How to Reduce Your Customer Churn Rate
Churn is one of the most important commercial metrics for any SaaS business. Positive net churn combined with a scalable growth channel enables your company to grow exponentially.
That’s why VCs spend so much time talking👏about👏churn👏.
What is customer churn?
Customer churn is the percentage of customers that stopped using a company’s product or service during a specific period of time. A popular way to use churn is through selecting a time frame and calculating the percentage of service subscribers that cancel their memberships or the frequency of employees quitting their roles.
A company’s growth rate (determined by the number of new customers) must be higher than its attrition rate in order to grow its customer base. The ideal churn rate is 0%…indicating that a company is not losing any subscribers. Though this isn’t the reality of things, it’s still important to monitor churn and to do your best to retain customers.
What causes customer churn?
There are many reasons customers can churn. Here are ten to consider:
1. Price
2. Competition
3. Product
4. The state of a business
5. Lack of value
6. Access to leadership
7. Poor experience
8. Need
9. No ownership
10. Customer fit
How to calculate churn?
You can easily calculate churn rate by taking the whole number of customers you had at the beginning of a time period and divigiding it by the total number of customers lost throughout that time period.
For instance, if you had 400 customers at the beginning of the quarter and 380 at the end, your churn rate would be 5% because you lost 5% of your clientele.
Next, I wanted to present a simple model and process we used to reduce our monthly churn rate from 4% to 1% over 6 months. That’s a whopping 75% improvement in churn.
Our top 7 tips to reduce your customer churn rate
1. Analyze why churn occurs
When you begin to took more in depth into why your customers are leaving, you may notice patterns. This may seem obvious, but without understanding why customers churn, there is no way to tell what the problem is.
2. Engage with your customers
Show customers the value of your product and the problem you are solving for them when they choose you. Share customer features and positive reviews for others to see and create versatile content that keeps your customers entertained and engaged with your brand. There are tons of ways to increase customer engagement and you shouldn’t be afraid to try new things. If something doesn’t work, it provides valuable insights into what your audience expects.
3. Define your customers
Without knowing who your target audience is, it makes it more difficult to reach them. For more on how to create a buyer persona and reach your ideal customer, check out this blog!
4. Offer incentives
Offering discounts, BOGOs, special offers, or even VIP memberships are a great way to keep customers loyal and keep them coming back. Creating a sense of community helps your buyers feel like they belong and will want to continue supporting you to avoid missing out.
5. Focus on customer satisfaction
A major reason why customers choose to quit purchasing from a business is because they are unhappy or they feel like they are not cared for. Your CSAT score is extremely important for customer retention. Learn more about improving your customer satisfaction here!
6. Give better service
Hiring and training the right team of individuals to manage customer service is vital. Poor customer service can be detrimental to the health of a business. You’ve probably had a negative interaction with at least one business before, and even if it was an issue with an individual, it most likely left a bad taste in your mouth. On the other hand, you may have had experiences where you were blown away by outstanding service. Even if other areas may be lacking, the power of phenomenal customer service can be a huge reason why people continue to come back.
7. Consider outsourced support
If you or your team are overwhelmed with work and your attention keeps getting pulled in every direction, consider outsourcing support to professionals who will integrate into your operations and help you cut costs, retain customers, and increase revenue. We’d love to help out! Check out our solutions if you’re looking for an extra layer of support.
How did Influx lower their own customer churn rate?
A few years ago, we had a big problem. We were churning 4% of our business every month.
That’s an annual churn rate of almost 40%, so we were losing close to half of our business every year. Whoa!
Fast forward a couple years, and we’re now down to just 1% revenue churn, and most of that was involuntary, meaning these were companies that were either going out of business or going through a change in ownership.
So, we identified our areas of voluntary churn, and implemented strategies to hit these problems head on, cutting churn rate by 75%.
Step 1. Identify your customers
Our customers broke down into a simple grid like this:
Note that we identified TIME as an important trait for all of our clients. We talk a little bit more about our Type vs Time model for identifying customers here.
Fighting churn is like any business process. It can feel impossible if you’re trying to do everything all at once.
With a new business like ours, we were fighting fires in all direction for all customer types. It was almost impossible to identify underlying trends while fighting so many battles at the same time.
We needed a simplified model to figure out where to focus, when and why.
Step 2. Identify trends by customer type
Once we grouped all of our clients into these 9 groups, everything seemed much more manageable.
First, we identified which customer groups needed the most help first.
Second, we figured out repeatable and scalable methods to help them.
For example, we identified onboarding certain types of SaaS clients as a failure. They needed added specialization via a custom support team.
Once we fixed this process, we cleared up our churn rate from this segment to 0%! Win!
We went down the list, one by one, until we figured out solutions for all nine.
Step 3. Don’t ignore any segments
Focusing by segment doesn’t mean you ignore your less-important segments. It just means that you move quickly from your most important segment to the next one.
In six months, we were able to go through our entire customer base, and fix 80% of the problems.
Sometimes, you need to identify that you can’t work with a certain type of customer. We didn’t need to do that in this case, but that’s something we did a year ago, when we first rolled out live chat services.
Step 4. Set up your systems to repeat and scale
This is where software and team building helps. And once again, by breaking down your customer types, you can clearly articulate responsibilities, spheres of work and goals for everyone on the team.
We now have a six-person customer success team that works across all of our segments globally.
It’s a big - and growing! - team, but we know what we need to do now, and we know how to hold ourselves accountable.
And the best part is that churn is manageable so we’re growing, and our customers are happy.
Happy days!
Follow me or Influx on Twitter or subscribe to our content newsletter for more content like this! Our SaaS support service also helps companies reduce churn rate with fast and effective resolutions, 24/7.
