Churn rate

Customer churn is the nightmare of every SaaS company and is one of the key metrics you need to monitor and reduce as early as possible. It is important to understand that most SaaS companies do not fail because of poor customer acquisition but because of customer churn. Customer churn – also called attrition – is when existing customers stop doing business with a company. For SaaS companies, this shows itself in the percentage of subscribers who discontinue their subscription. Poor customer service, increasing prices, or that customers don’t find value in your service are just some of the significant causes for customers to leave. Understanding what causes customers to stop doing business with you is essential to have a sustainable business.

How to fight customer churn

Be aware that customers often decide to churn, even before spending much time with your service. That’s why it is central to fight customer churn already in an early phase of your customer cycle, the activation phase. The activation phase is about providing an exceptional customer experience. Most of the time, the value of your service is not apparent. Therefore, it is important to figure out your products’ AHA moment. The AHA moment is when people first realize the value of your service. This moment decides whether your customers engage further or leave forever. The AHA moment is an emotional event that should happen early in the customer journey – the longer your time to value is, the more likely it is that people will churn.

Churn relates to the loss of customers or revenue through subscription cancellations. There are a variety of reasons customers churn. It’s important to understand the root causes so that you can begin to address the issues. Ultimately, the best cure for churn is product adoption.

Peter Loving
Founder, UserActive

How to find your services’ AHA moment

To find your services’ AHA moment, first, reach out to your top customers and ask what is most valuable to them. Even though it is likely that each persona will have an individual journey to their own AHA moment, you will get valuable insights.

After evaluating customer feedback, create a list of behaviors that correlate with customer retention. Next, use this list to define your activation metrics. These metrics are individual and vary from service to service. Examples for activation metrics are “10 app usages per month” or “adding two friends within the first week.”

Ask yourself if customers who regularly use your service
• finish the onboarding process
• interact with the core feature
• connect with other customers

Once you complement your customer feedback with your analytics data, it should be clear where people find value in your service. One of the best methods to bring customers fast to the AHA moment is onboarding.

Another way to fight customer churn is to monitor early warning signs.

Early warning signs for customer churn
• Infrequent logins
• Taking much longer to complete tasks than average customers
• Shorter visit times

Once you track those metrics, it is easier for you and your team to find the underlying motivation why your customers churn and provide action steps to avoid this.

Customer churn is closely tied to customer satisfaction. Therefore, keep an eye on the Net Promoter Score to complement your insights for customer churn. This approach provides a holistic view of whether customers like your service and whether they would recommend it to others.

How to calculate customer churn rate

Calculate customer churn by dividing the number of customers who left in 1 month by the number of customers at the beginning of the month.

Customer churn rate = Customers who left in one month / Customers at the beginning of the month.

For example, if you have 400 customers at the beginning of January and 100 customers stopped doing business with you in January, your customer churn rate is 25%. (100 / 400 * 100 = 25%).

How to reduce customer churn

• Target the right audience for your service
• Provide an exceptional customer experience, right in the beginning
• Provide value regularly
• Be transparent with customers
• Ask customers for feedback to improve your service
• Learn from churned customers

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