After investing time, energy, and dollars to acquire a customer, why would you let them churn?
Churn in business is deadly. Research has found that customer churn can lead to a loss of 15–50% of your annual revenue. Meanwhile, reducing churn rate by just 5% can increase revenue by 25–95%.
That’s impressive! Especially now, as the economy flirts with recession.
Customers are cutting costs wherever they can — resulting in higher churn rates and serious revenue leak for many SaaS businesses. To protect your business, you need to reduce churn and retain your valuable customers.
Let’s explore the impact of churn, how to see it coming, and what to do about it.
What Is a Good Churn Rate?
A “good” churn rate depends on the industry, business model, and stage of growth. In reality, there’s no specific number you should aim for.
That said, here are some benchmarks that will help you know where you stand.
Established companies have a median churn rate of 14%. For some companies, it’s as high as 35%, but the goal is to achieve a 5–7% annual churn rate, with less than 1% in monthly churn.
Startups usually have higher churn, since they’re still developing product-market fit. Early-stage companies should aim for a 10–15% churn rate.
B2B churn rates tend to be lower than B2C. According to Recurly research, a more complex purchase process means buyers are more careful about buying decisions. The benchmark churn rate for B2B is 4.91%, compared to B2C’s 6.77%.
Regardless of how your business compares, the goal is to reduce churn as much as possible by continuously optimizing for retention. To do that, you’ll need to monitor your churn rate closely, evaluate the reasons customers leave, and implement strategies to minimize churn and retain customers.
Churn Rate Formula
To calculate churn, you need two metrics:
- The number of customers at the beginning of the time period you’re looking at (month, quarter, or year)
- The number of customers lost during that same time period
Calculating your churn rate is simple: Divide the number of lost customers by your total customers at the beginning of the time period. Then multiply by 100.
Here’s the churn rate formula:
(Number of Lost Customers / Total Customers at the Start of Time Period) × 100
But you don’t have to do the math if you plug your numbers into our churn rate calculator.
Why Customers Churn
According to one study, about half of all churn can be traced to three issues:
- Poor onboarding – 23%
- Poor customer fit – 16%
- Poor customer service – 14%
Other reasons might include pricing, missing features, inability to produce the desired outcomes, or a perceived lack of value.
But most of these issues can be resolved by simply being proactive about onboarding your customers and helping them know how to get the most from your product.
4 Ways to Reduce Churn in Business
The lower your churn rate, the higher your revenue. It’s as simple as that. Your goal is to retain your existing customers as long as possible while adding new customers. Here are four ways to do that.
1. Create a better customer experience
When someone buys your product, their adrenaline is pumping. They’re excited about what’s possible when they use your product.
Then they log in and look around. They’re confused. Where do they start? How do they use your features to achieve their goals?
And the disillusionment sets in.
Your priority as a business isn’t to sell more products, it’s to create more superusers. Because superusers feel like rockstars when they use your product. Not only do they impress the people around them, they impress themselves.
Those feelings of success make your product sticky. You become their go-to, and they can’t imagine their life without your product.
To create those feelings, you need to proactively engage them. Remove the friction of learning a new product. Maybe even help them make the transition if they’ve been using another product.
2. Provide well-structured onboarding
Your customers don’t know what they don’t know. They need you to tell them how to get started using your product and how to get the results they’re looking for.
Your goal is to help them see value right away, so they feel good about their purchase. Which means those first few sessions behind the gate need to put a smile on their face.
For this to happen, onboarding needs to be structured in a way that facilitates learning.
Most onboarding is too rushed. It’s a braindump of how-tos and tips — before users are ready for them. They’re still figuring out how to log in, and they’re getting advanced tips in their inbox.
All that does is teach them to ignore your emails. Don’t do that!
Onboarding is like a beginner course in how to use your product. Put yourself in your user’s shoes. Give them the information they need when they need it.
3. Reactivate inactive users
People rarely wake up one day and decide to cancel their subscription to your product. It’s a slow decline that’s easy to spot if you know what to look for.
Trouble is, those red flags are different for every product and type of user. So you need to start watching your metrics and identifying your churn triggers.
Generally, you’ll see behaviors that signal someone is dissatisfied or hasn’t found the value of the product yet.
- They haven’t logged in for x number of days.
- Their user sessions are too short.
- They’re visiting your pricing page or refund page.
- They’re complaining about bugs or other issues.
Left to their own devices, these users will give it a few months, realize they aren’t getting value from their subscription, and decide to leave. But if you see these behaviors and proactively nurture your users, you may be able to turn them around.
4. Offer ongoing education
A client once told me that his users either loved his app or hated it — one extreme or the other. But, he said, the people who hate the app are the ones who don’t know how to use it.
That’s probably true for every application. When users feel adept, when they know exactly what to do and how to do it, they love the product. It’s when they struggle that they learn to hate your product.
Again, the problem isn’t your app. It’s that your users don’t understand how to get the value you’ve promised.
They want to master your product, but they’re relying on you to help them do that.
Think beyond onboarding or a knowledge base. How can you continually optimize their learning, so they look like rockstars?
How to Identify Churn Risk
If you wait until customers are about to churn, you’ve waited too long. You can usually identify churn risks as much as six months before a user pulls the trigger on unsubscribing.
That means you’ve got time to rebuild the relationship and reactivate them.
The key is to track user behavior and learn the advanced signals your customers are giving you. When are they typically churning? What behaviors precede the churn?
The easiest signal to identify is inactivity:
- Decreased engagement with your platform
- Disuse of specific features
- Failure to interact with your brand after signup
But there are other signals as well:
- Incomplete onboarding
- First session is too short
- Visiting cancellation or pricing pages
Your goal is to find the red flags that indicate a user will churn, and then begin a nurture campaign. Reach out to them personally. Reduce whatever friction they’re experiencing. Let them know you’re there for them.
How do you measure and track customer churn? Some common metrics include:
- Login rate
- Session times
- Adoption of key features
- Completion of onboarding tasks
- Customer Churn Rate (CCR)
- Net Promoter Score (NPS)
- Customer Lifetime Value (CLV)
By measuring and tracking these metrics over time, you can identify trends and potential issues with customer retention.
The Goal: Customer Retention
Retaining customers is your #1 strategy for strengthening your business. And it’s far more effective than cutting costs. You’ve invested heavily to get customers. Why wouldn’t you do what you can to keep them?
Satisfied, loyal customers give you a competitive advantage that keeps you profitable in any economy.
Every customer is valuable. And since they already know, like, and trust you, they’re more likely to try new products and purchase additional products or add-ons than cold contacts.
Let’s get your customer churn under control. Your bottom line will thank you.
Need help lowering churn and turning users into superusers? Let’s chat about how Jcurve can help.