What is Churn and why is it killing your business? If you’re hiring an inbound marketing company to stoke the fires of your SaaS product or subscription service, you’ll hear a lot about churn. It’s a metric that represents the number of customers who disappear off the face of the planet, get abducted by aliens, are swallowed by the earth, and are otherwise inactive for a given time period.
Churn, simply put, sucks.
It’s an important component when you’re factoring customer lifetime value modeling or finding out your return on marketing investment, but it’s also a measure of customer satisfaction. And for SaaS businesses, it’s a big deal. Churn can offset new revenue, causing SaaS businesses to flatline and fail.You’re not relying on one up-front payment to make money; you need your customers staying around for a while in order to make real profit.
Do you know the average time your customers stay with you?
If you search “How to calculate churn rates” and your background is not in high level mathematics, you might find yourself in unexpectedly deep waters. The most user-friendly tool we’ve found is this Excel Cohort Analysis spreadsheet created by Christoph Janz. For our purposes, you can use it to find out what percentage of customers you’re losing every month, and how many customers you lose during the first six months, to help gauge your churn rate.
Depending on the size of your business, a high or low churn rate is relative. For most startups, between 5 to 7 percent annual churn rate is generally acceptable – but if your churn rate is nearing 10 percent or more, something is not right. Take a good, hard look at your website structure, your products, your customer service – maybe your phone line is down.
Three techniques to combat churn, with Pros & Cons:
- Bring in more customers faster
- Upsell existing clients
- Change your pricing structure to grow with your customers
The first approach – bringing in new customers fast – tends to be the most expensive, since acquiring leads takes marketing money, and money to expand your sales team to bring in the new subscribers. Traditionally, companies do a little of all three to mitigate the impact of churn on revenue. But you can do better than that.
Is your product all it's cracked up to be?
First, look at your product objectively. Is it competitive? Does it do what it says on the package? Or are people subscribing only to realize it doesn't do what they'd hoped?
The real secret to reducing churn
Forget the traditional anti-churn techniques. They didn't work for cable companies and they're not likely to work for you. Here's what will. Focus on Customer Success. It's the new buzzword in inbound marketing, online marketing,and growth hacking crowds, and it's the single best churn-buster you have at your disposal.
Customer success begins with answering this question: What does success mean to your customers? First of all, it means having a product that does what it promises. It also means that your customers receive training and tips on how to make the most out of your product - not just troubleshooting when something goes wrong. Suddenly, your marketing and customer service departments are joining together to crack the code of customer success - and that is precisely what should happen.
Understanding your churn rate is a chance to collect meaningful data to support the goal of customer success. When you know who's leaving, when, and why, you can begin to take proactive steps to make your business stronger.