Also called: Attrition, Cancellation, Defection, Dropoff, Loss, Optout, Termination, and Turnover
Relevant metrics: Customer Retention Rate, Customer Acquisition Rate, Average Revenue Per User, Average Order Value, Customer Lifetime Value, Gross Churn & Net Churn, Churn Predictability, Time to Churn, Customer Effort Score (CES), Renewal Rate, and Upsell and Cross-sell Rate
How to calculate Churn:
Churn = (Number of Customers Lost / Number of Customers at the Start of the Period) x 100
What is Churn?
Churn is a term used to describe the rate at which customers or users of a product or service discontinue their use of the product or service.
Churn is typically expressed as a percentage of customers or users that have stopped using the product or service over a given period of time. It is a key metric for understanding the health of a product or service, and is often used to measure the success of a product or service in the marketplace.
Different Types of Churn
When a customer cancels their subscription to a product or service, it is known as churn. Churn can occur in various ways, including:
- Volunteer Churn. Volunteer churn occurs when the customer intentionally cancels their subscription due to dissatisfaction or a preference for a competitor. This type of churn is a direct result of the customer’s choice.
- Silent Churn. Silent churn occurs when a customer stops using a service for an extended period and it no longer incurs costs, such as using a credit card without monthly fees. This type of churn can be difficult to detect as the customer may still appear active.
- Involuntary Churn. Involuntary churn occurs when the customer does not intend to cancel the service, but due to negligence or other factors, their subscription may not be renewed or may be cancelled, such as for irregular use or lack of payment. This type of churn is often a result of external factors and can be preventable.
Where did the term Churn come from?
The term “churn” originated in the early 1900s in the dairy industry. It was used to describe the process of separating cream from milk. The cream was then churned to create butter. The term was later adopted by the business world to describe the process of losing and gaining customers.
It is used to measure the rate at which customers are leaving and joining a company. The term is now used in many industries, including software, telecommunications, and retail. It is a key metric for measuring customer loyalty and retention.
A Necessary Measure of Business Success
Churn is an important metric for businesses to measure their success. It is the rate at which customers stop using a company’s product or service. It is a key indicator of customer satisfaction and loyalty, and can be used to identify areas of improvement.
It is a measure of customer attrition, and is calculated by dividing the number of customers lost in a given period by the total number of customers at the beginning of that period.
Providing insights into customer satisfaction and loyalty, a high churn rate can indicate that customers are not satisfied with the product or service, and that the company needs to take steps to improve it.
In marketing, churn is used to identify poor campaigns. If a company launches a new marketing campaign and sees an increase in churn, it can indicate that the campaign was not successful in attracting new customers – or that is was so damaging that existing customer choose to leave.
Why do customers churn?
Common causes of churn include:
- Poor customer experience. This can include issues such as poor customer service, lack of transparency, or a lack of trust in the company.
- Poor customer service. If customers feel badly treated or that your company is incapably of understanding the customer’s problem, they might choose to leave.
- Lack of value. Subscribers may cancel their subscription if they feel that the value they are receiving does not justify the cost.
- Competition. Customers may switch to a competitor if they offer a better value proposition or improved customer experience.
- Unmet needs. Customers may churn if the company does not meet their specific needs or expectations.
- Billing and payment issues. Customers may churn if they have issues with billing or payment, such as hidden fees or difficulty cancelling their subscription.
- Changes in personal circumstances. Customers may churn if their personal circumstances change, such as a loss of income or a change in priorities.
- Limited usage. Customers may churn if they only use the platform infrequently and do not see the value in continuing their subscription.
- Technical difficulties. Customers may churn if they experience technical difficulties with the platform, such as slow performance or frequent crashes.
- Poor communication. Customers may churn if they do not receive regular updates or communication from the company, or if the company is not transparent about changes or updates to the platform.
Strategies for Mitigating Churn
By implementing these strategies, businesses can effectively reduce churn and retain subscribers. Be sure to regularly evaluate the effectiveness of these strategies and make data-driven decisions to continually improve retention and reduce churn.
- Implementing a rewards program. Incentivizing subscribers to continue their subscription through a rewards program, such as exclusive content or discounts on future subscriptions, can help reduce churn.
- Providing excellent customer service. Responding to customer inquiries promptly, being transparent and responsive, and delivering on the value promised can help mitigate churn.
- Personalizing the customer experience. Tailoring the customer experience to each subscriber’s unique needs and preferences can help increase engagement and reduce churn.
- Offering a flexible pricing model. Offering a range of pricing options and flexible terms can help retain subscribers and reduce churn, as subscribers may be more likely to subscribe if they have a choice of plans that fit their budget and needs.
- Offering special promotions and discounts. Offering special promotions and discounts to subscribers who are at risk of churning can help retain them and reduce churn.
- Reducing friction in the cancellation process. Streamlining the cancellation process, such as by making it easy to cancel online or offering a trial period, can help reduce churn by reducing the barriers to leaving.
- Reinforce your value proposition. Gently reminding customers of the benefits they receive from your product or service can be a powerful way to prevent them from churning. Highlighting the full extent of what you have to offer may rekindle their interest and commitment to your company.
- Respond to customer feedback. Incorporating open-ended questions into your customer surveys, in addition to NPS surveys, can provide valuable insights into the reasons behind churn. It’s crucial to not only collect this information, but to also act on it and communicate with your customers about the changes you have made based on their feedback. By demonstrating that you value their needs, you can build trust and strengthen your relationship with them.
- Let customers pause their subscription. Allowing customers to temporarily pause their subscription or account can be an effective way to win back their business. However, it’s important to consider other strategies as well and find what works best for your company.
- Segment and Target. Churn can have different causes for different customers. By analyzing the results of your churn surveys and customizing your win-back messages based on the specific reasons behind their decision to cancel, you can improve your chances of success.
- Maintain Communication. Keeping in touch with your customers through regular newsletters and updates can help keep your company top of mind. Sharing news and new offerings may pique their interest and encourage them to reconsider their decision to leave.
The timing of your win-back efforts is crucial. Approaching customers too soon can result in them feeling frustrated or pressured, while waiting too long may result in them being forgotten. Experiments have shown that reconnecting with customers between 20 to 30 days after they have discontinued their service is ideal, but it may vary based on the specific circumstances of your business.
Upselling in the Moment of Cancellation to Reduce Churn
In the moment a customer tries to cancel their subscription, it’s an opportunity for the company to retain them and reduce churn. One effective strategy in this moment is upselling. Here’s how:
- Offer an alternative plan. If the customer is cancelling due to the cost of the subscription, offer them an alternative plan with a lower price point. This may be enough to retain them as a subscriber.
- Provide additional value. If the customer is cancelling due to a lack of perceived value, offer them additional features or benefits that can increase the value of their subscription.
- Highlight loyalty discounts. If the customer has been a subscriber for a while, highlight the discounts they would lose if they cancel, and how they can continue to receive these discounts by staying subscribed.
- Offer a special promotion. If the customer is cancelling due to a temporary financial hardship, offer them a special promotion or discount to incentivize them to continue their subscription.
- Provide a solution to their problem. If the customer is cancelling due to a specific issue, such as poor customer service, offer a solution to that problem, such as a dedicated customer service representative, to help retain them as a subscriber.
Approach upselling in a way that is tailored to the customer’s specific needs and concerns, and provide a solution that is genuine and valuable to the customer.
Boosting Customer Loyalty
Customer loyalty is a key driver of success in the subscription-based business model. By prioritizing customer experience, personalization, rewards and recognition, consistent value, community building, and active listening, companies can reduce churn and increase retention, and drive long-term success. Here’s how focusing on customer loyalty can reduce churn and increase retention:
- Personalization. Personalizing the customer experience, such as through tailored recommendations or personalized communication, can help build a stronger relationship with subscribers and increase loyalty.
- Rewards and Recognition. Implementing a rewards and recognition program for loyal subscribers can incentivize them to continue their subscription and reduce churn. This can include exclusive content, early access to new products or services, or discounts on future subscriptions.
- Consistent Value Proposition. Providing consistent value to subscribers over time is crucial in maintaining their loyalty and reducing churn. This can include regular updates and improvements to the platform, and being transparent about changes or updates to the product.
- Community Building. Building a strong community of subscribers can help foster a sense of belonging and increase loyalty. This can include creating forums or social media groups where subscribers can connect and engage with each other and the company.
- Active Listening. Actively listening to customer feedback and responding to their needs can help build trust and increase loyalty. This can include regular check-ins, surveys, and focus groups.
Businesses should track customer feedback and use it to inform their strategies for preventing churn. By understanding customer sentiment, businesses can identify areas of improvement and develop strategies to address customer needs.
To inform reasons for churn, these data points might be of help:
- Demographic information. Understanding the age, gender, location, and other demographic characteristics of churning subscribers can help identify potential reasons for churn.
- Customer feedback. Collecting feedback from subscribers who have cancelled their subscription can provide valuable insights into why they chose to churn. This feedback can be collected through surveys, phone interviews, or online forums.
- Subscriber behavior. Analyzing the usage patterns and behavior of subscribers can help identify factors that may be contributing to churn. This can include frequency of use, time spent on the platform, and engagement with specific features or content.
- Competitor analysis. Examining the offerings of competitor companies can provide valuable insights into the market and help identify potential reasons for churn.
- Economic factors. Examining economic trends, such as recession or changes in consumer spending habits, can help identify potential reasons for churn.
- Satisfaction surveys. Regularly collecting customer satisfaction data can provide an ongoing understanding of customer sentiment and help identify potential reasons for churn.
- Financial data. Analyzing subscriber revenue and expenses can help identify factors that may be contributing to churn.
Most importantly is it that you gain a comprehensive understanding of why customers are churning and make data-driven decisions to reduce churn and increase retention.
Conducting Effective Churn Surveys
Framing the Invitation to Respond
If a customer decides to cancel their subscription, it is crucial to approach them in a friendly, empathetic, and supportive manner. A carefully crafted tone of voice in the invitation to respond can increase the chances of receiving feedback from the lost customer. For example, you could express regret by saying, “We are saddened to see you go.”
Striking the Right Balance with Survey Length
The length of the churn survey must be just right to avoid causing frustration or missing vital insights. Hence, it is essential to ask the most relevant and insightful questions that can be answered in a reasonable amount of time.
Structuring Questions for Maximum Insights
The structure of questions plays a significant role in eliciting the most pertinent feedback. A multiple-choice survey question is an effective way to tap into the most critical aspects of the product or service. For instance, you could ask, “Why did you decide to cancel your subscription?” and provide potential response fields such as:
- I am not using the product enough
- It’s too expensive
- I’m switching to a different provider
- It’s too difficult to use
- I didn’t get the results I wanted
- I no longer need the product
- I need extra features
Additionally, you can use conditional logic to probe further into the responses. For example, if the customer selected “I’m switching to a different provider”, you could ask, “Which of the following providers are you switching to?”
The Importance of Open-ended Questions
Include an open-ended question in the churn survey. This question format, such as “Is there anything else you want to share?” allows customers to provide additional context and elaborate on their reasons for cancelling the subscription.
Acting on the Data
It is imperative to act on the insights gathered from the churn surveys. If pricing is a recurrent issue, you may need to re-evaluate your pricing strategy. On the other hand, if technical issues are driving customers away, you may need to consider redevelopment. Overall, if the underlying causes of churn are accurately identified and acted upon, churn surveys can significantly reduce your churn rate.
Using the Net Promoter Score to identify and reduce churn
The Net Promoter Score (NPS) is a metric used to measure customer loyalty and satisfaction by asking customers how likely they are to recommend a company’s products or services to others on a scale of 0 to 10.
By using NPS to understand customer satisfaction and loyalty, companies can take data-driven actions to reduce customer churn and improve customer retention.
You can use NPS surveys in the following ways to identify and reduce customer churn:
- Monitor NPS scores over time. By tracking NPS scores over time, companies can identify trends and changes in customer satisfaction, which may indicate increased risk of churn.
- Analyze NPS by customer segment. Companies can analyze NPS scores by different customer segments to understand which segments are at higher risk of churn and prioritize their efforts to retain those customers.
- Follow up with detractors. Detractors, or customers who rate the company’s products or services with a score of 0 to 6, are at high risk of churning. Companies can reach out to these customers to understand their reasons for dissatisfaction and take actions to address their concerns.
- Implement customer feedback. By regularly conducting NPS surveys and analyzing the feedback, companies can identify areas where they need to improve to reduce churn.
- Measure the impact of retention efforts. Companies can measure the impact of their retention efforts by comparing NPS scores before and after the implementation of new retention strategies.
Customer churn vs Customer retention
Customer churn refers to the loss of customers from a business over a given time period, while customer retention refers to the ability of a business to keep its existing customers engaged and loyal over time. Churn and retention are two sides of the same coin: while churn is the outcome of customers leaving a business, retention is the process of keeping customers engaged and satisfied with the product or service.
Effective customer retention strategies can help to reduce churn and build customer loyalty, while a high churn rate may indicate that customers are dissatisfied with the product or service and leaving for competitors. Ultimately, both customer churn and customer retention are crucial metrics for businesses to understand in order to measure their success and develop strategies for growth.
The company added a variety of new products, such as groceries and clothing, to its platform and also offered faster delivery options. These additions helped keep customers loyal and reduced the churn rate.
Netflix successfully reversed its bad churn by focusing on its original content strategy. The company invested heavily in producing its own shows and movies, which helped differentiate it from its competitors and increase customer loyalty. As a result, Netflix was able to maintain its subscriber base and reduce its churn rate.
The company’s algorithms analyze a user’s listening habits and suggest new music and playlists that fit their taste. This helped keep users engaged with the platform and reduced the likelihood of them canceling their subscription.
Dropbox reversed its bad churn by improving its customer support and adding new features to its platform. The company invested in its customer support team, which helped resolve issues more quickly and effectively. Additionally, Dropbox added new features, such as collaboration tools, to its platform, which increased its value to customers and reduced churn.
What is the time frame for measuring churn?
Hint The time frame for measuring churn can vary depending on the product or service, but is typically measured over a period of months or years.
What is the expected rate of churn?
Hint The expected rate of churn will depend on the product or service, but is typically between 5-20%.
What are the factors that contribute to churn?
Hint Factors that contribute to churn include customer dissatisfaction, competitive offerings, and changes in customer needs.
What are the consequences of churn?
Hint The consequences of churn can include lost revenue, decreased customer loyalty, and decreased customer lifetime value.
What strategies can be used to reduce churn?
Hint Strategies to reduce churn include providing excellent customer service, offering competitive pricing, and providing incentives for customers to remain loyal.
What data sources are available to measure churn?
Hint Data sources to measure churn include customer surveys, customer feedback, and customer usage data.
How will churn be tracked and reported?
Hint Churn can be tracked and reported using customer usage data, customer surveys, and customer feedback.
What are the potential risks associated with churn?
Hint Potential risks associated with churn include lost revenue, decreased customer loyalty, and decreased customer lifetime value.
How will churn be used to inform business decisions?
Hint Churn can be used to inform business decisions by providing insight into customer satisfaction, competitive offerings, and changes in customer needs.
- Switch: How to Change Things When Change Is Hard by Chip Heath and Dan Heath (2010)
- The Five Dysfunctions of a Team: A Leadership Fable by Patrick Lencioni (2002)
- Good to Great: Why Some Companies Make the Leap...And Others Don't by Jim Collins (2001)
- Scaling Up: How a Few Companies Make It...and Why the Rest Don't by Verne Harnish (2014)
- Death by Meeting: A Leadership Fable About Solving the Most Painful Problem in Business by Patrick Lencioni (2004)
- Endless Referrals: Network Your Everyday Contacts into Sales by Bob Burg (1994)
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