What is Churn, and Why Does It Matter?
Churn or churn rate is the measurement of the proportion of customers, subscribers, followers, accounts, etc., who choose to discontinue their engagement with an entity.
As new customers begin using your service or buying products, they contribute to the company’s growth rate. Inevitable as it is, some customers will leave for a better alternative, or they no longer need the product you are offering.
These customers who leave have “churned.”
The representative of churn may change, but the point where a person replaces your brand with another amounts to churn.
Variations in the churn rate over a given period can have a positive or negative impact while indicating a user’s satisfaction or dissatisfaction with the service or product.
At the end of the day, you want to aim for a low churn rate.
Churn can take three forms;
A metric of continuous concern for subscription-based services and companies. This type of churn rate is especially concerning for streaming, cell phone, and SaaS companies, where it’s easy for a customer to switch.
Regularly monitoring the churn rate will help assess performance and adjust strategies to retain customers.
- Employee Churn
Let me clear one thing: employee churn is the same as employee attrition.
Churn in an employee’s context is the rate at which employees leave the company and must be replaced with new ones.
- Revenue Churn
Revenue churn measures the proportion of Monthly Recurring Revenue (MRR) businesses lose due to any reason.
Reasons may include customer cancellations, downgrades, customers abandoning ship, etc. While sharing insights on customer retention, MRR also helps with gauging potential health and long-term business viability.
Reasons to Identify and Combat Churn
Customers can churn for any reason. Some of them are known to us, while others may be specific to a business and not available in the public domain.
But by proactively identifying the causes of churn in our organization, you can preemptively build strategies to combat this menace.
- Impact on Profitability
Every churning customer means a loss in recurring revenue. From the perspective of Customer Lifetime Value (CLV), you don’t want it to go down, and churning customers can eat up the profits.
Moreover, when you lose customers, you also want to acquire new ones.
So, customer churn is like a double-edged sword. You are losing revenue from leaving customers, and then you have to invest in customer acquisition as well.
A higher rate can eat up your treasury, eventually negating the potential profitability of new acquisitions.
- Identify Hidden Customer Behavior and Patterns
Customer churn is inevitable. You can do a few things to stop it from happening, even then, not everyone will come back.
Given its inevitability, you can at least ask the leaving customers the reasons for leaving.
By extracting insights from the churning customers, identify the unique reasons.
Use this data to predict future churn and address the common issues that will prevent customers at risk of churning from leaving.
- Identify At-Risk Customers
Taking the discussion further from the previous point, once you under the churn patterns, it’s easier to identify customers who can exhibit similar behavior.
Reach out to them through personalized communication or run targeted promotions to address their concerns.
By doing so, you can realign your efforts to target specific high-value, at-risk customers, maximizing the impact of retention strategies.
Taking these into account, and this is the part I love to talk about, you can take a proactive approach to churn management.
“You can turn a problem (churn) into an opportunity (managing churn) and optimize your marketing efforts to build a profitable business.”
How to Calculate Churn Rate?
Calculating churn rate is fairly simple and I have talked about it in the introduction part. But here’s a detailed version of it. Before going there, you will need two figures;
- Time period: Choose a specific period to assess churn. You can calculate it on a monthly, quarterly, or annual basis.
- Customers: Find out the number of customers at the start of the chosen period and the number of customers that have left during that period.
Let’s say there’s an eCommerce company that wants to calculate the churn rate for a year.
This company had 1,00,000 customers at the start of the period and at the end of it, they are left with 90,000 customers.
So, in the span of a year, they have lost 10,000 customers.
Apply this formula;
Number of Lost Customers / Total Customers at the Start of Time Period) × 100
10,000/1,00,000 * 100 = 10%
While we are on the topic of calculating churn rate, let me share two related concepts;
- Gross Revenue Churn: GRR is the percentage of lost MRR due to cancellations and downgrades in a given period. Plus, we don’t account for the new revenue generated during the same period.
GRR = (Churned MRR + Downgrade MRR) / MRR at the beginning of the period x 100
- Net Revenue Churn: In addition to considering everything we do in GRR, NRR also considers revenue gained during upsells, cross-sells, and price increases from existing customers.
NRR = (Churned MRR + Downgrade MRR - Expansion MRR) / MRR at the beginning of the period x 100
Ideally, you will want a negative NRR, which means that your company is generating more revenue from its existing customer base than losing it from lost subscribers, downgrades, etc.
Predicting Customer Churn Before It Becomes Chaotic
Customer churn does not happen overnight. The moment until churn is built up with a series of frustrations and issues customers are facing.
Ideally, you should see it coming, but only if you look in the right direction.
NPS surveys that determine the promoter or detractor score, Engagement Metrics, and AI-driven sentiment analysis are two methods we use at Qwary to predict churn.
Net Promoter Score
One of the easiest ways to predict churn, NPS is widely used to gauge customer sentiment.
The customers are asked a simple question.
On a scale of 1 to 10, how likely are you to recommend our product to your friend, family, or colleague?
The answers to this question will make this clear to the customers who are most likely to churn.
Customers giving an answer between 0 to 6 are detractors and are most likely to churn.
The ones giving a score of 7-8 are passives or neutrals, and the ones with a 9 or 10 score are promoters.
Engagement Metrics
The NPS score will give you a number on how many customers can churn.
So, it's a good tool to predict churn, but to stop them from churning, you need to reason, and this is where engagement metrics are used.
to extract valuable insights. Plus, you must keep note of the support tickets from every account.
Higher support tickets from any account mean that customers are experiencing more issues and frustration.
SaaS brands use this trick more often than others. Plus, they also track the number of logins to identify customers who are less engaged with the platform.
Customer Sentiment Analysis
What you might miss with the NPS score and engagement metrics can be seen with sentiment analysis. NLP and AI-based sentiment analysis dig deep into the surveys, customer behavior, comments, and their reviews to identify subtle emotions and context.
It can identify churn triggers before churn, which means you will have time to take action and improve churn.
Why do Customers Churn?
Customers can churn for any reason. But speaking from the experience I have gained in all the years working and building Qwary, a few reasons stand out from others.
In all these years, I have seen customers leave a company for some strange reasons, like not liking how the page scrolls to having issues with the button click animation.
Ignoring these petty reasons, there are others that can increase a company’s churn rate, employment churn rate, and increase customer attrition.
- Customers Get No Value from the Product Anymore
Whatever attracted the customer initially towards your product or brand is now absent.
Customers can be attracted to anything from a single feature to a design for using a product. But once they get bored of the feature or no longer have use of it, they can change the product.
This can also happen when customer’s priorities change.
Usually, the priorities change due to their requirements, which, in turn, change due to circumstances.
A lot of SaaS products had to change or modify their offerings after COVID-19 as the work dynamics went on a rollercoaster ride.
- Frustrating Product and User Experience
Recurrent usability issues, performance lags, lack of features, bugs, and other similar reasons will breed frustration.
It does not take more than 2-3 experiences, that too, if your customer has enough patience, for a user to switch.
Identifying these issues before they become a problem for the customers is enough to drive them away for good.
- Product Price Does not Justify its Value
Another reason I have seen many customers stop using a product is the declining Return on Investment (ROI).
Every customer wants the best value for their money, and the moment they find that value declining, churn happens.
That’s why it’s said that adding new features and functionalities is essential if you want to keep your product alive.
- Customer Has Found An Alternative Solution
Not just that the churning customer has found an alternate, but they have found a better solution than yours.
The reason for the switch can be anything from finding a free alternative or finding a solution that has better features, functionality, design, or anything else. Plus it comes at a lower price than yours.
How to Address and Reduce Customer Churn?
Churn is inevitable. Every company, no matter how big or small it is or what sort of products or services it sells, has to face churn.
Not only the manufacturers and developers but those who are selling products in shops, online marketplaces, etc., face churn. In this SaaS, telecommunication, retail, restaurants, and technology companies face higher churn than others.
Here are a few methods you can use to reduce churn;
- Understand The Reason Behind Customer Churn Rate
Speaking from experience, knowing the reason behind churn is the best way to address and reduce it.
Businesses with a high churn rate often try everything they find in the book but don’t implement ways to understand the precise reasons behind churn.
To understand the reasons, you need to talk to your customers.
For that, you can conduct interviews, send emails, messages, etc. But one of the best ways is conducting surveys.
Surveys shine a light on the reasons behind customers leaving.
You can use Qwary to create, share, and analyze survey results in the manual model or use our AI-enabled version for the same.
- Address Churn as it Happens
Calculate customer churn periodically, preferably every month. At Qwary, we consider every customer as an individual and not just a number.
I have noted that calculating churn at regular intervals helps us identify at-risk customers who may soon turn into detractors and take other customers away with them.
Align your strategies with the churn rate. As the churn rate is increasing, focus more on reducing it, and if you see a declining trend, it’s time to focus on product development.
- Invest in Loyal Customers
Every sort of business has some big-ticket clients who are more valuable and important than others.
These are your loyal customers and deserve some extra effort from your end.
They are not just well-paying customers, but they are also loyal advocates and will help in bringing more customers with word of mouth.
As you identify these customers, make sure they have everything they need.
- Ask Customers for Feedback
Customer feedback is like a treasure trove for you. It’s an important part of addressing and reducing churn and is one of the best ways to solve potential issues.
Feedback will shine some light on why your customers are behaving in a particular way.
Even if the customers are hell-bent on leaving, make sure to ask them the reason. Use that information to improve your offerings and prevent other customers from leaving for the same reasons.
- Communicate With Customers
Failure to communicate with your customers on time and when required can have detrimental consequences.
Some of the biggest organizations in the world like Starbucks, Yahoo, Nike, and Wells Fargo, have faced the heat for not communicating.
Don’t repeat the mistakes these companies made. Regular communication enhances trust and fosters a camaraderie feeling between the company and its customers.
The more you engage with your customers the more comfortable they will be sharing their opinions and concerns, which you can use for tracking churn and reducing it.
How Can Qwary Help Calculate and Address High Churn?
Qwary offers a suite of business-centric tools and solutions you can use to not only identify churn but also reduce it with different methods.
Here’s how you can use Qwary to your advantage.
- Create Surveys To Get Customer’s Pulse
Either manually create surveys or use AI to build targeted surveys. With Qwary, you can build surveys to analyze customer experience, product experience, and NPS score.
Surveys bring strategic insights that you can use to analyze your churn causes and reduce customer churn.
The simplified survey creation and execution workflow eases the entire process, and compatible integrations help consolidate feedback to gain a comprehensive view.
- Integrate Different Solutions For Business Understanding
Taking the data consolidation benefit further, with Qwary, you can integrate data from different sources and solutions, including CRMs, marketing automation, customer support systems, etc., to gain a comprehensive view of the customer journey.
Consolidating data from surveys, session recordings, heatmaps, and all the eligible integrations, you can identify how many customers stop using your product before they actually bounce off.
Use this information to improve their experience and turn customer churn into customer growth.
- Advanced Insights To Venture Into Customer Interaction
Qwary has in-built predictive analytics tools to help you identify customer behavior patterns and conduct sentiment analysis.
These will also help predict future churn and proactively intervene to implement churn measures.
Leveraging customer insights, you can segment them into different categories, like At-Risk of Churn, Promoters, Neutrals, Can Churn in the Future, etc.
From here you can tailor retention strategies for different customer segments accordingly.
- Deep Dive Into Customer Journeys
Customer journey mapping with Qwary means you can clearly see their touchpoint and pinpoint areas of frustration.
You can also check out where the customers might be lost and work on improving the specific areas of confusion.
As you identify these areas with Qwary, it’ll be easier to build bespoke strategies and reduce churn.
- Effective Customer Support System
As it becomes easier to identify common customer issues you can prioritize the areas of improvement.
Furthermore, taking into account Customer Effort Score (CES) analysis through Qwary, you can measure the amount of effort customers exert to resolve issues.
Doing so will pinpoint areas of contention in customer support, after which you can streamline the process and reduce the number of support tickets.
Conclusion
Churn rate is an important business metric that they shouldn’t miss calculating. Even though you cannot eliminate churn, you can lower the churn rate in your business.
But to achieve that you must first understand it and build strategies that will reduce the rate, focusing on retaining customers.
Using Qwary, you will find all the tools to identify churn and build bespoke strategies for every customer segment.
Using our suite of tools, you can not only identify the areas of churn but also measure strategies to improve customer experience.
Learn more about Qwary and its possibilities; book your free demo today.
FAQs
- Which roles and teams will always need an updated churn rate?
Teams and professionals focusing on customer support and success like sales, marketing, customer success, product management, and customer service will need updated information on the churn rate and the reasons behind it as well.
- How are churn rate and growth rate different?
The growth rate and churn rate are different but equally crucial. The churn rate indicates how many customers have abandoned the organization or product in a given time and and its impact on revenue. Growth rate, on the other hand, represents the percentage of new customers joining a business over a specific time.
- What is the difference between revenue churn and customer churn?
Customer churn is the percentage of customers who stop using a product for any reason over a specific period. Revenue churn is a sub-set of churn, but it helps identify the percentage of revenue lost due to customer churn during a specific period.
- Is churn a good thing or a bad thing for a business?
Churn has a negative impact on the business, but only if it is over and above healthy churn. Since some churn is inevitable, a healthy churn is the acceptable rate at which customers choose to leave an organization. However, a churn rate higher than the average rate isn’t ideal and needs to be addressed.
- What churn rate is suitable for startups?
The churn rate for startups can vary according to factors like the startup age, the product they are offering, long-term goals, etc. For early-stage startups, a 10% churn rate is considered acceptable, but the same for SaaS companies is 3% to 5%.
