What is churn and how to effectively deal with it

By /

Are you losing too many customers?

Churn is the number of customers or subscribers that have unsubscribed or left your company during a specific period of time.  It is simply the number of customers that you lost in a specific period divided by the number of customers that you started with in that specific period.  This period could be a week, month, quarter, or year. The result is the churn rate described as a percentage.  For example, if you lost 8 customers in a quarter and you started with 100 in the new quarter then the churn rate is (8 lost/100 started) x100= 8% churn rate.  This formula could get complex if you try to account for every variable instead of focusing your energy on the how and why of your churn.  The best advice is to just keep it simple instead of using formulas to try to make things look better superficially.

Some companies differentiate between voluntary and involuntary churn.  Voluntary churn is solely based on the customer’s decision, such as dissatisfaction with the company’s product or service.  Involuntary churn is because of circumstance unavoidable by the customer, such as relocation, death, etc.

Monitoring your churn rate is important because it is always cheaper to retain your customers, than to acquire new ones through extensive and costly marketing efforts.  In fact, it costs about 5x more to acquire a new customer than to keep an existing one. Customer churn can be cancellation of a subscription or service, closure of an account, decision to shop at another store or simply not renewing a contract with your organization.  Churn will also shed a bright light on how satisfied people are with your product or service.

If you are in the subscription business, then monthly recurring revenue (MRR) is an especially important number for you as it is what sustains your business.  On the flipside, cost of acquisition (CAC) is the total cost of marketing efforts to acquire a new customer.  For an organization to be successful, the CAC must be lower than the lifetime value of a customer (LTV).  So, a high churn rate will negatively impact your MRR with the root cause being dissatisfaction with your product or service.

The big question is, why do customers churn? There could be numerous reasons like no longer needing the product, better products in the market, product usage experience, product does not do what it was hyped to do, cheaper competitor products, unsatisfactory customer experience, etc.

Organizations must execute an effective churn reduction strategy to ensure that you are retaining and growing your customer base.  This will be an ongoing process and not a one-time thing. You will have to keep a pulse on your customers to ensure that you are meeting their changing needs. When a customer churns, you must use it as an opportunity to learn, to prevent others from leaving as well. It is not easy, that’s why 2/3 companies do not have a solid customer retention strategy.

Some areas to focus on your churn reduction efforts are:

  1. Keep engaged with your customers and provide them with any relevant information on new products or services by helping them with their products, marketing messages and reward programs.  This includes having a solid onboarding process.  This point alone will have a big impact on your churn numbers.
  2. Provide support for your product or service in the customer’s channel of choice.  In addition, you must obtain constant feedback from all channels so that you know how to improve your operation.
  3. Put a predictive analytics churn model in place so that you could anticipate potential at-risk customers.  This his will allow you to proactively address product or service issues based on what you uncover.
  4. You must dig deep into your data, down to the agent level, to see where most churn issues are coming from. Need to separate product and agent training issues so you that you could take the appropriate action.  In addition, cohort analysis will allow you to discover trends and patterns by breaking down your customers into related groups.  Your data should be telling you what your churn rate is, why they are cancelling and what segments are churning the most.
  5. Treat B2B and B2C separately, as they will require different strategies and can have quite a variance in churn rates.
  6. Continually add value to your product or service so that your customers continue to use it.  Your goal should be to consistently deliver what you promise and not hype up your product or service just for a sale.
  7. Invest in continuous product and soft-skill training for your agents.  They are the voice of your company.  You need to ensure that you continuously exceed customer expectations.  Remember that all it takes is a single negative experience to drive your customer away.
  8. Know the probability of your customers to churn.  It is ok to let some unprofitable customers churn for the right reasons.  This is where segmenting your customers becomes helpful.  You could segment based on location, profitability, at risk customers, probability to respond to incentive offers or any other category, so that you could target them accordingly.
  9. Create a retention group to deal with cancellations and put your best people there.  It will be important to train this group to deal with these types of customers with white gloves.
  10. Study your competition and stay relevant by keeping your product or service cutting edge.

All in all, you must ask the uncomfortable questions and be prepared to face the truth about what your customers think of your product or service and be willing to make changes based on that feedback.  These changes will ensure that the number of new customers will exceed the number that leave every month and result in growth.  Otherwise churn will suppress your growth in revenue and profits.

The journey of positively surprising and delighting your customers is not easy but it will be well worth it.

139 thoughts on “What is churn and how to effectively deal with it”

  132. jili pg

    Solid analysis! Seeing more focus on mobile gaming is smart – the convenience of a jili pg games app is a huge draw. Exciting to see platforms like this catering to the Filipino market with easy deposits too!

Leave a Comment

Your email address will not be published. Required fields are marked *

Scroll to Top