Churn rate is one of the most important metrics that companies and businesses need to monitor. It reveals how many customers the company has lost, as well as what can be done to ensure their retention.

With the growth of the SaaS (Software as a Service) company model, the term Churn became better known and also more important.

This metric presents a harsh reality, but it’s hard to be successful without knowing what is going wrong. Understanding why customers abandon your business is crucial to maintaining financial health firm and strong for a long time.

In this article, check out what churn is and why it’s a villain for your business. Also, learn how to prevent your customers from leaving you forever. Let’s get started?

What is Churn rate?

Churn Rate is a metric that shows the number of customers that have abandoned or cancelled the service. It can be calculated for a given period, such as per month or year. 

For example, if you started the month with 400 customers and ended with 380, the Churn Rate will be 5%. 

This rate shows that your company needs to work with customer retention strategies to make it closer to 0%. To do so, the company must treat cancellations as top priority.

A great way of handling these cancellations and prevent them from happening is by creating a customer success team to handle customers about to jump ship.

The importance of keeping an eye on this rate

Businesses naturally lose customers. After all, the market offers several options for consumers.

But, getting new customers is more expensive than retaining existing ones. And many companies make this mistake. They always invest in getting new customers and forget about building a relationship with old customers.

Customers that stay longer in your base have a better chance of buying other services or products from you. 

This is why assessing the cancellation rate is so important for those who want long-term success. By better understanding the reasons for cancelling, you’ll be able to develop a more efficient action plan and correct the problems that were detected.

Types of churn

Yes, there are different ways of calculating the churn rate. But don’t despair. Both calculations are simple and adaptable to each business’ strategy.

The first type is Gross Churn, which represents the total number of users or recurring revenue, which can be annual or monthly, lost over a given period, as in the example above.

The second type is Net Churn, which takes into account the revenue lost due to cancellations. It is calculated as follows: the total sum of the monthly amount paid by the person who cancelled/total revenue of the month.

What is the ideal rate?

As I’ve also said before, the ideal rate is close to zero, but we know that cancellations are inevitable.

Many things are at stake here. A high cancellation rate means that your consumers are dissatisfied with your product, which increases the risk of your company having a negative image in the market.

But always keep in mind that your churn rate must be as low as possible. Companies, such as SaaS platforms, work with rates around 5% to 7%.

How to identify the reasons for cancellations

If your business’ churn rate is high, the first step is to understand the reasons behind these cancellations.

If your customer has contacted you to cancel the service, or went to your cancellation page, it’s possible to map the reasons through a form asking for the reason for the cancellation.

Some of the reasons might be:

• The customer can no longer afford the product or service;
• Expectations were not met;
• The product is good but the customer support/service isn’t;
• The customer has chosen another product that is better;
• The customer feels that the content is outdated or offers nothing new.

After you identify the reasons for the cancellation, it’s time to work on reducing the churn rate. Invest in improvements, such as increasing product quality, have a more competitive price and better support.

Another tip is to create specific email marketing and social media campaigns for those who have already purchased your product. Conduct surveys and identify points of deficiency that need to be addressed. Who better to identify this than your customer base?

Tips on how to reduce churn in your business

In addition to the short tips above, we’re going to explore other forms of reducing your cancellation rate and creating a loyal customer base.

Deliver real value

The first tip to retaining customers is to make your product become indispensable and actually become part of your customers’ daily routine, whether at work at for a hobby.

If your customers don’t find value in your product or service, why would they keep buying it? 

Create your user onboarding

User onboarding is how users have their first contact with your product or service, using it to discover all of its features, exploring and learning to browse as accurately as possible.

It’s frequently used by SaaS companies because it demonstrates all of the service’s potential and customers can configure it without the assistance of a more personalized support. 

Onboarding will help you a lot in reducing churn rates, since it completes the tip above: demonstrating the product’s real value.

The first impression lasts forever

When users have a great experience during the first moments in contact with the product, their chance of staying is much greater. 

This first impression can be built into your sales landing page or in the first minutes of a video explaining your product. 

This will make consumers understand the benefits, believing that over time, the product will be even better.

Are we all on the same page?

If customers have high expectations and the customer service isn’t up to par, sooner or later they will cancel. Dissatisfaction and unmet expectations are also the main reasons for cancellations.

Creating a good impression will be useless if customers’ expectations aren’t aligned with what the product really is. The secret is to be honest and make it clear what you’re delivering!

Customer success isn’t hogwash

Before customers cancel a service they give clear signs that they’re dissatisfied. You need to act quickly in these cases, having a customer success team to solve these problems.

These professionals have the role of anticipating problems and making sure that your customers always have aligned expectations and obtaining good results with the product or service they have purchased.

Your customer doesn’t use your product or has expressed any dissatisfaction? It’s better to act than wait until they cancel without doing anything.

What is your customer’s opinion about your business?

Your customers have valuable opinions about your business, which are often ignored by entrepreneurs and companies.

There are operational details that end up going unnoticed by business owners. Invest in feedback tools that may also include satisfaction surveys.

But pay careful attention to your customers’ opinions about your business. Create reports and invest in improvements based on this. This will truly help you in what really matters: customer satisfaction.

What does persist in error mean again?

With the satisfaction surveys and opinions collected, you’ll also find mistakes that are being made and that increase your churn rate.

After you find the mistakes, outline an action plan to correct them, which can be done on a simple spreadsheet by entering the most frequent reasons for cancellation and what can be done to bypass them.

Without concrete actions, mistakes will continue to be made and so will cancellations. 

Well, your customer’s gone. Now what?

Even after putting all the above tips into practice, it’s not always possible to prevent cancellations. Some are inevitable, even getting out of the control of the customer success team.

But don’t give up. Reducing churn is a medium to long-term process. And I can’t emphasize this point enough: always listen to your customers and put your action plan into place to increase their satisfaction, reinforcing your base.

Would you like more tips on how to retain your customers? Learn how to use chroma key for videos to engage your audience and build customer loyalty!