Churn is basically when a customer stops using your service, and unsubscribes. This data is calculated on a predetermined period, giving us a rate at which churn is happening.
Of all the metrics you need to follow to understand and expand your business, churn is the most distressing. At first sight, it can look like a good ol’ breakup: your beloved customer is showing that the feeling is no longer mutual.
Yet, churn is a natural part of doing business, and even the biggest companies experience churn at levels you don’t suspect.
So, yes, I’m afraid to say it but you also experience churn. Fortunately, there are ways to mitigate and maintain it at manageable levels.
In this post, and with a little help from Blobr, we will:
- Understand what is churn rate
- Learn how to calculate churn rate
- Get you some churn rate examples
- Ways to explore further and explain churn
What is churn rate
Churn rate is the percentage of subscribers or customers who didn’t renew or cancel their subscription in a given time period, usually a month, a trimester, or a year.
This is an essential metric for every company whose business is based on recurring payments and one of the top KPIs for SaaS.
When you deduct the churn rate, you get the positive side, or the Customer Retention rate.
Keeping an eye on churn is one of the best ways to check the pulse of your business.
Because, if too high, it will make your Customer Acquisition Cost skyrocket, and may indicate that your acquisition strategy isn’t targeting the right people.
How to calculate churn rate
To calculate your churn rate, you need the following data:
- Set a period of time: from a month to a year.
- Get the number of users you had a the beginning of the period.
- Get the number of lost customers during that same time frame.
- Take the number of lost customers and divide it by the total number of customers at the beginning of the period.
- Multiply the result by 100 to get a percentage rate.
That’s your churn rate.
For example, let’s say you want to get the churn rate for the past trimester.
If you have 3,000 paying subscriptions at the beginning of the period. During that same period, you lose 150 paying subscriptions.
150 divided by 3,000 will give 0.05. That number multiplied by 100 will reveal a 5% churn rate for the trimester.
Alternatively, you can use Blobr and use the following prompt.
If connected to Stripe, Blobr will use the subscription data to provide you with that number.
If connected to HubSpot, it will use the deals data.
Depending on your offering, a global churn rate may not be the right indicator. You may want to get a deeper understanding, by product, or by plan for example. In that case, you can use the following prompts:
That way, you can get a clear picture of the less efficient plans or products, and start to see the beginning of an answer.
Churn rate benchmarks
Comparisons may be odious, but they do help put your business in perspective.
For SaaS, the common assumption is that a 5-7% annual churn rate is pretty good, with a 3% rate considered almost perfect. Numerous surveys also point to that number, with about a third of companies succeeding in having a churn rate under 5%, another third between 5 and 10%, and the last third above 10%.
If we take a closer look at the number and the profiles of the companies, benchmarks greatly vary, based on the type of targets you’ve got, the kind of business (B2B or B2C), and dozens of other factors.
For example, companies targeting SMBs, and in the earlier stage of their development can reach a 5% monthly churn rate.
It all makes sense, because between a startup offering a self-serve solution with a low to medium subscription price, and a more established company making only custom deals, the level of implication of the customers will not be the same.
You’ll more easily churn from a $49/ month self-serve tool, than from the $2,000 deal you spent weeks on.
The difference between those two companies is volume. So, when setting a churn target, keep that in mind and ask yourself the following questions:
- Are my targets SMBs or bigger companies?
- Is my solution self-serve or custom?
And, in the end, just see by yourself: is your churn offsetting your growth? If the answer is yes, you’re in trouble.
Understand churn rate
Ok, now that you have all the available data, it’s time to act.
Here are some of the steps you can take to alleviate churn.
1. Segment your churned customers
The churn rate alone won’t be of any help to actually understand who ends up leaving you.
By looking through the data collected on your CRM and revenues, you can find some patterns in the type of customer churning.
Getting to know the standard profiles of churned customers is like starting to pull a string that will lead you to solutions.
For example, let’s say you enter this prompt on Blobr:
With this prompt, you can get info about the type of company most at risk of churning. Like small companies or solo entrepreneurs, profiles more likely to cut expenses faster.
Or with this one, dig even deeper, to see if there are any patterns at the acquisition level:
Here, you can zero in on the way you get your customers and maybe identify a gap between what’s sold on your website and the actual product.
For example, identify a landing page that generates far more churned customers than other pages, or a Google Ads campaign more likely to bring less qualified people.
Question by question, you will draw the portraits of those churned customers, and start to figure out actions to take to reduce that number.
2. Understand signs of churn
Once you have determined the profiles of users who are at risk of churning, you can get deeper and directly to the roots of it.
Is it a missing feature? An ill-adapted pricing? A lag between what you’re selling and the actual product? There could be hundreds of reasons leading to churn.
Here, you can take two steps:
1. Directly tap into your CRM resource, where all your interactions with your customers are logged. Connected to Blobr, you can make a request like this one:
Such a request will check all the engagements you had with customers, to discern if, before actually churning, they displayed some alarming signs.
Sometimes, it can’t be enough so you might want to take the initiative and directly ask users.
2. Survey the churned users. Yes, maybe you won’t get a lot of answers, but coupled with what you already got from your segmentation and the first questions asked on your CRM data, it can bring the missing pieces.
3. Identify who is at risk of churning
Understanding churn is one thing, preventing it is another.
And this is something you can do too!
With alerts like this one:
That way, when a customer meets some of the conditions you identified as leading to churn, you can be on top of it.
Addressing the issue before it happens is the best way to prevent, and thus reduce, churn!
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