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Seven-step guide to perform a customer churn analysis
All SaaS companies can expect some level of customer churn. For example, some customers who start a free trial may not ultimately subscribe, or those who do might realize they’re not interested in renewing their subscription. Some might feel the software doesn’t meet their needs, so they look for another solution. These are just a few of many possible reasons a SaaS company might see customers leave. An upward trend in customer churn rate indicates a serious problem for your business both monetarily and reputationally. If you start to see that happening, it’s time to get to the bottom of why. Acquiring new customers can be markedly more expensive than retaining existing ones. That’s why performing a customer churn analysis can be powerful in the endeavor to increase customer retention. We dive into seven steps for a successful customer churn analysis.
What is customer churn rate?
The customer churn rate is the rate at which existing customers decide they no longer want to buy your company’s products and services. You can calculate your churn rate as a percentage. First, decide on the time frame for which you’re calculating your customer churn. Then, divide the number of customers you lost during that time period by the total number of customers. Multiply this number by 100 to find your percentage of customers who churned.
What is a customer churn analysis?
Customer churn analysis is a process by which you find meaning in your customer churn rate. Simply knowing that your customers are churning isn’t enough. You need to take an in-depth look at your churn data to understand the reasons customers might be leaving. Then, you can identify the necessary course of action to reduce your churn rate. Through customer churn analysis, businesses can identify pain points in the customer journey and address them. Companies can use data and insights to help answer the following questions:
- Which customers are leaving?
- Why are they leaving?
- Which customers are likely to churn in the future?
- How can we reduce customer churn rate?
Seven steps to perform a customer churn analysis
1. Choose the right KPIs
Performing a successful customer churn analysis depends on gathering the right data. Take some time to figure out what attributes of your customers are going to offer the most information and insights about your customer churn rate. Customer behavior can often be the most indicative of possible churn and the most useful to track. For example, you can track customer usage of your product. If usage begins to decline, this is data that could indicate a possible churn risk. In addition to your customer’s product usage, their engagement or lack thereof will be evident through traditional communication channels, such as email correspondence, video calls, and meetings. You want to assess customer behavior both inside and outside of your product to get a full picture of customer health. Some other factors to consider when it comes to engagement are:
- Amount of communication: if a customer is in the onboarding process, and you haven’t heard from them in two weeks, they might not be a healthy customer.
- Support tickets: submitting support tickets could signal high engagement, but unresolved tickets or a large number of tickets could indicate an unhealthy customer.
- NPS® score: a negative NPS score could show that something isn’t right with that account.
- Feedback on products: this usually indicates an engaged customer, but if they’re submitting feedback nearly every day, they might be dissatisfied with your solution.
Once you know which KPIs you’re paying attention to, you can get started with the bulk of your customer churn analysis.
2. Track those KPIs
For your customer churn analysis to really tell you anything useful, it’s important to gather and track data over an extended period of time. When it comes to customer health scores, it’s best to have at least a quarter’s worth of data. The more you track sales and customer retention metrics as well as customer behavior statistics, the more you’ll be able to get out of your analysis. Plus, the more data you gather, the more detailed your analysis will be, and the better equipped you’ll be to build out churn models and draw conclusions. Also, if you continuously track data, you’ll be able to conduct a customer churn analysis nearly any time, whenever you feel it might be necessary.
3. Break down the analysis into segments
A high-level customer churn analysis will certainly be helpful, but getting into the nitty gritty details can be even more so. Breaking down all of your data into segments or cohorts is an effective way to understand trends and patterns in your customer churn rate. You can group your customers into various segments by their similar traits and see if there are any recurring patterns within a single group. You can also maintain these segments or cohorts and track them over time. You might see that some of these groups have different purchasing patterns, or that certain quarters of the year have higher churn rates for customers in certain industries. Decide which characteristics are going to be the most useful for your customer segmentation. Some common traits include purchased products or services, geographical region, and industry.
4. Gather feedback
In addition to the hard numbers, qualitative data will help you put together an effective customer churn analysis. If a customer churn analysis is all about learning why your customers are churning, then qualitative feedback will provide invaluable insights. You can send out surveys and ask for feedback from both existing customers as well as customers who have just churned. For existing customers, it might be the most useful to keep an eye on their customer health scores. For customers who have just churned, you can send a follow up survey or conduct an exit interview to see if they have any feedback to share with your company. These sorts of insights from your customers will help give meaning to your data and put the numbers from your customer churn analysis into a larger context.
5. Keep an eye on competitors
While it’s certainly important to focus on what your internal team can do to reduce your customer churn rate, someone should be paying attention to your competitors as well. Their actions can affect your churn rate if they’re attracting customers away from your business. There are a number of things to consider when conducting your customer churn analysis and taking your competitors into account. The pricing structure on their products and services, any new product offerings, brand exposure, customer engagement, upgrade or renewal offers, and customer reviews could all affect your customer churn rate.
6. Build a predictive model for future churn
An effective customer churn analysis will allow you to leverage those insights to build a predictive model of your customer churn rate. You can pick up on trends that might be influencing an increasing churn rate and use this analysis to get a better understanding of your customer churn. When you understand the main motivations behind your customer churn rate, it’s easier to look ahead to the future. You can use the data from a customer churn analysis to identify possible at-risk customers as well as define benchmarks in the customer journey when churn seems likely. ChurnZero’s health scores feature will perform this analysis completely autonomously. Instead of doing it manually, our software automates it for you.
7. Take action against customer churn
Armed with the knowledge from your customer churn analysis and your new ability to predict possible pain points, it’s time to put it all into play. Knowing when and why your customers are churning, you can develop strategies to take action and reduce your customer churn rate. Focus on addressing specific and recurring pain points to smooth the customer journey and provide your customers with more incentive to stay with your company. A customer churn analysis will also help you and your company make informed decisions about the best ways to address customer churn. Instead of feeling like you’re constantly trying to put out a fire, you can feel in control of the steps your business is taking to increase customer retention.
Master customer churn for your business
Even though there might be common reasons that customers decide to churn, every customer is still unique. Download our Churn Monster Playbook to learn more about the different types of customers who churn and get some tips for how to manage each one.