Understanding churn rate
To truly understand a business’s health, company’s track certain numbers. One metric that we feel is vital to tracking and predicting a company’s success is customer churn rate. It can be hard to understand what is causing your churn rate to increase but with a little bit of work and change in focus, you can overcome what seems to be an impossible task of keeping customers happier for longer.
Churn rate is the rate at which your customers are leaving your book of business. If you want to find your company’s quarterly churn rate do the following arithmetic: the number of customers that you lost last quarter divided by the number of customers you started last quarter with. The percentage you end up with will be your churn rate for that quarter. So if you have 500 subscription-based customers and 25 of them leave your book of business last month, then your churn rate for that month would be 5%.
This may sound like an extreme case, but believe it or not, the average churn rate for a SaaS company should be between 5-7% ANNUALLY! That means most companies in the SaaS industry should only have around 0.42 – 0.58% monthly churn.*
It can be easy to fall into the mindset that all you need is new customers but it is vital to avoid falling into this type of thinking. According to smartinsights.com, only 18% of companies put a strong emphasis on customer retention. This is insane given the fact that it costs nearly 5X as much to acquire a new customer than it does to upsell/keep an existing one**. Not to mention the fact that existing customers are much more likely to talk about contract renewal or upsell possibilities.
So how do you keep your customers from churning? There are a few different efforts that can help you get your company on the road to keeping more customers happy resulting in much more revenue.
First, make sure your business model is catering to the needs of existing customers. Don’t be like the 82% of businesses that don’t place existing customers needs first*. Placing new customers ahead of the existing one is a business practice that has to end now. Understand who your audience is and what they consider good service. This might include more check in calls or email follow-ups. It all depends on your business…but above all they need to know you care and that you are listening to them and handling their concerns.
Second, looks for the signs of a customer who is about to cancel your business services. Chances are your business has these numbers and all it takes is the right person with the right tool to see what leads to a customer leaving. Sometimes this is a lack of communication between a business and the paying customers and other times all it takes is a support phone call that lasts too long. No matter the reason, if it causes a customer to leave your business, you should care about it enough to track as a metric.
Third and lastly, be willing to change. Change is uncomfortable. And addressing churn rate can show a lot of weaknesses in current processes. Sometimes the changes needed are not addressed because caring about customers is not baked into the company culture and it might be up to you to change this! It can be a long road for your company to shift concern to a current-customer focus but in the end it is almost always worth the increase in revenue.
If you are a decision maker at your company and you want to make a real difference in the total revenue your company keeps, one of the most effective things you can address is customer churn. It will be a long road ahead to stop customers from leaving your business and its services. But don’t let your customers slip away unnoticed and start tracking (and eliminating) your churn.
Learn about churn reduction now
sources: *source – http://sixteenventures.com/saas-churn-rate, **The Harvard Business Review