two differ, the reasons that lead canceled customers to churn, and how you can prevent cancellation from progressing. Let’s get started.

Here’s a list of 10 key factors to reduce SaaS churn.

The Difference Between Cancellation and Churn

So what exactly is the difference between cancellation and churn?

When a customer cancels, they make the decision to stop using your services. When a customer churns, they leave for good.

Put simply: Cancellation can be reversed, churn is forever.

A customer can initially cancel but then decide to stay. However, to make this happen, you must rescue them from the dark side through a concerted effort of persuasion and confidence building. We’ll discuss how to reverse cancellation, but first, let’s discuss why customers cancel.

Why Customers Eventually Cancel

Customers cancel for a wide variety of issues. In order to stop them from leaving your company for good, it’s important to understand what issue caused them to initiate the wheels of cancellation in the first place. This knowledge will allow you to develop a solid win-back strategy.

Product Expectations Didn’t Meet Reality

Some customers may opt to use your service because they need help with Problem A, but in reality, your service helps with Problem B. When this happens, there’s almost always a breakdown in your marketing. Either you’ve misportrayed your services or you’ve marketed to the wrong customer type. This often occurs when you try to make your service fit a broader customer base. But the harsh truth is that not everyone will want to use your services or should use your services.

Customers cancel when they feel like your solution doesn’t solve their problem.

This is why a solid onboarding plan is crucial. Learn more about improving your onboarding process here: 10 Critical Elements of an Effective Onboarding Process.

Unresolved Credit Card Issues

Cancellation and churn

When a customer’s credit card is declined, do you have a follow-up plan in place? How do you preemptively handle the 3% of credit cards that expire each month? Do you notify your customer? Or do you simply shut them out of their account until they correct their credit card issue?

Unfortunately, a lot of businesses don’t have an adequate plan for handling declined credit cards. And simply locking an account is not an adequate plan. It’s a hostile stance that should be considered the last resort when all other attempts to collect payment have failed.

Instead, have a proactive (and automated) plan to handle credit card issues before or as soon as they arise. If the card is set to expire next month, send out reminders in the app or via email to inform your customers.

The last thing you want is for your customer to attempt to sign in and then find out that they can’t because of a credit card issue that they were never made aware of. That’s embarrassing for the customer, but it also reflects poorly on you. It communicates the message that you don’t care about building a relationship with your customers. Instead, it suggests that you’re only concerned about their money.

Your Competitor Offers Cheaper Prices

No matter how well you’ve positioned yourself in the market, there are always changes, especially when a new SaaS pops up and promises amazing service for unbeatably low prices. You can’t compete with those prices, and you shouldn’t. Doing so would be a kick in the teeth to all of your loyal customers who pay you at your current ask. Unless you’re planning to slash prices for all customers (and why would you?), it’s best to let customers who demand lower prices move on.

That said, you may find it useful to offer your services individually, or a la carte. Doing so may prevent the cancelling customer from churning.

Ultimately, the remedy to this issue is to show your unique value proposition. Define how you’re unique to your competitors and start off early in your customer relationship driving that point home.

How to Stop Canceled Customers From Churning

Now that we understand the main reasons why customers initiate the cancellation process, let’s discuss how to stop them from leaving your business for good.

Offer a Discount

Cancellation and churn

One of the best ways to win back a canceled customer is to offer a coupon or discount as an incentive for them to stick around. Although this can work in rescuing customers who are on the brink of leaving, it’s not a tactic that you should use all the time. If you do, you’ll show your customers that the easiest way to get discounts on your services is to threaten to leave. Consider this a last resort when nothing else works.

Send a Series of Emails

Until they opt out of your email list, you still have permission to market to canceled customers. Use this opportunity wisely. For canceled customers, immediately segment them into a different group that receives a specialized group of automated emails.

Here’s an example of what emails to send in this series:

Confirm the cancellation → Offer them alternatives to cancellation (i.e. pause, downgrade) → Ask for exit survey participation → Using answers from the survey, offer them a free trial of a specialized service → Offer ways to stay in touch over social media (link out to your social media profiles)

Encourage Customers to Pause

Sometimes, customers cancel because of a temporary issue with the hope of returning in the future. One of the common reasons for temporary cancellation is a decrease in cash flow. Instead of letting these customers simply cancel, why not offer a hold or a pause? This allows customers to stay connected to your company while they take a break. You stay top of mind so that they’re not tempted to try another service when they’re ready to return.

Allow Customers to Downgrade

Another option is to offer a downgrade of service to your customers. This downgrade will look different, depending on your business model. For example, you may be able to offer an a la carte option where customers are able to create their own package.

While you may not want to openly advertise this offer to the general public, you can make it an exclusive for canceling customers. What do you have to lose? Even at a severely discounted rate, you’ll still bring in revenue and — what’s even better — you’ll hold on to the customer you fought to win.

Learn From Canceling Customers

Not every canceling customer will be persuaded to stay, but you can still learn from them so that you can prevent other canceling customers from churning.

Be sure to send out an exit survey to your canceling customers immediately after they initiate the cancellation process. You can embed this survey on your website so that the canceling customer has the chance to air their grievance with you while it’s still top of mind. After they click the “Cancel” button, follow up with a brief survey asking why they’re leaving you.

To make it even easier, you can offer a multiple choice question. This allows you to immediately segment your canceling customers for more specific follow up via email later.

Keep in mind that not all churn is bad. Some customers leave because they’ve successfully exhausted your service, or completed a task, and are now ready to move on. These customers may eventually return if they have a similar need in the future. Or they could become advocates of your service and refer others to you. This is known as happy churn, and you should definitely have a plan to stay connected with these types of churned customers, as well.

Final Thoughts

To retain more of your customers, you must recognize the difference between cancellation and churn. Use the above tips to learn how to prevent recently canceled customers from churning.

Don’t forget to download this list of key factors to reduce churn in your SaaS.