Understanding Customer Churn & Improving Retention | Heap

If you start with 1000 customers who pay $50 a month, and have a growth rate of 8%, lowering churn by even a single percentage will gain you hundreds more users ... skiptocontentInthisarticleWhatIsCustomerChurn?WhatIsMyChurnRateAndWhyIsItCritical?HowDoICalculateCustomerChurn?HowShouldICalculateMyCompany’sChurnRate?WhatAreSomeStrategicApproachesToReducingChurn?WhatAreSomeBestPracticesForReducingChurn?HowCanMyTeamsEmployAnalyticsToReduceCustomerChurn?SeeHowTeamsUseHeapToIncreaseCustomerRetentionandReduceChurnRequestDemoWhatIsCustomerChurn?WhatisCustomerChurn?Churnisatermthatindicatesnumberofcustomersacompanylosesoveraspecifictimeperiod."Churnrate"designatesthepercentageofacompany’stotalcustomerswhochurn,andoftenreferstoservicesubscriberscancellingtheirmemberships.Churnisacriticalmetricofcompanyperformance.Inlove,wegetdumped. Inbusiness,wegetchurned.Theconceptisthesame.Verysimply,churniswhathappenswhenacustomerdecidestoterminatetheirrelationshipwithyourcompany,usuallybydiscontinuingtheirsubscriptionorcancelingamembership.Andjustlikeinpersonalrelationships,it’softenobviouswhereitended,butmuchhardertopinpointwherethingsstartedgoingsideways.WhatIsMyChurnRateAndWhyIsItCritical?Churnrateisthepercentageofcustomerlosseswithinaspecifictimeperiod.It’stypicallymeasuredyearly,quarterly,or—asmanySaaSandsubscriptionservicesprefer—monthly.Churnrateisusefulformanythings:understandingcompanyperformance,makingfutureprojections,calculatingcustomerlifetimevalue(LTV),analyzingtheeffectofchangeson retention,andseeingwhoyourmostsuccessfulprospectsreallyare.ProTip:Aimtominimizechurn,noteliminateit. Perfectretentionisimpossible.Yourcustomerswillchurn,soit’scriticaltotrackandanalyzethisturnover.(Learnstrategiestoincreasecustomerretentionhere.)ImpactofChurnonARR.Ifyoustartwith1000customerswhopay$50amonth,andhaveagrowthrateof8%,loweringchurnbyevenasinglepercentagewillgainyouhundredsmoreusers,andwilldramaticallyraiseyourARR.Obviously,lostcustomersarelostrevenue—butcustomervalueisnotlinear! Existingcustomersarecheaptokeep.You’veearnedtheirtrustandloyalty.Plus,returncustomersspendasmuchas 67%more onproductsandservices.Acquiringnewprospectsmeansstartingfromscratch,usingmaximumsalesandmarketingresourcestoswaythemfromcompetitorsandsqueezethemthroughyourfunnel.Acquisitionisalwaysexciting,buttherealmoneyisinteachingolddogsnewtricks(oratleastkeepingthemhappy).HowDoICalculateCustomerChurn?Churniseasytounderstand,butdeceptivelydifficulttotocalculate.Inany30-dayperiod,youmayhavethreetypesofcustomers:renewals,newsign-ons,andthosewholeave.Newcustomerstendtochurnmorethanolderones.Yourcompany’sgrowthratecanskewresults.Andyoumustbeprecisewhendefiningchurn.Themomentofchurncanbewhenasubscriptionends,orwhenuserscancelandaretechnicallystillcustomers.Doyouincludeinvoluntaryevents(likefailedauto-renewals),wherethecustomerdidnotactivelyterminatetheaccount?Whatisa“good”churnrate?Thehonestanswer:itdependsonyourindustry.Someindustriesexpectmonthlychurnof20+%.Othersshootfor<5%annually.InSaaS,theidealistypicallybetween2%–8%ofMRR,butthisvarieswithsizeandageofcompany,numberofcustomers,andtheamount(andquality)ofcompetition.Generally,lowerisbetter,andabsoluteratesmatterlessthanchangesovertime.Ifyourchurnrateisgoingdown,encouragethattrend.Whatisanegativechurnrate?Negativechurn,aka“theHolyGrailofSaaS,”iswhenrevenuefromexpansionsurpassesrevenuelostfromchurn,meaningtheincomefromupsellingexistingcustomersexceedsmoneylostfromdepartingcustomers.Considerupgrades,add-ons,expandedservicesandotheroptions.Whatis“positivechurn”?Someindustries—dating,weightloss,petadoption,jobrecruiting—usean“outcomeachieved”model,inwhichcustomersareexpectedtoaccomplishasinglegoalandthenleave.Whenexpected,it’spositivechurn,whichisnotnecessarilyanalarmbell.HowShouldICalculateMyCompany’sChurnRate?Threekeymetrics:CustomerChurnRateThisisthenumberofcustomerswhoareleaving,expressedasapercentage. RevenueChurnRateThisisthefinancialimpactofcustomerturnoverinagiventimeperiod. GrowthRateThisisthenumberofnewcustomersacquiredwithinthesametimeperiod.Ifgrowthrateishigherthanchurnrate,congratulations—you’remakingmoney!Whenchurnrateisthehighernumber,yourcustomerbaseisslippingaway.Timetodosomething.WhatAreTheMostImportantKPIsAndMetricsToMonitorForChurn?Herearesomedistinctions:GrossDollar/GrossValueChurn measureslossofyourhighest-revenuecustomers—includingthosewhostayon,butdowngrade.Youdefinitelywanttoknowwhenusersthinkyourpremiumofferingsaren’tworththecost!ExpansionRevenue measuresnewincomefromcurrentcustomers.Customerswhokeepbuyingtendtobehappy,andupsellingthemhelpsincreaseprofitswhilemitigatingacquisitionneeds.RenewalRate isaloyaltymetric.Dividethenumberofcustomerswhorenewbythenumberofcustomersupforrenewalinagiventimeperiod.Thenmultiplyby100togetapercentage.(It’saboutrevenue,notnumberofsubscribers.)CustomerRetentionCost isyourspendpercustomertokeepthem.Inagiventimeperiod:addupexpensesfromyoursuccessprogram,dividebythetotalnumberofcustomers.Comparingretentioncostsagainstmarketingeffortsindicateshowefficientlyyou’reachievingsuccess.Finally, supporttickets areexcellentindicatorsofaccounthealth.Yoursuccessteamshouldanalyzerecurringfrictionandbottlenecksandeducateuserssotheydon’tneedtocontactsupport.Whatarethecriticalproductmetricsyoushouldbetracking?Readourguidehere!WhatAreSomeStrategicApproachesToReducingChurn?Themainstrategyisbeingproactive.(Youcouldwriteabookonthistopicalone—andwedid.)Bythetimecustomerssendtheircomplaintsontoyou,they’vebeendealingwithproblemsformonths.Ultimately,reducingcustomerattritionisaboutmaintainingproduct-marketfitbyevolvingtomeetthechangingneedsofyourcustomers.Keeplistening,keeplearning,andkeepdiggingintotheirpainpoints.Thethreestagesofchurn.Stage1isthechurnthathappensrightafterpeopletrytheproduct.Stage2islonger-termchurnovertime.Stage3isthedropoffofusagewhenothertoolsenterthepicture,orwhenyourtoolisnolongeruseful.Eachofthesestagesdemandsadifferentstrategy.WhatAreSomeBestPracticesForReducingChurn?1.Knowwhatusersaredoing…andnotdoing.Analyticshelpsshowwhichbehaviors(orabsenceofthem)bestpredictchurn.Developyourstandardsfor accounthealth withactualusagedata—whichaccountsusewhichfeatures,withwhatfrequency?Ifyouknowwhichbehaviorssuggestlong-termusage,youcanseeeveryonenottakingtherightactionsinyourproduct,andreachouttothem.Example: Facebookfamouslyrevealedthatuserswhoadded“7friendsin10days”predictedretentionmoreaccuratelythananyothermetric,sotheylaseredongettingpeopletopassthisthreshold.Findyourequivalentmeasuretoreducechurnearlierratherthanlater.2.Put‘emincohortsAthoroughanalyticstoollikeHeapwillletyouperformcohortanalysistoanalyzecustomervalue.(Cohort:ausergroupsharingdemographicsorbehaviors.) Byputtingusersintocohorts,youcanseewhatpowerusersdo,orwhatuserswhostickaroundtendtodo,thenadaptyourproductorsitetonudgealluserstoperformthesameactivities,orfollowthesameuserflows.Cohortanalysiscanalsotellyouwhichgroupsneedattention,andwhichtypesofuserstendtobeloyal.Whenyouattractthebestusersinthefirstplace,you’llhavefewerproblemswithchurnlater.Usecohortanalysistoimproveyourproduct.Readourguidehere!3.KeepeveryoneonthesamedataWhenproduct,marketing,sales,andcustomersuccessteamsseethesamecustomerdata,everybodyknowswhomtotarget,whomtobuildfor,andwhomtoreachoutto.Youcanpushbehavioraldataintothetoolseachoftheseteamsalreadyuses,likeSalesforceandGainsight.4.Makeit“sticky”“Stickiness”isthedegreetowhichtheproductisembeddedinusers’regularworkstreams.Getuserstoadoptmorefeaturesinyourproduct—themorefeaturestheylearntorelyon,themorelikelytheyaretostickaround.5.Letthemknow!Createeducationalmaterials,likearticles,webinars,releasenotesandtrainingcourses,socustomersarenotlefttofigurethingsoutontheirown.Offerincentivesanddiscountstopeoplewhoareonthefence.Demonstratethatyou’rebetterthanthecompetition.6.Thinkahead.Provideongoingvalue—stayrelevanttocompaniesastheygrow,andnewtechnologiesastheyshowup.Themoreyoucanevolvetomeetyourcustomers’needsassoonasthoseneedsappear,thelesslikelythey’llchurn.7.Ifyoudolosethem,learnwheretheychurn.Manyunhappycustomerswon’tcomplain.Interviewsandexitsurveysareuseful,butpeoplearen’talwaysskilledatexplainingtheirproblems.Therearemanywaystobeatyourcompetition:aproductthat’sbetteroreasiertouse,betterservice,beingmoreforward-looking,etc.Correlatewhatuserssaywiththeirbehavior,whichshowswheretheygetstuck,andwhichtaskstakelongerthantheyshould.Thisiswhereagreatanalyticstoolshines.Interestedinmakingyourproductstandout?ReadourcompleteguidetoProductDifferentiation.HowCanMyTeamsEmployAnalyticsToReduceCustomerChurn?Analyticshelpsyouoptimizeactivationandengagement.Userswhofindvalueintheircustomerexperiencestickaroundlonger.ReadourguidetolearnmoreaboutProductAnalytics.Starttrackinguserbehavior. Behavioraldataincludesleadingindicatorsofhowcustomersfindvalueinyourproduct—orfailto.Themorerobustyourusagedata,themorereliableyourcustomerhealthmeasurescanbe,withmoreopportunitiestodiscovercorrelationsthatpredictchurnandretention.Heap’sauto-capturefeaturecollectsallthedata,allthetime,soyoucanmakenewinquirieswheneveryouwish.Whycan’tIjustuseGoogleAnalyticstoreducechurn?It’sfree.Aswe’vediscussedbefore,werespectGoogleAnalytics—it’sgreatforseeinghowpeoplecometoyoursite,butnotwhatthey’redoingthere.There’snocosttouseGA,butitslimitationsarenumerous:NoPIIdataallowedOnlypredefinedeventsandpageviewscanbetrackedDifficulttoinstrumentforaSaaSappCan’tmeasureactualuserbehaviorHaslimitedintegrationsavailableNorealcustomersupportfromGoogleWithanalytics,yougetwhatyoupayfor.WanttocomparesomeofthetopalternativestoGoogleAnalytics?Readmorehere.HowCanHeapHelpMeWithRetentionandCustomerChurn?Heapgivescompaniesaneasywaytocaptureafullsetofcustomerdatathatprovidescompleteandpredictiveinsight,andenablesteamstofullyunderstandhowcustomersinteractwithproducts.Thisgivesyourorganizationthepowertobeproactiveratherthanreactivewhenprioritizingeffortsandleveraginginsights,soyoucanquicklyturnthemintoactionandgivecustomerswhattheywantmost.WanttolearnmoreaboutCustomerRetention?Readourcompleteguide.SeeHowTeamsUseHeapToIncreaseCustomerRetentionandReduceChurnFightCampusesHeaptounderstandandoptimizeitscustomerjourneyHowPocketSuiteUsesMobileProductAnalyticsToIncreaseActivation&RetentionEsuranceSaves$225KaMonthwithHeapConductorDefinesAccountHealthandUserValueSoarsAtHeap,webelievechurningisfordairyproducts,andcustomersuccessisforeveryonewhostrivesforit.Everythingwedoisdesignedtohelpyouunderstandyourbusinessandyourcustomersbetter.Findouthowwecanhelpyouaccelerateyourbusinessgoals.PreviousNextInterestedinademoofHeap’sProductAnalyticsplatform?We’dlovetochatwithyou! 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