Being proactive about churn prevention provides an antidote to customer attrition. Utilizing technology makes it one of the easiest ways to keep more customers. Read on to learn what churn is, how an attrition analysis can help you pinpoint why you’re losing customers, and what steps you can take to prevent customer churn.
What Is Churn Rate and How Does It Relate to Customer Retention?
Churn and retention are flip sides of the same coin so that you can reduce one by raising the other. Churn rate measures how many customers you lost over a given time period compared to your total customers during that interval. Retention rate represents how many of the same group of customers you kept over the same time frame. In other words, the number of customers who didn’t churn is the number of customers you retained.
For example, if you sell a subscription SaaS product, a simple procedure for calculating your monthly churn rate would be:
- Take how many subscribers canceled their subscriptions that month.
- Divide by your original number of subscribers at the start of the month
- Convert the resulting ratio to a percentage
number of churned customers / total number of customers = churn rate
The retention rate is calculated in a similar way, except you start with how many subscribers renewed their subscription that month.
There are more complex versions of these formulas, but the key point is that your churn and retention rates are directly related. The lower your churn, the higher your retention, and the higher your resulting revenue. In short, you can raise your revenue by reducing your churn rate. A churn analysis offers a tool designed precisely for this purpose.
What Is a Customer Churn Analysis?
A customer churn analysis is an investigation that uses big data analytics methods to go beyond churn rate and identify underlying factors promoting customer churn. When you know why customers are leaving you, you can develop appropriate preventive measures.
To do a churn analysis, first segment customers who have churned. Next, you’ll compare your churn data with other customer data to identify any variables which distinguish customers with high churn rates. For example, your attrition analysis might determine that customers who experienced a slow onboarding process have a significantly higher churn rate than those who completed the onboarding process quickly. You could then review your onboarding process to identify places where improvements might help customers onboard more quickly.
A thorough customer churn analysis should consider possible factors promoting churn at each stage of the customer journey, from onboarding through renewal. Customers may encounter snags at any point during their journey with your brand which makes them more likely to churn. For example, they may experience:
- Onboarding stage: Difficulty completing product activation in the onboarding stage
- Adoption stage: Frustration learning to use advanced features
- Escalation stage: Slow response time or weak communication to a support request
- Renewal stage: Problems updating their credit card or billing information
These are just a few examples of issues that can contribute to customer churn. For a comprehensive analysis, use a systematic customer churn analysis checklist that takes into account potential problems from each stage of your customer journey. Surveying your customers, including those who failed to renew their subscription, may help you identify factors you’re overlooking.
How Do You Prevent Common Causes of Customer Churn?
Churn analysis helps you identify why your customers are leaving. The next step is to take corrective measures to remove barriers to customer renewal. While attrition analysis may identify many possible variables that characterize customers who churn, experience shows that certain factors are especially common contributors to customer turnover. Here are some of the most common reasons customers churn, along with solutions for each scenario.
Poor Customer Fit
The path to churn can begin as early in your customer’s journey as the lead acquisition stage if your product is a mismatch for their needs. Your marketing and sales angle may be attracting the wrong audience, emphasizing the wrong problems or pitching the wrong benefits to appeal to your ideal customer.
When this is the case, you are likely to see good results in the onboarding stage with a lack of support tickets and increased product adoption, but low usage after adoption and high churn rates even in the absence of customer support problems. You may be able to learn more details by talking to customers about why they’re not using or renewing your product. Take demographic data about customers into account. For example, you may find that churn is higher for customers in certain industries and lower in others.
If you suspect churn is being caused by a misalignment between your product and your customers, have your marketing and sales team review your ideal customer profile and the emphasis of your marketing campaigns and sales presentations. Make sure you’re speaking to the right audience and saying the right things. Additional market research and conversations with your customers may help you develop a better marketing angle to match your product to your true target audience.
Gap Between Customer Expectations and Product Performance
Customers can become dissatisfied with your brand if their expectations at the time of purchase aren’t met by their actual experience of your product. There are a number of reasons this can happen:
- Your customer wasn’t properly educated about what they should expect from your product.
- Your product is capable of meeting customer expectations, but your customer isn’t adequately trained on how to use your product.
- Your product has a genuine performance problem that needs to be addressed.
When there is a gap between customer expectations and product performance, your churn analysis will tend to show smooth onboarding with problems arising during adoption and escalating into a high volume of support tickets, followed by churn.
If you suspect churn derives from a gap between customer expectations and product performance, you can take several corrective steps, including:
- Train your sales representatives to manage customer expectations by being clear about what your product does and what it doesn’t do.
- Provide training materials that help customers get the value they expect out of your product.
- Review support tickets to make sure your product is doing what it’s supposed to do.
Which solution applies will depend on what your analysis determines is the cause of customer expectation gaps.
Failure to Achieve Customer Goals
Customers are likely to churn when your product doesn’t help them meet the goals which prompted their purchase. This can happen if:
- They don’t have clear goals or a well-designed strategy
- The time to value is too long
- They experience difficulty learning your product’s features
- Your product isn’t capable of meeting their goals
When your product is failing to meet your customers’ goals, your churn analysis may reflect this in different ways depending on the root of the issue. You may see low adoption rates, high support ticket requests, or high churn. You may need an in-depth analysis to isolate the relevant issue. Direct feedback from individual customers can speed up your investigation by pointing you in the right direction. In addition, a pre or post cancellation conversation can help to validate your research.
Depending on the cause, you may be able to help customers achieve their goals by:
- Working with customers to help them develop a customer success plan for achieving their goals
- Identifying and correcting bottlenecks in your onboarding process
- Adding training and support materials that address your customers’ goals
- Improving your customer success team to better help customers achieve their goals
- Customer success and product should work together to identify new features to support customer goals
The Totango Spark CS Platform includes Outcome Success Plans which enable the Customer Success Manager and the Customer to mutually establish and track goals and objectives throughout the customer lifecycle.
Change in Customer Goals
One reason customers may fail to reach their goals with your brand is that their goals change after purchase. When this happens, it may look like everything is going smoothly at first, but the customer still fails to renew. This will tend to be a problem with individual customers rather than large customer segments.
The best way to keep your product relevant to your customers’ goals is to stay in regular contact with them about their customer success plan. Use automated tools such as a digital success plan to keep up with customer progress towards their goals. Periodically share progress reports with customers. Schedule regular review sessions to discuss your client’s satisfaction with their current situation.
Loss of Key Champion
Another change that can promote churn is the loss of a key staff member. For example, the person on their staff who originally championed your product such as an executive sponsor or champion that may have moved on to another company.
If your customer has lost a key champion, utilize technology such as Totango’s Stakeholder Engagement SuccessBLOC so you’ll be aware ahead of time and can proactively approach the situation. This can easily be done using data points such as engagement within the past 30 days and engagement by type, flow, reason, and role.
Dissatisfying User Experience
Poor customer experience promotes churn. A number of factors can dilute your customers’ experience of your product:
- The product has a poor user design
- The product requires a steep learning curve
- You don’t provide adequate training and support materials
- Customer support is hard to reach, slow or ineffective at solving customer problems
- The renewal process has bugs
These types of issues can show up at different stages in your customer’s journey, depending on the nature of the problem. Comparing churn rates with customer service data may help you identify which support issues are most common among customers who churn.
A key to addressing problems with customer experience is developing an escalation management framework for handling support issues. An escalation management strategy takes proactive steps to intercept customer service issues before they snowball. This includes taking measures to identify early warning signs, such as:
- Monitoring drops in usage
- Tracking support issues and identifying problem patterns
- Staying alert to negative customer feedback
- Being aware when customers are undergoing personnel changes
Once you’ve identified an escalation risk, you can take appropriate steps, such as reaching out to customers with tutorial tips, offering support assistance, or proactively working with your product department to develop the roadmap. Develop standard operating procedures for responding to different types of escalation situations. A customer success platform such as Spark can help you monitor escalation risks and automate your procedures for managing them.
Prioritize Churn Prevention to Increase Retention and Revenue
Churn prevention offers a cost-efficient way to raise your revenue by increasing customer retention. It costs a lot to acquire customers, but retaining them doesn’t need to be so difficult, just an investment in delivering value to customers throughout their customer journey. The more you invest in the steps necessary to keep the customers you acquire, the less you have to spend on marketing to maintain or increase your revenue level.
Customer attrition analysis provides a powerful tool for identifying churn factors at each stage in your customer journey. When you know why your customers are leaving, you can take preventive measures to provide them the value they need to remain customers.
The Totango Spark platform provides tools designed to help identify early warning signs of churn and help you optimize each stage of your customer journey. Register to see a live demo or try Totango for free to see how we can help you reduce churn and promote customer retention.