You’ve acquired a ton of customers lately for your company. On the surface, this is awesome. More customers, more money. So you throw your energy into your customer funnel.
However, soon after sign-up, they seem to fly right out the back door. Why is this happening? Why do customers leave—or use the service less—often without saying anything?
Customer churn is a lagging indicator, meaning the loss has already happened, and it’s just a measurement of the damage inflicted.
To reduce churn, you need to get ahead of the loss by identifying its leading indicators, or red flags. This post will help you exactly with that.
Table of contents
- What is customer churn?
- Lagging vs. leading indicators
- How to detect and measure customer churn with leading indicators
- 10 ways to reduce customer churn
- 1. Define the why.
- 2. Streamline your onboarding processes.
- 3. Offer tutorials and several types of assistance channels.
- 4. Divide and conquer.
- 5. Know the red flags.
- 6. Be proactive.
- 7. Offer incentives.
- 8. Keep your friends close, and your enemies closer.
- 9. Know what makes your customers happy, then deliver.
- 10. Show gratitude.
What is customer churn?
Customer churn, also known as customer attrition, is the loss of clients or customers using your service.
Churn may happen both voluntarily and involuntarily. We’ll focus on voluntary churn because you can actively prevent it; involuntary churn is mostly unavoidable (e.g., in SaaS Churn when a user has to stop subscription services due to death, relocation, etc.).
What is the churn rate?
Churn rate is the rate at which your customers stop using your service within a specific period of time. It can be measured as the percentage of customers you’ve lost compared, to the total customers during the given period.
Churn rate is measured as a percentage, and the formula for calculating it rate is: (amount of customers you have lost ÷ total customers during a time period) x 100.
You can read more on how to calculate your churn rate here.
Figuring out the correct customer relationship management (CRM) strategy will not only help your organization retain pre-existing customers but also prevent future loss of customers.
Lagging vs. leading indicators
Customer churn is a lagging indicator, meaning the loss has already happened, and it’s just a measurement of the damage inflicted.
To reduce churn, you need to get ahead of the loss by identifying their leading indicators, or “red flags.” These metrics identify when a customer is about to stop their usage—before they actually do.
When customers see a loss of value, they stop using the service. The goal is to increase the perception of your service’s value in the eyes of your users, just as their use begins to lag.
Improving the UX goes a long way. As the old Benjamin Franklin adage goes, “an ounce of prevention is worth a pound of cure.”
How to detect and measure customer churn with leading indicators
Here are three leading indicators of churn, which identify when a customer is likely going to stop using your product:
1. Decreasing customer engagement and usage
This is where tracking specific KPIs comes into play. If users are using the site or service less and less (for example, if they logged in 10 times a month and now it’s down to three), this is a solid indicator of future churn.
Some important leading indicators include:
- Decreased amount of time spent on the site (known as abandonment);
- An increased number of lapsed payments;
- An increased number of customers who downgrade services;
- Decrease in support tickets submitted to customer service channels.
The less the user tries to fix problems with their site experience, the less likely the want to stick around. There’s no point trying to fix something that’s no longer useful.
Low numbers of support tickets correlated with customer churn in customer evaluations conducted by ResDigital (RD) because customers weren’t even willing to engage to try and fix the problem.
Seventy percent of RD’s churns never even contacted customer support. Silence speaks volumes.
2. Price point dissatisfaction and competition defection
This is where watching your competition comes in. If other companies in your market decrease their prices, it would be wise to similarly price your products to prevent churn.
Customers often shop around, and they’ll likely know their options. Cost is a motivating factor for most software subscribers.
Keeping up with the Joneses is essential in a competitive market, be it with cost, enhanced services, or other factors. No matter how much a customer loves the service or product you provide, if it costs them too much financially, many will choose a cheaper option.
3. Account changes
As when anything in life changes, there are always those who aren’t going to like the new order of things. It’s easy to anticipate, if not easy to control.
Companies that use your service often have employee turnover, and if decision makers within subscriber companies reshuffle, the SaaS system they use may get reshuffled, too.
Additionally, changes in subscribers’ business needs could also indicate churn (if your services no longer support their new interests or ventures). Fresh financing sources or a significant influx of new hires can lead to subscriber churn.
Your company is only as relevant as the service it provides. Sometimes you can control attrition, and sometimes you can’t.
The goal for your company is to control the perceived value of your product or service as much as you can. That way, your service retains enough customers not to be significantly affected by the ones who inevitably churn.
The more information and time you have to strategize a method for retaining customers, the more likely it is that you’ll build a dedicated, loyal customer base.
10 ways to reduce customer churn
Here are 10 ways you can avoid customer churn, and reduce the percentage of customers who stop using your service:
1. Define the why.
Talk to your users and figure out what they value the most. Ask your customers how to get better: what they like and don’t like, what’s going wrong, and how your service could fix the issue. Reach out to your customers over phone/email to survey them.
For example, the startup Groove had a 4.5% churn rate; the company’s customers were dropping like flies. To combat this, the company launched a full-frontal assault on customer churn by defining their users’ issues.
Using their self-identified red-flag metrics, they pinpointed their causes for customer defection. They developed a plan of action to address their issues—relying on triggered messaging and their “power users”—and increased retention rates by 71%.
2. Streamline your onboarding processes.
Signing up for a new service that doesn’t make its onboarding process quick and easy can be a nightmare. Many users won’t stay on after initial free trials because the value of the SaaS service in their everyday lives isn’t evident. (See our user onboarding guide.)
Importantly, be sure you’re constantly communicating your service’s value and how it can directly improve the subscriber’s life. Optimize for the speed of value delivered. How soon before they get value out of your tool?
The clearer your value is and the simpler the sign-up is, the easier it will be to convert the estimated 40–60% of users who sign up for the free trial, use the service one time, and never turn into brand advocates.
3. Offer tutorials and several types of assistance channels.
Sometimes confusion is a massive part of defection. Confusion leads to frustration, and if using your service or product is complex, many subscribers will abandon ship. Offer tutorials, live chat, and/or a number to call.
Humans prefer interacting with other humans, and blending channels of assistance is an effective way to serve all of your customers. Swift and stellar customer service often ensures loyalty and creates brand advocates.
Mention, a media-monitoring company, separated customers into who was paying for an account and who was participating in the free-trial version. Support tickets from paying members were prioritized first, and marketing was increased toward those who had the free trial.
Increasing communication and prioritizing high-value customers helped them reduce their churn by around 22%.
4. Divide and conquer.
Figuring out what your defecting customers have in common is crucial to stemming the flow of churn. Using a cohort analysis, separate your customers into groups by identifying their reasons for leaving. What are the individual issues each group is having?
Dividing these customers into groups helps zero in on issues. Categories such as “reason for leaving,” etc., help identify and individually attack each identified subscription service weakness and reclaim lost customers.
5. Know the red flags.
Identifying your north star metric (NSM), or the metric for your company that provides the most value to customers, is crucial to your service’s success. For AirBnB, their NSM is nights booked.
Once the most important metric is identified, other metrics can be used to move the NSM in a positive direction. Identifying where to exert your energy is half the battle.
The red flag in this case is when an account performs below average for your NSM.
Consider some questions to identify your relevant KPIs:
- Which of your customer KPIs are suffering?
- How significantly has customer usage decreased?
Solutions often lie in the answers to these questions.
6. Be proactive.
Proactivity is often the key to improving churn. Anticipate and answer customer questions before they even have to ask them. Increase your communications.
Let people know about new developments: Is there a new blog post? Have you improved some function of the site? Are you offering new services?
Send emails (in what is known as “triggered messaging”) to customers who haven’t finished setting up, or haven’t visited in awhile, and make them personal. Offer assistance.
For example, Zendesk schedules regular check-ins with clients to try and get ahead of problems before customers even think about leaving in the first place.
Experian noted that companies sending triggered messages to their subscribers at every stalled phase of the onboarding process were able to retain a significant percent of their email responders.
7. Offer incentives.
Offering rewards, discounts, freebies, badges, sweepstakes, etc., is an excellent way to engage users.
The potential for high reward often attracts users who might otherwise cancel their subscription. Target high-value customers who are likely to defect.
Companies that look at a comprehensive picture of the customers, however, tend to have better success with this strategy. It’s important to carefully select which customers affect your overall profits most, and what incentivizes them.
8. Keep your friends close, and your enemies closer.
Take a page out of Sun Tzu’s The Art of War. Know your competition.
Airlines have been doing this for years, engaging in price wars to attract cost-conscious travelers. Many wireless phone services have done so as well, and, overall, the effort at competitive pricing in that industry has increased their American Customer Service Satisfaction Index (ACSI) score to 73, up 2.8% from last year.
If your competition is doing better than you are, ask why. Malcolm X famously wrote in his autobiography:
Any time you find someone more successful than you are, especially when you’re engaged in the same business—you know they’re doing something that you aren’t.
Learn from them; iron sharpens iron. In fact, Oracle found that 89% of customers surveyed moved on to chosen brand’s competitor after a poor experience with the first brand. Help your customers, help yourself.
9. Know what makes your customers happy, then deliver.
HubSpot came up with a system to measure their customer satisfaction called the Customer Happiness Index (CHI). Developing a system to measure your customer’s happiness will help you identify pressure points and “the most significant dimensions of usage and adoption” where you should focus.
Net Promoter Score (NPS) is an important metric for many businesses. Identify the difference between high-scoring and low-scoring users, and capitalize on it.
10. Show gratitude.
Don’t focus only on attaining new customers—thank your current customers! Experts suggest that offering exclusive content and similar rewards (even if they’re not financial) are solid ways to remind subscribers of their importance.
Remember your current subscribers’ overall profitability. Don’t forget: Your success rests largely upon them.
Customer churn is an inevitable part of running a software subscription service, but the worst of it is avoidable. Several ways to retain customers are:
- Identify red flags.
- Focus on proactivity: efficient onboarding, teaching, and customer service.
- Know your competition.
- Know what makes your customers happy.
- Track relevant KPIs to help create brand advocates.
- Show gratitude.
Focusing on customer retention and engagement ultimately increases your company’s profits and creates devoted users who engage with your brand loyally. Reach deeper, not just wider, and your subscribers will thank you and spread the word about your company’s services.
For case studies involving how specific companies reduced attrition, see our article on SaaS churn case studies.
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