What Your Customer Churn Data Can Show You About Your Business?
Picture this: You invested a large sum of money in your marketing strategies. Months later, you are beginning to get effective results. Your SaaS business has been acquiring a ton of customers. With more revenue, you are working towards a stronger customer funnel. However, soon after your customers leverage your services, they opt to discontinue and fly right out your back door.
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Sounds relevant? This is what customer churn is - a common enemy of all SaaS businesses. Losing customers is no less than a nightmare. After all, in a contemporary business environment, a lot of effort, time, and money goes into capturing a customer. Not only does that go down the drain, but you have to put in more effort to fill the customer gap and invest more resources into finding new ones.
All of that being said, no business can keep 100% of its clients. However, retaining maximum happy customers is the key to the success of a SaaS business. That’s why customer churn analysis - the only way to find why your conversions are falling off - shouldn’t be ignored.
In this blog post, we will take you through how customer churn data highlights the key aspects of a SaaS business. But before that, let’s understand what customer churn is, its analysis, and its benefits.
What Is Customer Churn and Its Analysis?
Customer churn, or customer attrition, is the percentage of customers that have stopped using your services at any given time.
To calculate the customer churn rate for your SaaS business, divide the number of customers you lost during a period by the number of customers you had at the beginning of that particular period.
This loss of customers happens for both voluntary and involuntary reasons. However, the first step towards reducing customer churn measures it. That’s what customer churn analysis helps you to do.
Customer churn analysis goes deeper than analyzing the number of customers discontinuing your services. It acts as an armor of detailed insights that help you identify the pain points of your customers. You get the opportunity to get a complete stance of your customers’ needs which allows you to further evaluate why your SaaS business cannot meet them. With this knowledge, you can improve the necessary aspects of your business to reduce the customer churn rate and boost customer retention.
Why is Churn Analysis Important for Your Business?
Customer churn is a lagging indicator - it tells businesses about the loss that has already occurred. It’s nothing but a measurement of the damage inflicted in the past. To reduce and prevent churn, you need to get ahead of it. Churn analysis helps you do exactly that.
With a consistent approach towards churn analysis, you get to identify the leading indicators of the churn. Knowing a customer has left your business works as a notification of the event. You can do nothing about the loss except acknowledging it and using it as a preventative measure against other customers. However, the metrics of churn analysis identify when a customer is about to stop their usage and intimates you about it right away. You can take measures to keep that customer intact by implementing corrective strategies.
Moreover, customer churn analysis should be a top priority for a SaaS business as
- Obtaining new customers is far more expensive than keeping an existing customer (5x more, in fact).
- An increase of 5% in customer retention can account for at least a 25% increase in profits.
- Repeat customers (over their customer lifetime) are likely to spend 67% more on your company's products and services.
As Benjamin Franklin said, “An ounce of prevention is worth a pound of cure.” Customer churn analysis is your right-hand tool to prevent your churn rate by a great margin and contributes to improving your overall business performance.
How Customer Churn Analysis Highlights the Key Aspects of a SaaS Business?
Breaks Down the Primary Reason Behind Churn
When a customer discontinues its services from your SaaS business, there can be many reasons behind it. Until you do not understand the reason behind the churn, you can not take any action to prevent it.
Churn analysis figures out the reason behind the exit of customers, helping you adopt the right approach to fix the issues. At the end of your analysis, you will end up finding one or more of the following reasons behind the churn -
Wrong Target Customer
Oftentimes, businesses end up setting the wrong target audience for their marketing campaigns. It leads to attracting leads that might juice the number in the short term. However, as the customer realizes that they signed for a wrong fit, they are less likely to stay, less likely to upgrade, and less likely to spread the word about your product.
To fix this, ask the right questions upfront from the customers and use their answers to build the right target audience for your SaaS business.
Losing Customers to the Competition
The only thing your customers care about is receiving the best possible quality of service. Your services may be well functional and highly ranked. However, if your customers find the competitor’s service to be fulfilling their needs in a better way than that of yours, they will switch to them in an instant, and rightly so.
To remain competitive in the marketplace, stay in the loop with the customer’s feedback and conduct regular competitor analysis. Moreover, focus on strengthening your USP and brand identity to stand out from the competition for your ideal audience.
Your Services are Becoming Outdated
Your customers join your subscription plan believing you are doing the best for them at the moment. However, as time passes and the definition of user experience changes, customers begin to expect updates in their business plans. If the customer has run the lifecycle of your service and you are not ahead of them, providing more perfectly satisfied customers can contribute to the churn rate.
Put a high priority on customer service in your business and be intentional about communicating well with your customers. This will help you know their expectations and alert you to change the course of your SaaS business services. Most importantly, adopt a contemporary approach and keep updating your services and marketing approach as and when needed.
Highlights the Business Areas that Needs Improvement
Oftentimes, customer churn happens also because of involuntary reasons such as
- Expiry of payment card
- Forgetting to add new card information
- Attaining credit limit
- Outdated credit information
- Server errors while making payment
- Insufficient funds in the bank account
While these reasons are not your fault, they still add to the increasing churn rate and affect the revenue of your SaaS business. You need to adapt tailored customer outreach strategies to provide a seamless customer experience and prevent involuntary churn.
Churn analysis highlights and lists out these involuntary (and voluntary) patterns that indicate common motivators for the customers to leave you. You can use such insights to recognize your weaknesses, improve your shortcomings, and enhance your business strategies.
Assesses the Key Performance Indicators (KPIs) of Churn
To prevent churn well in advance, your business should be able to predict it. As stated above, customer churn rate is a lagging indicator, and to take preventive measures, you need leading indicators.
With churn analysis, specific leading Key Performance Indicators (KPIs) come into play. They create an analytical basis for you to recognize churn by reflecting at the right metrics that hint at the dropping rates.
Customer Engagement and Usage
Consistently declining rate of usage is one of the definite signals of your business services approaching customer churn. You should look out for these particular metrics to get a closer look at the churn indicators -
- Decrease in the amount of time the customer spends on your business website;
- Increase in the number of lapsed payments;
- An increase in the number of customers who downgraded your SaaS services;
A decline in support tickets received by your customer service team is usually a positive sign.
However, if you witness a sudden steep fall in the number of support tickets generated in your ticketing system, don’t be delusional enough to believe everything is right. There is a higher probability that customers lack the will to engage with your business. They have reached a point where they find your SaaS services beyond repairable, and hence, they do not try to fix the problem. This is a sign they're not likely to stick around for long.
Behaviors Leading to Greater Churn Rate
Each person in your target audience will have different behavioral patterns. Noting down the churn data about their different behaviors ranging from the time they first sign up to their product usage can help you in analyzing, anticipating, and preventing churn.
Following metrics can help you recognize patterns:
- Disengagement of customers at a particular stage into the customer funnel or after a fixed period.
- Features of your product that are underutilized.
- Customers with an increased risk of delinquent churn.
- Similarities in the portion of customers that are using your support services.
Apart from these, observe how customers in different segments use your product. Try to understand their perception of your SaaS business and your service offerings. The collective measures will help you figure out churn-susceptible customers.
Customer churn happens in all businesses; it's inevitable. With the help of customer churn analysis, turn it into negative churn - the good kind of churn - that your revenue from the current customers outweighs the revenue lost from the past churn customers.
Churn analysis is a critical part of the customer retention strategy. If you find conducting a thorough analysis difficult, take help from a leadership development company that helps you recover your churn rate. Gravy Solutions, a market leader in accelerating subscription-based businesses, uses the data and metrics effectively in your business strategies. It ultimately increases your company’s profits and creates devoted users who engage with your brand loyally.
Equipped with this information and churn data, you’re all set to fight the declining retention rate. Make churn analysis a priority and watch your business grow at a sustainable rate.
Published on Aug 27 2021
WRITTEN BYIndrė Jankutė-Carmaciu
Indrė is a copywriter at Whatagraph with extensive experience in search engine optimization and public relations. She holds a degree in International Relations, while her professional background includes different marketing and advertising niches. She manages to merge marketing strategy and public speaking while educating readers on how to automate their businesses.
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