Churn. The archenemy of any subscription company. No metric causes more sleepless nights or thinning hair. It’s the slow leak that regardless of how handy you are, you’ll never completely plug. If recurring revenue is a rainbow leading to a pot of gold, then churn is the dirty leprechaun trying to keep it all from you. It’s the bane of our business existence!
When you’re a brand new business, churn is generally something you don’t need to worry about. Or rather, there are probably bigger wins than trying to figuring out how to reduce churn by a few percentage points.
But eventually you’ll have to face it. Growth will eventually taper off and churn will become a major issue to tackle.
What is churn?
First, lets define churn, at the very least so we’re all talking about the same thing.
Churn can most basically be defined as resources lost in a given period of time. Typically it’s referring to users or revenue lost and is usually represented with either a percentage or dollar amount.
For example, if you had a 5% monthly user churn rate, that means each month 5% of your customer base is canceling.
Or if you said you had $2,000 in monthly revenue churn that means you lost $2,000 in monthly recurring revenue from either customer cancellations or downgrades.
The plain-english formula for calculating churn is:
Lost Resource / # of resources at beginning of a given interval
More plainly put, say you’re calculating user churn for the month of May. You had 100 customers at the start of May and 5 canceled during the month.
(5 customers / 100 customers) * 100 = 5% user churn
It’s important to note that you ignore any new customers added during that time frame.
User Churn vs. Revenue Churn
Most people talking about churn are referring to “user churn”…but there’s another type as well.
User churn is the number of customers you’re losing in a given timeframe (typically per month or year).
But there’s also revenue churn, which is arguably even more important. Revenue churn is the amount of revenue you’re losing in a given timeframe due to downgrades or cancellations.
The reason why it’s such a vital metric is that it has a greater affect on your business. If you look at just user churn, you’re ignoring how much revenue you’re losing with those churned users.
For example, a churned user on a $50/mo plan isn’t nearly as bad as a churned user on a $500/mo plan. Just looking at user churn would gloss over the fact that you lost a major customer. Revenue churn effectively weights your user churn to be a more accurate representation of how your business is doing.
Why keeping track of churn is so crucial
Okay, you get the “how” and the “what”, but what about the “why”? Why is it so important to track these types of churn? It comes down to growth and customer acquisition.
Churn is the antithesis of growth. It’s the undoing of all your hard work and money spent acquiring customers.
The more customers you acquire now, the fewer there are to acquire in the future, which means each new customer is incrementally harder and more expensive to acquire. If you keep bleeding customers, you’re making it increasingly harder to grow down the road.
Churn also points to a problem with the product itself. You need to identify what those problems are because that points to the reason people are churning. Knowing those problems gives you a game plan for reducing the churn.
What are ways to reduce churn?
Reduction of churn ultimately comes down to one thing: engagement. Highly-engaged users churn at a much lower rate than others. There will always be factors out of your control, such as a business shutting down, but given all the factors you can control, you’ll find the most success doing things that help users stay more engaged.
Now that we’ve got all of that out of the way, let’s get to the meaty stuff. Here are 13 practical, actionable ways you can start reducing churn today.
1. Make something people want
This is one of those things that sounds obvious, but actually happens a lot less than you think. I mean, what Founder says “yeah you know, we’re trying to create something that people don’t really want”…no Founder says that. Everyone believes they’re creating an amazing thing that everyone wants.
But wishing it doesn’t make it so.
Some signs that you aren’t making something people want are double-digit monthly churn rates, especially when they’re over 20%. If you’re around 10% monthly churn, there are likely some things you can do to improve that. Maybe you’re doing a poor job executing on the idea or you’re doing a bad job onboarding.
But once you get in the 20%+ range, you’ve probably got a serious fundamental problem with your product. You should consider going back to the drawing board and trying a drastic change in the way you’re solving the problem to see if that gets you in to safer territory.
2. Redefine your onboarding process relentlessly
As nice as it’d be to have new users jump in and instantly know how to make the most of the product, that’s just not how it works.
A lot of churn is due to users simply not knowing how to use the product and thus making the assumption that you aren’t able to solve the problems they wanted to for them.
By walking users through an initial setup or onboarding process, you’re able to show users how they can start getting value right away.
Then, as they continue to use the product more, you keep slowly dripping out features and functionality to help them become power users.
Your onboarding process is something you should be constantly tweaking and testing. Talk to users, learn where they get hung up and then oil that spot so things move more smoothly.
3. Increase app engagement
As I mentioned earlier, engaged users don’t churn. Customers using your product on a regular basis are doing so because they get value out of it. But as soon as their engagement starts dropping off, they’re much more likely to churn.
Give your customers reasons to keep coming back. Provide a way for them to get value on a daily basis. This could be in the form of a daily report showing them what’s changed/happened in the last day or showing them a list of things to do in the coming day. Provide something that makes you part of their daily workflow.
4. Help them succeed
One of the biggest motivators for humans is success. Not even from some grand “change the world” aspect, but just succeed at their jobs. To be good at what they do.
One of the best ways to do this is with education and training. And I’m not talking about education and training around using your product…I’m talking about helping your customers get better at their jobs.
So, for us, with Baremetrics, we provide an immense number of articles and videos around helping founders run their companies better.
5. Become part of the company workflow
When an entire department at a company, or even the entire company itself, makes your tool part of their workflow, they’re guaranteed to stick around for a long time.
Changing processes is really difficult and painful for a company, and they’ll go out of their way to avoid it.
The more you ingrain your business in your customer’s day-to-day workflow, the longer they’ll be a customer.
6. Attract the right audience from the start
All the tips in the world won’t matter if you’ve been attracting the wrong audience. This is a big reason why leading with “free” or “cheap” can backfire on you.
When the first interaction with your company is anchored by “free,” you’re attracting customers who aren’t looking for the value you provide.
Attracting an audience that’s primed to not only receive but also understand the value they’re getting means you’ll have a much easier time down the road conveying that value.
7. Continuously convey the value
Many times, after a customer has stuck around for a while, they can begin to overlook how much value you’re offering on a regular basis. Putting certain mechanisms in place that help convey the value you’re offering can go a long way.
A great example of this is a daily, weekly or monthly report that’s generated automatically showing pertinent data points related to their business and how it correlates to their use of your service.
For example, we send out email reports to our customers about the state of their metrics and how they’ve changed on a daily basis, as well as how those metrics are progressing towards their goals.
8. Optimize the cancellation flow
The reasons people cancel are vast and many times it’s not immediately related to your product at all. There are many external influencers that cause people to want to cancel, so offering some different options during the cancellation process can go a long way to mitigating the cancellation at all!
A couple of things you can do to alter your cancellation flows that may actually reduce your cancellation rate as a whole:
- Offer a downgrade — If they’re in a budget crunch, suggesting a cheaper plan can help sustain them until they’ve got more funds available.
- Offer to pause the account — Sometimes your service may not be needed for a month or two and offering to temporarily pause billing or to drastically reduce the monthly fee while paused can help keep a customer from completely abandoning your service.
- Track views/visits to the cancellation page — When a user views your cancellation screen but doesn’t cancel, it can be a sign that they’re at least thinking of cancelling. Once you detect that, you trigger an email to be sent from you to offer some help or send a short series of emails that reiterate the value they’re receiving.
9. Customer exclusives
You’ve probably seen this before in the form of a directory of discounts for other services and products. “3 months free”, “50% off your first purchase, “100GB free”…all listed in a directory that’s only available to customers of the product.
These can work great and are relatively easy to put together.
Pushing these customer exclusives right before it’s time to renew is also a great way to drive home how much value they’re getting!
10. Under promise and over deliver
When a customer signs up for your service, they do so with a set of expectations. Expectations around what you’ll be able to do for them, what value they’ll get, what problems you’ll solve. It’s your job to manage those expectations by not over promising anything.
Don’t promise to 10x their customer base unless you can actually follow through on that.
You’re much better offer under promising what you can do for them and then blowing it out of the water. When you over deliver on a promise, customers feel the value they’re getting far exceeds what they’re paying for…instantly making them more loyal.
11. Retarget your current customers
I know, it sounds odd. Advertising to people who are already paying you. But it’s a relatively cheap way to stay top of mind, even when they’re not currently inside your app.
You can segment your current customers and then show a special set of ads just to people who are already your customers.
It could be anything from a simple “thank you” image to something that promotes a feature they aren’t currently using.
12. Create integrations
Your customers likely use dozens of software products every day and one of their biggest pain points is switching between and cross-referencing data between them.
By providing direct integrations with the most common apps they use, you’re able to save them time, which ultimately makes them more money.
Nearly every software product out there has an API of some sort and doing an integration with them is a great way to help your customers while simultaneously gaining access to new customers.
13. Collect on failed charges
The average startup is losing thousands of dollars every month to failing charges. Most of these customers don’t even realize their card is failing. There’s no malicious intent, they’re just oblivious.
If you don’t proactively work to collect on those failing charges and help your customers update their billing info, they can go months without paying you.
Use a tool to automate this process (called “dunning”) that handles all the customer outreach to make sure you’re not losing customers to revenue churn. This type of churn is almost completely avoidable with the right system.
Baremetrics actually has a Dunning tool. It has saved companies hundreds of thousands of dollars and you can get up and running with it in a matter of minutes.
There are 13 ways you can start reducing churn and retaining customers today! Reducing churn really is key to long term, sustainable growth. It’s something that once you get a handle on it, you really can see massive growth without spending a ton of money.
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