How to Define, Measure, Analyze and Predict Customer Churn
It costs your business more to acquire a new customer than it does to retain an existing one. Analysis varies when it comes to just how much more, but it’s somewhere in the ballpark of 5X to 25X. As such, defining, measuring and analyzing customer churn – then predicting and proactively reducing it – can save your business money. A lot of money. Here’s how.
The cost of acquiring a customer is up to 25 times more expensive than retaining one
Customer Churn is the Most Important Metric
If you want to get maximum value out of your customers, you need to retain them. Doing so is a core part of your customer success strategy. That means you need to understand your customer churn rate.
What is Churn in Customer Success?
Customer churn is the rate at which customers stop using your product or service. It is often stated as a rate over a fixed time period, such as 2% churn per month or 6% churn per quarter.
This kind of revenue churn is costly to your business. You invest a whole heap of time and effort, only to lose the customer further down the line.
Keeping your customers happy and engaged with your product over the longer-term is key to reducing your customer churn rate. This maximizes the initial investment you made in acquiring those customers.
How Does User Churn Rate Affect Other Metrics?
So, why is user or customer churn the most important metric? To understand your customer churn rate, you need to monitor what your customers are doing. You also need alerts when users are struggling to integrate or use your products and APIs. The range of metrics you put in place to achieve this will be driven by the need to reduce customer churn.
To understand your customer churn rate, you need to measure and analyze:
- Number of API calls and retention
- Error events
- Cohort and product retention
Ideally, all of these should have automatic alerts so that if a customer drops below a certain level, a notification is generated.
What Are the Main Two Reasons Customers Churn?
There are many causes of customer churn. Perhaps your marketing attracted the wrong type of customers, so your product isn’t fulfilling their needs. Maybe your product is great, but your customer support is terrible. Or maybe the support is spot on, but your product is glitchy. Price is key too – if your price is too high compared to your product’s perceived value, your customers will be eyeing-up the competition pretty quickly.
Although the main two reasons customers churn will be unique to your business and product, they will be centered on issues in: customer fit, product features, customer support effectiveness, reliability or pricing. That’s why doing a deep dive into customer churn is so important.
Why Is Churn Especially Important in SaaS and APIs?
SaaS and API businesses rely on regular revenue from subscribers. If there’s an increasing SaaS churn rate, the business will quickly begin to struggle. As such, monitoring customer success, using customer churn as the key metric, is essential to the business’ financial health.
What Tools Can I Use to Keep Track of Customer Churn?
Keeping track of customer churn is about getting the best out of your data. It can show you which pain points are causing customers to churn, providing insights into customer retention issues that allow you to take timely, decisive action.
So, what tools can I use to keep track of customer churn? There are various tools out there to help you track your churn rate. They work by providing you with the data visibility you need to understand your level of churn. Then, it’s up to you to take that data and turn it into action.
Moesif is an excellent example of such a tool. It delivers:
- A 360° view into your customers’ account health
- Comprehensive churn analysis across a wealth of data points
- Alert automation
- Ease of use
Each of these elements plays an important role in churn analysis and reduction. With 360° visibility, you can visualize what is happening with every customer and spot trends that indicate when customers are ripe for expansion or at risk of churn. Analyzing a wealth of data points enables this. They include:
- New account sign-ons
- Daily log-ins
- Daily usage
- Daily API growth rate
- Feature utilization
- Most active users
- API error log
- MRR growth
Having a wide range of metrics is the foundation of comprehensive churn analysis. The particular metrics under the microscope will depend on your business. For a particularly helpful analysis, look for tools that allow you to customize the metrics you report on. Ensure automated alerts are built in too, so that you don’t miss any warning signs that a customer is at risk of churn.
Throughout the process, whether it’s customizing reports or drilling down into different metrics, the easier your churn analysis tool is, the faster you can support your customers to stick with your service.
Who Is Responsible for Churn?
Putting a strategy in place for reducing churn isn’t down to one single individual in your business. In fact, a range of teams needs to be involved if you are serious about implementing ways to stop churn and preserve the health of your customer base.
You’ll need your engineers and other technical folk on board in order to implement your chosen tool for reducing customer churn, of course. They can also help ensure the right metrics are being monitored, working along with your core operations team to ensure that the right data is being analyzed.
Then you’ll need your customer success team’s input, to help understand the customer pain points that the data is flagging and suggest strategies for better supporting those customers. Some of those fixes will no doubt also need significant input from your technical team.
Your finance team will also need to be looped in to discuss any expenditure designed to reduce customer churn, as well as to analyze the potential financial benefits of doing so.
Such a wide-ranging churn analysis project, which spans several teams, will also need oversight from management to ensure it aligns with the company’s long-term direction. In short, the responsibility for reducing churn and increasing customer retention is very much a team effort.
Reducing Customer Churn with Targeted Proactive Retention
Gone are the days of losing customers and wondering why. At least, those days are gone if you have the right tools in place to analyze the reasons behind your churn rate. With the right platform in place, you can take a targeted, proactive approach to customer retention.
Track retention and keep your focus on minimizing churn
What Is Customer Churn and Retention?
We’ve considered customer churn in terms of the rate at which customers are walking away from your service. The counterbalance to that is customer retention, which is all about preventing customers from ceasing their usage.
Customer retention is at the core of any strategy designed to stop churn. It is about engaging your customers over the longer-term and ensuring they are satisfied with your product and your support.
How to Improve Customer Retention and Reduce Churn with Proactive Engagement
Monitoring each customer in a way that alerts your engineering, customer success, and sales teams to potential churn means you can reach out to every single customer at risk of churn. With Moesif, for example, you can fire alerts over email, SMS, Slack, PagerDuty, or a custom webhook – whatever works best for your business. Then your team can spring into action.
There can be many reasons why a customer is using your product/service less, from scaling down their operations to integration issues you aren’t even aware of. With a proactive retention strategy in place using dynamic alerts, you can rapidly identify a customer’s drop in use, find out the cause and support the customer to move past it. You can set up alerts for key customers or for every customer, depending on your business model and need.
Happily, a proactive approach to customer engagement can help to build trust – which is essential to long-term retention. Say a customer’s use of your API has dropped by 2X. If dynamic alerts flag this, meaning you can deliver relevant consultancy at the moment the customer needs it, not only will you support them to overcome their issue, you will also build trust and appreciation. This is all part of helping prevent churn.
What Are the Top Customer Retention Strategies?
There are numerous strategies for reducing customer churn with targeted proactive retention. At the core of them is one simple task – delivering customer success. This is what will reduce churn.
Strategies for keeping your customers happy and retaining them center around creating positive interactions (from onboarding to overcoming roadblocks), building trust in your company and product, and delivering a sense of value. Get these fundamentals right and you’re doing much to reduce your churn rate.
Each of these top-level goals can be broken down into various customer retention-focused tasks. They could be things as simple as sending out a newsletter with tips for overcoming common product integration issues, or something far more personalized in terms of delivering a unique customer experience. Again, your business will dictate your particular needs and strategy, but if you keep customer happiness at the core of it, then add a proactive approach to reducing churn on top, you’re likely to see positive results.
View Customer Success Metrics and Gain Insights
Underlying all of this proactive engagement is the ability to view the right metrics. That is what enables you to identify which customers are at risk of churn and to investigate the reasons behind the customer’s decreasing engagement with your service. It perhaps comes as no surprise, then, that monitoring customer success is also all about the right metrics.
Customer success is intrinsically linked to customer churn. If you’re not supporting your customers to succeed, they will churn. If the customer experience that your product provides is terrible, they will churn. And if your customer service is poor? That’s right, more churn. As such, you need a robust and carefully considered customer success strategy in place, along with a customer success management team that delivers all the knowledge and care that customers could wish for. And one that understands that different customers will wish for a different level and style of customer care.
With those elements in place, it’s time to consider your customer success metrics. Moesif’s approach to this is to enable you to monitor the complete, end-to-end customer experience. This allows you to not only understand your overall customer health score, but to identify any changes in customer behavior. Changes which could ultimately lead to customer churn.
How Do You Determine if a Customer Will Churn?
Using Moesif, the first step towards determining if a customer will churn is learning what normal behavior looks like. After all, you can’t flag deviations from the norm if you don’t know what that norm is. To do this, you need to monitor functional and performance issues continuously, to build up a picture of what normal means for your business and your customers.
Then it’s time for Real time User Monitoring (RUM). This isn’t just about infrastructure metrics, but about key customer criteria relating to adoption, engagement and retention. Moesif’s advanced anomaly detection algorithms work with all this data to discover deviations from the norm – behavior patterns that could indicate a customer is going to churn. It picks up ‘unknown unknowns’ in customer behavior that mean it’s time for your customer service team to investigate and likely provide additional support.
With a customer success agent investigating anomalies in your customer success metrics, you can take a proactive, almost prescient approach to better supporting your users. In some cases, you will be able to identify problems before your customers are even aware of them. This can introduce an unexpected element of delight into the customer experience, particularly when your customer success agent flags it to the user along with a simple fix that’s easy to implement.
You can introduce dynamic alerts to flag indicators that customers will churn. It’s also a good idea to view reports on your most important accounts on a regular basis, so that you can monitor the general direction of their customer success metrics. This proactive approach to customer health scores can determine which customers are most likely to churn and enable you to do something about it before they do. You can use the insights gleaned from your customer success metrics to identify problems and implement solutions, all of which can reduce your churn rate and, ultimately, ensure you achieve maximum value from the investment you made in acquiring that customer in the first place.
Stop Churn by Defining, Measuring, Analyzing and Ultimately Predicting it
Customer churn occurs when your customers are unhappy. Understanding why your customers are churning is key to unlocking your ability to stop them doing so. That’s why defining, measuring, analyzing and predicting churn is important. Unless you are proactively doing so, you are likely costing your business dearly. So much so that your customer churn rate could just be the most important metric.
Thankfully, with the right tools in place, you can track your customer churn rate, gain insights and put measures in place to reduce it, with associated benefits for your bottom line.