There are numerous reasons why a customer might stop doing business with your company. Some are within your control and some aren't.
If a customer churns because their company was bought out and their operating structure is completely changing, there’s nothing you can do to solve that. But, if a customer churns because they don’t feel your product is fulfilling the expectations set during the sales process then you need to work to address that issue to prevent it happening to other customers. And, if a customer churns because they are unhappy with the experience your team is providing, you definitely want to uncover the issue and resolve it.
What is Customer Churn Rate?
Customer churn rate is the percentage of customers that stop using your product or service over a period of time.
To calculate churn rate, start by identifying the total number of customers you have acquired over a period of time and the number of customers who have churned during that same time. Then, divide the number of churned customers by the total number of customers for that time period and multiply that decimal by 100% to find your churn rate.
Churn is an increasingly important metric for companies whose customers pay on a recurring basis, like the SaaS industry. The general premise of churn is to find out how many customers you are losing over a period of time. Knowing this will help you make sure your customers are sticking around long enough for you to recoup your customer acquisition cost (CAC).
But, there are a lot of other benefits to tracking and reporting on churn for your business.
“Churn is a metric that you should be tracking consistently alongside other metrics to give you a good picture of the overall health of your business,” says Head of Demand Generation Guido Bartolacci.
Why Does Churn Rate Matter?
Tracking churn over time can be a massive indicator of where you should be putting focus both on your product and on your business as a whole.
Tracking the number of customers you are losing and at what point in their journey you are losing them can unveil important information about your product or your team. If you are tracking your churn rate consistently, you’ll be able to monitor fluctuations and can then do some digging to find out what the real issue is.
For instance, you may notice that all the customers who churned did so at a certain point in their journey, like right after onboarding. You can then infer that there may be a problem with your onboarding or product adoption.
Without tracking that customer churn rate to begin with, you may never have uncovered that issue.
Another reason churn is an important metric to monitor is because it will help you build attainable goals company-wide.
When it comes to setting revenue goals, churn is a more reliable metric to focus on than acquisition.
“If you are counting on your acquisition strategy to generate X amount of revenue, that is sometimes volatile or a hard metric to rely on because there are a lot of variables in an acquisition strategy,” says Guido. “But, if you are counting on that revenue coming from expanding into your current customers, that is a more reliable metric and strategy.”
Your biggest opportunity for growth lies within the customers you have already acquired. And, step one of that focus has to be understanding how many customers are churning and why they are doing so.
It is five times cheaper to expand into your current customer base than it is to acquire a new customer. How do you expand into your current customers? You keep them around long enough to recoup your CAC and you increase their lifetime value. This is done through upselling or cross-selling them.
That process should be seamless because as your customers grow so should their need for your product or service. But, the best way to keep customers around is to ensure they are getting real value from your product or service.
Churn is one metric that you can use as an indicator of how much value your product or service is actually offering your customers. But that requires an entire strategy of its own with your customer success or service team. Customer experience goes deeper than just revenue, it’s about creating a product or service that people depend on and never want to be without.
When it comes to making decisions for your business, you should be basing all things off of metrics and data. A massive opportunity for growth and revenue comes from your current customer base.
But, without the right reporting and metrics in place, you won’t be able to get a pulse on where you can make improvements and ultimately, give your customers the best experience possible so they stick around.