As a founder, when should you focus on churn? We'll explore when it's too early and when it might be too late.
Wait, What’s Customer Churn Again?
Total Churn = Number of customers who churned during a period / Total no. of customers at the start of the period.
The period is up to you to define, whether weekly, monthly, or yearly.
Once you deduce your churn rate, the next step is to understand why your customers are churning. One way to do this is with Churnkey’s intuitive cancellation survey which can be embedded within your SaaS app and reported on via an intuitive dashboard. At a glance, you’ll be able to identify why churn occurs and find ways to counter them.
Other definitions you need to know:
- Voluntary churn – This happens when a customer decides to proactively cancel their subscription to your business. These can be prevented by improving customer satisfaction and offering personalized incentives.
- Involuntary churn – This occurs when customers lose access to your business through unintended means such as losing their credit card or when a bank rejects their payment to your business, etc. Involuntary churn is harder to mitigate as the root cause is difficult to determine.
- Revenue churn – This is the percentage of revenue lost from customer churn within a certain period.
The Goal of Customer Retention
Your goal of customer retention should be to increase a customer’s lifetime value (LTV). LTV is an estimate of the average gross revenue that a customer will generate before they churn. It is inversely proportional to your customer churn. Hence, when your customer churn increases, your LTV decreases, and vice versa.
What are acceptable levels of churn? Here are some industry benchmarks that you can refer to:
- The industry average for B2B company churn rates = 5%
- The industry average for B2C company churn rates = 7.05%.
This blog post details out the main reason why B2C churn is higher than B2B is because of 3 main reasons. In summary:
- Higher pool of impulsive subscribers.
- Lower subscription plan prices.
- Higher volumes of subscriptions.
Why Aren’t SaaS Founders Focusing On Churn?
Each company has its own thought process and reason for not focusing on churn. At Churnkey, we’ve shortlisted four reasons why SaaS founders might not be focusing on churn and why they should reconsider their priorities:
Companies are too focused on growth, product development, and customer acquisition at the expense of customer retention.
Although acquiring new customers will help your business grow, it is important to note that growth equals acquisition minus churn. You can grow faster when your churn is in check. Plus, customer retention costs less than new customer acquisition in the long run. Hence, customer churn should not be neglected.
Companies think it’s too early in the process to focus on customer churn since they have only been around for less than two years.
Companies may feel that customer churn should not be their priority. But focusing on churn is a good way to build brand loyalty and increase upsells. Retention should not be pushed off your priority list! Plus, long-term customers tend to spend more than new ones.
Companies don’t have enough relevant data about churn.
This can always be mitigated because there are many automated tools that do the churn calculations on your behalf.
Churnkey can collect insights from customers at the point of cancellation and provide personalized incentives to prevent churn from happening, reducing your customer churn in the long run.
Companies don't fully understand the long-term financial implications of churn.
The very unfortunate truth about customer churn is that it scales with your business. Meaning, the more your business grows, the more customers you'll have cancelling every month. Your churn rate then ultimately sets a growth ceiling on your business. In order to keep pace with your expanding churn numbers, you'll either need to find magical exponential growth, reduce your churn, or risk hitting that early growth ceiling.
The Best Time to Focus on Reducing Churn is Now. Here is How To Do It
These anti-churn measures are proven strategies to help start reducing churn before it becomes a serious problem. These can be built in-house by your engineering/product team or you can leverage Churnkey to automate the process.
Step 1: Perform a Churn Audit to Understand Why People Are Leaving
We believe an effective churn audit includes at least the following:
Churn rate by cohorts
Cohort analysis is where you group your target users based on their common traits and try to understand their actions. This allows you to obtain feedback on targeted areas and make better product decisions to reduce your churn rates. Once you have identified your problem cohorts, you’ll be able to make data-backed changes to reduce churn.
Churn rate by subscription plans
Calculate the churn rate for each subscription plan. This helps you to identify which plan has the highest churn, and where you should direct your attention and resources to customer retention.
Churn rate by billing intervals (i.e. monthly vs. annual)
Your current billing practices could be impacting your churn rates. Annual subscriptions provide long-term revenue for your company, at the expense of higher prices. Monthly subscriptions tend to be cheaper but also lead to higher churn (i.e., easier to leave).
Involuntary churn report and voluntary churn report
These help you identify issues that make users drop off or bugs that lead to involuntary cancellations.
Growth ceiling calculation report
When your churned customers exceed the number of newly acquired customers for the same period, you’ve hit your growth ceiling. At this point, your business will be unable to grow further as each new customer acquired will be used to offset each old customer that is leaving. Hence, it is important to find ways to expand your ceiling and ensure room for growth.
A churn audit might seem overwhelming. Let Churnkey conduct a free churn audit for you.
Step 2: Collect Cancellation Insights
There are various ways of collecting cancellation insights, but these were the most straightforward and insightful.
These surveys help you understand why customers are canceling their subscriptions and consequently how to improve their overall experience.
Churnkey has a built-in customizable cancellation survey making it easy for you to consolidate qualitative data without having to expand any engineering resources. All of your results are rolled up in a beautiful dashboard that makes your data easy to act on.
Real-time session recordings
These are especially helpful in allowing you to analyze how customers interact with your cancellation flows. By identifying what convinces your customers to stay (discounts, exclusive content, etc.), why they leave and who is most at risk of leaving, you’ll better understand where to focus your efforts on and how to improve customer experience.
Step 3: Improve Your Onboarding and Pricing
- Continuously engage with your customers. If your customer is familiar with the interface and product, they are more likely to continuously use your product. Send periodic emails to check in with your customers and offer relevant information and useful tips. Identify customers at-risk of churning and incentivize them to use your app more often.
- Consider your pricing model. Is it attractive enough to incentivize users to stay? Offer larger discounts on contracts that require commitment such as yearly subscriptions. This will attract users to stay with your brand for a longer period and build brand loyalty.
Step 4: Offer Incentives To Stay
Does your business offer users a pleasant offboarding experience? Offboarding is often viewed as negative and associated with customers leaving. However, with a good offboarding process in place, this could be an opportunity to rekindle relationships with lapsed customers.
A proper offboarding process should include a cancellation survey and smart incentives for customers to stay. Churnkey, for example, has a smart cancellation flow proven to reduce churn by providing your churning or at-risk users with personalized and dynamic offers. Example offers include:
- Option to pause a customer’s subscription rather than cancel
- Discounts to customers that are leaving
- Help and support to customers canceling because of product issues
Scale Up Your Business While Reducing Churn
Let Churnkey handle your churn issues so you can focus your resources on improving your product/service. Stay ahead of the crowd while others are still ignoring their churn and focused on customer acquisition. Think ahead and beat the competition. Build a bigger SaaS business with us today!