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When surprises aren’t fun: the pain of customer churn

Sai Narendran
By
July 05, 2022

Surprise! 

Surprise! Unless your coworkers are throwing you a birthday party or you’re getting an unexpected raise, surprises are generally not something we embrace in the business world.  

 

Typically, we thrive when we’re able to accurately predict what’s going to happen.  

 

Or, at the very least, when we see a loss in profits coming, we can try different tactics to negate it. 

 

And when it comes to unwelcome business surprises, customer churn is one of the least fun of them all.  

 

No one wants to be surprised by a customer who says they are not renewing.  Or worse, maybe they don’t even say that they’re not renewing. You aren’t sure why you lost them because of some break in communication... 

 

While this is no fun on an individual account level, it can be devastating on a business level.  

 

If you’re all too familiar with the pain of churn, or just looking to prevent it down the line, read on. We’ve got some ideas on how to get away from this not-so-great surprise. 

The surprising impact of churn

I tend to think of churn based on how it impacts the business over time, rather than on an account basis. Specifically:

 

Start of year customer base

Monthly churn rate

End of year customer base

% Lost

100

1%

89

11%

100

2%

78

22%

100

3%

69

31%

100

4%

61

39%

100

5%

54

46%

100

6%

48

52%

100

7%

42

58%

100

8%

37

63%

100

9%

32

68%

100

10%

28

72%

 

Holding acquisition at 0%, we can more clearly see the impact of churn. All else being equal, a company with 1% monthly churn rate retains almost 90% of its userbase after 12 months. Whereas a company with 5% monthly churn retains only ~55%. Can you imagine losing 45% of your customers in one year?

 

Wow. 

 

It’s pretty jarring when put into numbers like that. We can’t afford to ignore this, especially in today’s market! 

What is customer churn?

I have another unpleasant surprise for you…According to Recurly, the average B2B monthly churn rate is 5%!!! What?!?

 

That means unless you’re a well-above-average company, you might need to take a closer look at your churn rate. In fact, Lincoln Murphy takes it one step further and suggests that every business leader should be intimately familiar with their current churn rate.

 

To that end, in case you’ve forgotten how to calculate churn rate:Churn Formula

So now that you can calculate your churn (or at least find out the rate from someone else), you can start examining why it’s happening for you. 

 

This is easier said than done. 

 

You want to get away from anecdotes and just accepting churn as fact of business. There are ways that we can retain our customers better, we just have to diagnose the issue! 

Ok, so you have a churn problem. Now determine what is causing it.

Churn is not an adjustable hat where one-size-fits-all. It’s more like a well-fitted suit jacket. There are a lot of moving pieces to diagnose it, and then, even more, when it comes to correcting it! 

 

As Andres Ugarte stated in an interview with Lenny Rachitsky:

It’s critical to have a good understanding of what makes users churn; otherwise, you’re going to have a leaky bucket that will become a problem once you start growing faster. Not all churn is created equal.

For instance, any one of the following issues could cause churn:

  • Bad customer support
  • Poor customer/product fit (wrong customer)
  • Competitor products
  • Price not aligned to value
  • Customer not achieving desired outcome
  • Buggy product
  • Credit card expired
  • Lack of product engagement
  • Bad onboarding experience
  • Poor user interface
  • Poor user experience
  • Internal reasons (e.g. lack of budget, not internal champion, etc.)
  • Lack of features
  • Poor product-market fit

Or, and here’s the real kicker, it could be something else entirely that causes churn! So what’s a person to do?

And some of these are out of your hands, for example, the business could shut down, a payment failure occurs, or the budget could be dissolved. 

 

But there are many points of churn that you can help mitigate. You just have to figure out what they are.  

OMG

Get to the root of churn

Part of defeating churn is getting away from anecdotes and maybes of what caused it. 

 

“Oh we think that they just didn’t utilize the product well enough across the team” 

 

But what if there was a way to validate what caused churn? 

 

There is- but it takes some work! 

 

Leveraging the data that most SaaS companies are already collecting is a huge component of combatting churn, and finding places to upsell. 

The better you understand your data and can make sense of it, the easier it will be to determine why you might be losing customers. 

 

It’s critical to understand not only what different factors are contributing to churn, but also to know the weight of each factor. This will help you prioritize where to start and how much attention to give each churn-causing-issue.

 

Let’s say for example, you look at your data and notice that two contributors to churn are that your customers are not interacting with customer success when prompted, and that they aren’t using a specific feature. 

 

You can then examine both data types further and determine which one will be the first to fix. For example, you could try a different approach from your CS team, which then will ideally point you to getting an answer on why they don’t use a feature. 

 

This will help you prioritize where to start and how much attention to give each churn-causing-issue. 

 

This approach gives you the best chance to plug that leaky bucket. And plugging leaky buckets is exactly why Tingono was created.

How ML is working to predict churn and increase customer retention 

As we’ve shared, our platform is powered by AutoML technology which creates customized prediction and analysis models according to your individual business needs. And these models continually learn and update to increasingly fit the needs of your business over time.

 

This is how we are able to identify the unique cause(s) of churn in your business. This is also how we are able to turn insights into actions that empower you to overcome churn in your business and increase your revenue retention.Yes

 

If you find all this to be surprisingly pleasant, get in touch! We’d be thrilled to help you remove other, less fun business surprises.