Customer churn is the percentage of customers that end the use of your company’s product or service during a set period of time.
Customer churn is defined as the rate at which customers who have purchased or subscribed to a product or service end their relationship with the company. This results in a loss of revenue for the business.
Types of Customer Churn
1. Revenue Churn
There are a few different ways to calculate revenue churn, but the most common is to take the monthly recurring revenue (MRR) lost and divide it by the total MRR. Revenue churn is slightly different than customer churn and is still important to consider when analyzing this metric. Revenue churn is the amount of revenue lost within a given period. This doesn’t necessarily mean customers are being lost, but rather that less money is being made from the customer base as compared to before. There are a few different ways to calculate revenue churn, but the most common is to take the monthly recurring revenue (MRR) lost and divide it by the total MRR.
Your customer success team should keep a close eye on this metric, as it may indicate that customers are downgrading to a cheaper subscription or version of your product. This is especially important to monitor with your most loyal customers.
2. Competitor Intervention
There will always be some customers that will leave you for another company, but you can’t spend all of your time worrying about it.
It’s more important to focus on why these customers are leaving you for your competition. Are they a bad fit for your business? Or, is it something you’re doing that’s pushing them away?
Once you can identify the cause, you’ll be able to determine which customers are worth keeping and which ones are likely to leave your business.
3. Unsuccessful Onboarding
It’s not unusual for customers to churn at the beginning of their journey with a company if that company doesn’t offer an onboarding program. This is because the customer would have to figure out themselves how to use the product or service, with no guidance.
If you’re purchasing rice, you’ll probably just need a set of directions printed on the side of the box. But, if you’re paying thousands of dollars for software that runs your business, you might expect a bit more from your software provider. In these cases, you may even be provided with an onboarding specialist who can teach you how to use the product and how to personalize it for your short- and long-term needs.
4. Desired Feature or Functionality
Most customers crave personalized experiences, which means they will expect your brand to create new features or products that solve their individual needs. However, if you have a diverse customer base, some may be disappointed when you roll out a new product or feature that feels irrelevant to their specific goals. Even though the new product may be great for the majority of your target audience, there may be a small segment that feels your brand is going in a different direction than they had anticipated.
This is a type of customer churn that doesn’t always mean something bad. If your brand is changing directions, then that may come with some customers leaving. Just be sure to keep an eye on your churn rate so it doesn’t go higher than you were expecting.
5. Company Closure
If you are a business that sells to other businesses, then you may have customers that go out of business or merge with another company. Most of the time, these instances are unavoidable and are part of working in a B2B environment. This is where your customer acquisition strategy becomes important as it balances out your customer churn rate.
6. Underappreciated Brand Values
Some people may not be a good match for your brand values. For example, if your company focuses on providing eco-friendly products, you might meet people who don’t appreciate that process. These customers are more likely to focus on getting a lower price and fast delivery, rather than on buying “green” products.
Should you give in to customer demands or stick to your brand values?
If you give in to these customers, you may be able to save them in the short term. However, if you do this, your competitor will undersell you and you will have to move away from your values. Is it worth it to give in to these customers?
Your customers are what keep your business going, but it’s important to make sure you’re appealing to the right kind of customer. If you focus too much on the wrong segment of your target audience, your brand will suffer in the long run. Instead, take feedback from your most loyal customers into account, as they will have a vision that lines up with your brand’s values.
7. Plateaued Growth
As your company grows, it changes as well. You will have more customers, more employees, and be able to offer more products and services.
This type of change can be great for your business by increasing revenue, but it may also cause customers to leave. For example, if you offered a free product that customers are now willing to pay for if it is packaged with another set of products, you may lose customers who only wanted the free product. Now that they will have to pay for it, they may go to another company that does not charge them.
The loss of customers is natural and to be expected, but don’t worry- you’ll be able to replace them with new customers who are willing to pay more for your product or service.
Churn can take many different forms, making it difficult to identify what is natural churn, what is negative churn, and what is not churn at all. To ensure that you are aware of all the different types of churn happening at your business, read on to learn how you can identify a pattern of customer churn.
How can I reduce my customer churn rate?
We found the best 15 solutions to reduce churn by talking to 40 leading specialists in the SaaS industry. These solutions cover everything from using recurring 1:1 customer success calls to detecting when a product is going to churn at all stages of the lifecycle, from the initiation to the end of the sales cycle, to optimisation.
1. Handle objections during the cancellation process
The reason customers may be leaving is because they are unhappy for several reasons. However, this does not mean it is impossible to get the kids back before the departure. The company is not paying its users, and you’ll want to check with your User Success Director to see if their products will help you to find a suitable place.
2. Send NPS surveys
You should monitor your company’s Net Promoter Score (NPS) to get a better idea of how much your customers like (or don’t like) your company. You can do this by assigning monetary scores to customers and dividing them into three groups: passive and promoter. You should also provide an online form where customers can elaborate on their scores, and listen for their thoughts and suggestions. What is their problem? Please give feedback as quickly as possible, positive as well as negative.
3. Prioritize proactive customer service
If you have a bad experience with customer service, don’t forget how awful it is. Many customers who have unpleasant experiences will never go back, and others will tell their friends about the negative experiences. Even if you have the best customer service, a bad customer can still cause problems. You should also be a very memorable client of yours. This can be useful in finding issues you had never encountered before. If this happens, take action immediately.
4. Avoid feature blindness
The software might have a lot of features, but users only get access to one or two of them. It’s not a big deal, but the software could also help people learn the habit of building around other useful tools. You can make sure your customers feel like they’re getting more for their money by offering them the chance to increase their services.
5. Create a user engagement plan
The best way to get a customer to buy an online service is to create an engagement plan that will easily help them meet their targets early. Talk to customers and find out what they want before deciding what to do. It’s also good practice to re-evaluate your onboarding process. Is it possible for the user to learn more about utilizing the product?
6. Re-engage inactive customers with in-app messaging
How often does a person get frustrated by the use of an app or a website? Send the letter out there. The problem can arise because people are distracted or they haven’t seen the information. A message can help them understand where they are going. Alternates can also be made by sending a reminder email that points to the useful features that have not yet been used.
7. Offer special incentives
How can customers trust you? You need to give them rewards for their loyal service, not just for their hard work. Bring some thought into your proposal. Maybe the money can support a person to reach a particular objective.
8. Offer special incentives
Customers are more likely to trust you if you show appreciation for their loyalty with rewards, rather than simply expecting them to stick around because you’ve done a good job. Put some thought into what kind of rewards would be meaningful to them, such as something that will help them reach a personal goal.
9. Create a community around your project
The customers are the lifeblood of any company, so it’s important to keep them as involved as possible in your business. Surveys, blog contributions, and invitations to webinars are all great ways to do this.
10. Provide live chat support
If a customer needs support, they can receive it immediately through chat. Keep track of the conversation topics to identify areas where the user experience can be improved, and use this feedback to update your marketing materials.
11. Build a knowledge base
If customers keep asking the same questions or experiencing the same issues, you should create a Knowledgebase with all the tools necessary for resolving those issues. Use conversations you’ve observed in live chats to create content suggestions for the Knowledgebase. Let customers know where they can find the Knowledgebase so they can resolve their issues on their own.
12. Offer discounted long-term contracts
Your customers need you just as much as you need them. Some people who switch suppliers may have issues if they’re not content with the new company or feel they’re not being paid enough. If you want customers who stick around, offer them deals and show them you appreciate their loyalty.
Increase activation: Reduce customer churn in the first week (days 1-7)
Most people who stop using a product do so within a week of purchasing it. The exact date of purchase varies depending on how often a customer uses the product. To understand how long people use a product before they stop, you need to do an aggregating cohort analysis. However, no matter how you define retention, it is important to increase early use to minimize churn over time.
Improve user onboarding experience
So in order to reduce the chances that people will stop using your product early on, you need to get them to experience the core value of your product as quickly as possible. This will improve their overall experience. Additionally, providing support and guidance early on will help people feel more confident in using your product and increase the chances that they’ll stick with it long term.
Send a personalized welcome email
An email with a personalized greeting will have a higher chance of being opened than any other email. Customers will trust your product more if you take the time to greet them personally, and it may encourage them to use your app. You should briefly explain how the app can help them and what the next steps are. The Clearbit website has some good examples you can follow. CEOs, customer success managers, and other similar roles should be given a welcome letter.
Test different mediums for educating new users
It is helpful to educate users through different types of videos such as tool guides and videos of filmed content. Testing is important in order to see what works and what doesn’t work. The HubSpot sidekick went through many growth experiments until the company was able to lower the churn rate by 2%. Iterations are key in order to improve the application and help new customers on board quickly using Appcues.
Stop Churn In Its Tracks
Churn can have a negative effect on your business, but only if you let it. Change your company’s direction today by following the tips we mentioned above.
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