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How to measure customer churn and prevent it

Convincing a customer to purchase or sign up for your product is one thing but making them stay loyal and continually use or depend on it is another. This is why customer retention requires a strategy that will make customers see the overall value and stick. Customers stop using certain products or services for multiple […]

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customer churn

Convincing a customer to purchase or sign up for your product is one thing but making them stay loyal and continually use or depend on it is another. This is why customer retention requires a strategy that will make customers see the overall value and stick.

Customers stop using certain products or services for multiple reasons. It can be budget constraints, better deals, or switching to a competitor that causes loss and adds to churn rate.

As per Market Metrics, the probability of making a sale or upselling to an existing customer is 60-70%, while same for a new prospect is around just 5-20%.

Therefore CRO (Conversion rate optimization) is important. It can increase your profits and decrease churn for long-term success. Reducing churn rate is far more profitable than hunting for new customers who will engage with your product.

What is Churn Rate?

Simply put, it is a measure of the number of customers/clients who left or are moving out of a certain deal. Churn rate is the rate at which customers stop using the products or services of the company.

How to Calculate churn rate

While the notions for measuring churn rate differ based on type, nature, offerings and more, it can be deduced to a simple formula.

Subtract the number of users at the end of a certain period from the number at the beginning. That should be divided by the users at the beginning or start of the period.

This period can be month, year or even a quarter. When calculating, you need to make sure it’s consistent so that there is accuracy in the representations.

When does Churn happen?

To define the moment of churn, there are various points to consider:

  • The moment of cancellation of subscription
  • The moment customer does not renew the contract
  • The moment they do not enquire on renewal process

Why is churn rate important?

Churn rate is a direct reflection of how satisfied customers are with your products and services. When subscribers or customers leave, you lose on revenue, branding and opportunities of expansion.

Churn rate needs to be measured carefully as it:

  • Provides insights on long-term health
  • Reflects customer retention patterns
  • Identifies improvement areas
  • Determines product success

Churn rate for SaaS business

Losing customers and subscribers is bad, but for SaaS companies, the metrics negatively impact in the long run.

Customer lifetime value (CLV): CLV is the profit one can expect due to a relationship with a customer. It is equated to the profits that the company will make after covering the acquisition costs. This will be heavily impacted due to customer churn.

Customer acquisition cost (CAC): CAC is the cost the company undertakes while acquiring a new customer. If the customer leaves before the contribution of enough revenue, the business will lose that investment.

Monthly Recurring revenue: The revenue a business can expect on a monthly basis greatly impacts other investments.

 9 Actionable Ways to reduce Customer churn

Now that the concept of customer churn is clear, its important to reduce it. Here are some actionable ways you can reduce customer churn.

Re-tune your digital strategy

Stay in touch with your customers digitally and make sure you have multiple touchpoints to increase value. Segment your customers and offer them unique solutions, innovative campaigns and increase the frequency of engagement to stay on top of your mind. Hadi Amiri in his Harvard paper states exactly that.

Be proactive

Be lean and agile to make sure your product is a ‘must-have’ or ‘need to have’ one. Offer value to your customers by proactively reaching out with solutions and experiences. Provide free access to some key aspects or features, reduce contract and renewal fees and offer flexible payment options to encourage your customers to stay.

Collaborate

Teamwork is the key to effectively identify customer needs and customize solutions based on that. Product, finance, support, marketing and sales teams should identify the right areas to be worked on and unique ideas with the same. Cross-team collaboration is important to keep the customer.

Keep them happy

Keeping a customer happy is like giving them an award. Something innovative can show you are of value to them. It improves goodwill, promotes interest and is an amazing customer engagement strategy.

Share best practices

Be generous with your best practices, wisdom and strategies. Share them with others so that they can grow as well. Remember, the best sale comes of value. You are only as successful as your customers.

Communicate

Reach out to customers and build a positive, mutually beneficial relationship. For them, you are an advisor who should help them with solutions. If they remain in the dark about the solutions you offer, they will not be able to gauge the impact of support. So, create educational content designed to make them trust, understand and believe you better.

Credit: Rejoiner

Be timely

Clearly communicate timely at various lifecycle stages. Create customized content designed to make them stay. Understand their concerns and use success stories or case studies to help them discover more about your product or service.

Some churn is fine

While churn is bad for business, it’s best to let some customers go. While you should focus on retaining customers, its important to know that you can let them walk away. Loyal customers who are advocates of your brand are more likely to spread goodwill than the ones who are looking to churn always.

Feedback lessons

If someone wants to churn or does, its important to gather insights on why and what obliged them to do that. Use that data to analyse your sales process, further action and conversion strategies. Learn from them and make the customer retention strategy better.

Final thoughts

Offering your customers, a valued experience is a collaborative effort involving all teams. It is important to keep that strategy alive to make your SaaS company a force to reckon with. If you are efficient, proactive and work in the value of your customers, they are more likely to stick around. The words are simple: Make it matter.

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