Churn or churn rate is a metric describing the number of customers or subscribers who have unsubscribed from your product/service during a given time period. It is mostly used by SaaS companies and subscription businesses.
Despite the negative nature of this metric it is an important number for SaaS companies to keep a close eye on.
Good customer relationship is crucial for subscription businesses as this is what their business model is built upon. Churn rate can help to improve the customer relationship by revealing why customers are leaving the company.
As there are lost revenue related to a high churn rate it is crucial for a business to reduce the churn rate as much as possible. The ideal churn rate is at 0%, however it is almost impossible for any subscription business to achieve this goal.
It is a difficult task to minimize churn but luckily there are some concrete ways to actively minimize churn rate. We have gathered 3 methods, which we think works the best:
It can seem like the obvious thing to focus on the churning customers, preventing them from churning.
However, it is crucial for SaaS businesses to accept the fact that a churn rate at 0% is impossible, and that some customers will eventually churn. So, if you churn rate is relatively low, let’s say 3 %, stop focussing on these 3% and instead focus on your loyal customers. Analyze why the churning customers have left your company, and use that knowledge to keep your loyal customers in the business.
Your task is to make the customers feel they are important. Do this by communicating actively with your existing customers and display them to all your services and offers.
Another way to let customers know they are important is by performing an excellent customer service. If a customer is considering churning an excellent customer service might prevent the churn.
It can seem contradictory that not focusing on churning customers is a strong churn strategy. However, by focussing on your existing customers you try to prevent the churn rate to raise even further.
When a customer has churned, don’t let go of him or her yet. A churned customer possess valuable knowledge for your future churn strategy.
This can either be done in a qualitative way by simply asking the churned customer for why it has left. If your business is large and the number of churned customers is accordingly big a quantitative method can be more useful. Obtaining data by analyzing where in the process the customer has churned, you might discover something you need to change. Deep diver into this by analyzing the customer journey using eg. Google Analytics.
Another strategy is to focus on acquiring new customers instead of focusing on churning customers. Sometimes your work is more wisely spend by focusing on acquiring new customers instead of churning customers.
A churn rate of 0 % is impossible and successful subscription businesses know this. How they work with the churn rate is to make sure that the New MRR metric is always higher than the churn rate.
Therefore, when working with churn it can be an advantage to take the New MRR number into account. Thus a healthy balance between these two metrics will be a “solution”.
The metric is often shown in percentage but can also appear as the real number of customers lost in the given time frame. It can even appear as the value of recurring billing lost.
None of these are more correct than the other. You are free to choose how the metric works best for you and your case.
Churn rate % formula:
Churn Rate % = ( X # of customers - Y # of customers ) / X # of customers * 100
X # of customers: the number of customers at the beginning of the given time frame
Y # of customers: the lower number of customers at the end of the given time frame
So, let’s say a company starts its quarter with 500 customers and end it with 450. The churn rate is 10%, since the company lost 10% of the customers.