Introduction To Customer Churn

“Customers don’t use more than three months with us; what’s happening?”

“Wow … there was a 70% drop in our daily average usage yesterday.”

“95% of visitors on our checkout page yesterday didn’t convert; why?”

“Why do 20% of my new users always cancel after one month?”

If you ask yourself any of these questions, you need to run a customer churn analysis. Call it user churn analysis, churn analytics; it’s all the same.

Customer churn analysis is the process of analyzing why users leave your product, software, or business. Period. Reducing churn by 5% can increase profits by 25-125%.

But what causes customer churn?

Or why do customers, users, and subscribers leave? Several things are the culprits. And your business might have unique factors that cause it. You need to find out why customer churn is happening and make it stop.

Here’s how to run unique customer churn analysis for your business and find the reason(s) why customers leave. If you want experts to do the heavy analytics lifting for you, get in touch with us; we can help. At the end of this article, you can apply for a free consultation session.

4 ways to run customer analysis for your specific business

Bad customer experience is the No.1 reason most customers leave; 68% of them leave because they think a company doesn’t care about them.

When they don’t get a good (great, actually) experience with your business, they switch to your competition.

And it’s okay when customers leave, but it becomes bad when too many of them leave too frequently. That’s bad churn, which could cripple any business. So use these four customer analysis methods to show when you have tolerable or intolerable churn:

1. Know the right KPIs to track

First, you need to know which KPIs inform you about churn. This will let you know your churn rate and determine whether it’s tolerable or not. Essentially, you need to monitor these four key KPIs to analyze churn:

i. Gross customer churn rate:

The rate at which customers leave your business daily, monthly, quarterly or yearly.

The formula:

You could calculate your churn on a cohort basis, that is, calculating churn based on a group of customers. For example, you can calculate how many of your software trials in January left before February, March or whatever month. Or how many of the customers who booked a one-way ticket the last Christmas booked a return ticket in January, February or some other month.
A tolerable churn rate is generally <12.30%, but a nice sweet spot is anything around 5%.

ii. Net customer churn rate: 

The difference between the rate of customer acquisitions vs the rate of cancellations.

The formula:

If the result turns out negative, it means you have more activations than deactivations (cancellations), which is great. But if the result is positive, then you have more cancellations than customer acquisition — which is unhealthy churn.

iii. Daily average usage (DAU): 

The rate at which users engage with your product, website or software every day. It’s a great indicator of customer engagement.

For instance, if your DAU keeps getting lower and lower for seven days, then there’s probably a glitch or bad customer experience you need to fix somewhere to stop such an unhealthy churn rate.

iv. Weekly and monthly average usage (WAU and MAU): 

The rate at which users interact with your product every week (WAU) or every month (MAU). Like DAU, an ascending WAU or MAU means your customer experience is good, and a descending weekly/monthly usage means you’ll need to work on your customer experience before your churn rate gets too bad.

So if your product is one that customers should typically engage with every day, week or month, find why that’s not happening (if, of course, it’s not) and correct it. That’s the first step.

But of course, it’s not that simple. You need to know factors that could cause your average usage rates to drop — and that leads to our next point.

2. Utilize a qualitative analysis tool

If you find your churn rate to be unhealthy (i.e. above 12.3% in a week, month … whatever applies to you), then you need to find the pet peeves causing your customers to leave.

And you’ll need one or more qualitative analysis tools for that. These tools will typically show you how and why customers are taking specific actions on your software.

So, while a quantitative analysis tool like Google Analytics shows you the who, why, where, and how many of things happening on your software, qualitative analytics tools show you how and why those things happen.

For example, a qualitative analysis tool like Opentracker helps you see the entire history of each of your users with your website or app. This means you can trace the journey of people who land on your payment page and optimize it for better engagement.

Simply search “pay” in the tool and you’ll see a list of visitors who landed on your checkout page — from the most recent to the oldest visitors. Learn more about this feature here.

Sample of a universal search; locate everyone who landed on the payment page.

This tool gives you an entire story of how visitors land on your site and where they go from there. If someone lands on a page from a referral or ad, for instance, you know exactly where they come from. And if they go from there to your pricing page or about page, you know which page people from specific referrals like to visit.

All that data helps you optimize your product or service for better retention. You know the exact pages to optimize (add video, improve copy, etc.) to increase engagement, which helps you reduce churn.

Introduction

90% of buyers abandon a business after they experience bad customer service.

Another study reveals 82% of customers have left a company for the same reason.

Paid users won’t leave simply because they experience some problem with your product. Instead, they’ll contact your support. That’s the logical next step after facing a problem as a paid user.

And after contacting your support, they expect a working solution. But it only takes a single bad customer service experience at that point to make them consider churning.

Being aware of the types of bad service that make users leave will put you several steps ahead in helping you avoid more churn.

So here are the top five customer service experiences users have with your product or business that makes them churn:

1. Poor communication during change

When (not if) change happens in your business (say, a price change — for example), the way you communicate it will help customers decide whether or not it’s a favourable change for them.

Ideally, the changes you make in your business should always tilt towards benefiting your customers. And regardless of what the “change” is — even if it’s an increase in your pricing — communicate it in such a way that users feel they’re benefiting more with your higher pricing.

Of course, this doesn’t mean you lie and manipulate customers; it only means you clearly communicate how your change benefits them (assuming it actually does, and if the change does not benefit the customer, do your homework to make the message really resonate with the customer).

For example, Appcues increased revenue by 263% through two well-crafted emails they used to communicate a price increase:

Notice how they tied in the promise of value to the price increase. That’s what buyers want to see and hear. Honestly communicate the benefits of any changes you’re making at your business and you’ll give consumers a good reason to keep doing business with you.

2. Cluelessness and helplessness

Only a few things are more annoying than a clueless customer support agent.

81% of surveyed consumers who had sought customer service through social media reported frustration because the representative didn’t know their history with the company.

And depending on how serious a complaint is, customers may be good and ready to churn if a customer support agent proves they are clueless. Incompetence, imagined or real, gives them a good reason to leave.

Hire the Right Kind of Support Staff

More often than not, the reason most businesses have clueless customer agents is that they invest so little in the training of their support staff. Even worse, they hire the wrong people for the job.

It’s garbage in, garbage out. Poorly-trained customer agents can get customers angry, and, in turn, your business will suffer churn. But focus on hiring qualified people: hard workers who love interacting with customers and enjoy keeping an eye out for how their business can provide value.

Well-trained support reps — with tools to understand customers and solve problems for them — will make your customers happy and have a good reason to stay with your brand.

Additionally, you can orchestrate the right mix of touch moments with your customer base. Give more attention to high-ticket clients and automate engagement with low-ticket clients — but know when to jump in when automation isn’t doing a good job. And make sure you have the right mix and match of automated emails, valuable calls and personal visits when engaging with your paying customers.

Sending Emails at the Right Moment

On top of that, always make sure customers are happy long before their next subscription renewals. Send emails at the right moment, preferably based on the customer’s online behaviour, and engage with relevant and valuable insights. Tools like Opentracker will help you do this!

Don’t forget that for a subscription-based business, recurring revenue from your current customers far outweighs the sales from your new customers. So your Customer Success is responsible for more revenue than your sales department!

If you are constantly responding to support tickets, you may find yourself on the defensive. Don’t let that happen; it’s an ingredient that invites failure.

Instead orchestrate meetings as part of a broader context where success is defined as an objective. If you share common objectives with the customer at initial contact moments, then you will have a basis for regular engagement. You then have a reason for having a meeting that focuses on success.