Customer churn is a crucial metric for every growing business.
It can be painful to observe but the cold hard truth is usually the best tool for growth.
The good news is that you can significantly improve business by identifying and reducing customer churn.
Customer churn is the percentage of customers that stopped using your product or service over a given time frame.
You can calculate your churn rate by dividing the number of customers you lost during that time frame -usually a month- by the total number of customers you had at the beginning of that period.
For example, if you start the month with 500 customers and end it with 450, your churn rate is 10% because you lost 50 customers.
That’s customer churn. But, according to the needs of your business, you can also calculate revenue churn, recurring revenue churn, ARPU (Average Revenue per Unit) churn…
What matters is that you know exactly where the leak is and how to quantify it so you can fix it.
Aside from its direct impact, customer churn can have undesirable side-effects.
The most obvious consequence of customer churn is loss of revenue.
But customer churn doesn't equal revenue churn. And if you have different pricing plans, you can afford to lose some of your less profitable customers. But, if you’re running a SaaS business with only 1 or 2 different pricing plans, there will be a more direct correlation between customer churn and revenue churn.
If you’re in the former case, you’re still not out of the woods. Losing your low-end customers to profit from a minority of high-paying clients might seem like a good trade but it leaves you exposed. If one of those big clients leave you, it might have a serious impact on your revenue. Having a multitude of smaller customers, however, safeguards your survival and even profitability.
It’s all about striking the right balance between bringing in -and keeping- big clients and making sure that your smaller customers guarantee you a healthy business model.
When you lose customers, there a chance it’s because they’re unhappy with your product. And if they’re unhappy with your product, they might post negative reviews. And that's going to tarnish your reputation.
While that trend is inverting, people share bad experiences with more people than they do good experiences.
On top of that, 82% of consumers proactively seek referrals from peers before making a purchase and 92% of consumers trust referrals from people they know. As for B2B, a 2017 report by DemandGen finds that 84% of B2B buyers said they seek input from peers/existing users, and 57% do so within the first three months of the buying process.
In other words, bad customer retention can directly impact customer acquisition.
Some of the advice in this article is specific to software companies but most of it can be applied by any type of business.
There’s 4 big causes to customer churn: attracting the wrong customers, having a bad product, lacking customer care, and payment-related issues.
One of the most devastating things you can do to your business is attract the wrong customers.
How do you do that? By –intentionally or not- messing up your positioning.
There will be a mismatch on added value if you’re not accurate about what your product can do for your customers.
There will always be a mismatch with some customers because they will need a specific feature that you don’t provide. Don’t sweat the small stuff.
Focus instead on the value you can provide and on how the market perceives it.
For example, we used to present Rooftop as a customer support solution. While it’s a clear use case, people typically have expectations about that kind of product. For example, they expect a knowledge base tool, which we don’t provide -at least so far. This led to a few misunderstandings.
Some of our customers do use Rooftop as a customer support platform, but the product itself remains a collaborative messaging platform.
It’s always better to be upfront about your added value. And if you get the opportunity, speak your prospects before getting started.
Zendesk is a great example of that. They make sure that their tool is the best possible fit for your needs.
Don’t sell yourself short. And don’t exaggerate your price.
If you’re targeting enterprise-level clients, it should be reflected in the price. If your price is too low, your target market won't perceive your product as an enterprise-level solution.
And to make things worse, small companies will want to buy a product they have no use for. That’s a churn disaster waiting to happen.
The same goes for the opposite case.
Profitwell established a list of the most common causes for customer churn. A whopping 4 of them are linked to the product and the value it’s bringing to customers.
Everyone wants to build a great product but we often get lost in the process.
Here are a few product-focused guidelines to make sure that your customers stay.
There will always be a product with more or better features than yours. Always. Just accept it.
The good thing, though, is that humans are emotional creatures. They make decisions based on how they feel, whether they want it or not.
Yes, your prospects will look at your features list but they’re not your only asset. Just like you buy a brand because you like the brand when you could find a more cost-effective item somewhere else.
The same applies to job interviews. In most instances, the interviewer is not only interested in your technical skills. They are also interested in how you fit the company's culture.
Buyers don’t buy lists of features, they buy brands who they believe can help them accomplish their goals.
So instead of developing a thousand features right away, build what brings your market the most value.
You can have the best features in the world, but if your customers don’t know how to use them properly, it’s all in vain.
Observe how your users work with your product. You might discover that your customers are churning because they can’t use your product to its full potential. Remember that what is obvious for you isn’t obvious for someone else.
Set up a clear learning path for your users to understand how things work. Provide the right tips at the right place and at the right time.
You can’t expect every use case, but the more you guide customers, the more you’re going to keep them.
It's tempting to look at what competitors are doing and doing the same.
There are 2 problems with that:
1. If you copy your competition, you’ll be playing catch-up instead on innovating and solving a problem. You will lose your identity and your copy will never be as good as the original. Specific features are built to work in a specific environment. As Alibaba founder Jack Ma says, you should learn from competitors but not copy. Copy and you die.
2. As Jason Fried says in the iconic book Rework: “In the end, it’s not worth paying much attention to the competition anyway. Why not? Because worrying about the competition quickly turns into an obsession.” You want to obsess about ways to solve your audience’s challenges, not about your competition.
The best way to make sure that your customers stay on board or, at the very least, don’t leave mad, is to build solid relationships with them.
While public content and email sequences can help, nothing can replace human-to-human communication.
Your company shouldn’t just be a tool or a commodity for your clients, you need to be a robust and empathetic partner.
You need people on your team who you can trust with customer relationships. Dealing with customers is a job and you need to not only find the right people for it, you also need to train them.
There are 2 types of interactions: proactive (customer success) and reactive (customer support). But in both cases, you need to train your staff to take care of the company’s customers.
Your staff should be:
- Empathetic and understanding of the customers’ challenges
- Aligned with the vision, mission, and culture of your company
- On top of every change in your products or services
You don’t want your customer service staff to be passive. You want them to take initiatives that will better the relationships between your brand and your customers.
Empower your staff to find ideas of new content that could help customers. It could be setting up webinars with power users or active customers who can share their best tips. Or it could be getting themselves educated about technical aspects product development to further their understanding of it. Possibilities are endless.
There is so much tech at hand that can help your team prevent customer churn.
Here are a few examples:
- Customer communication: Rooftop is obviously an option but there are alternatives. Think of tools like Zendesk or Intercom.
- Internal communication: Rooftop is also an option, but so are Slack and Microsoft Teams. As long as you can ensure smooth and fast internal communication.
- Project management: Rooftop can help, as well as Trello, Asana or Monday. As long as your team can plan and execute without a hitch
- Digital experience analytics (if you’re a software company): tools like Fullstory, Inspectlet or Smartlook allow you to record user sessions and see how they use your platform. That will help solve their issues faster and improve their experience
There are a lot of things you can fix to make your users happier and stop customer churn in its tracks.
Where are you starting?
Forster Perelsztejn is the head of marketing and customer acquisition at Rooftop. He has spent most of his career working in SaaS and creating content for a variety of authoritative publications. When he’s not working, you can find him playing music, taking photos, and taking care of his pets.