Why a High Churn Rate is Often Unavoidable and What You Can Do About It

A high churn rate is often seen as a necessary evil in business. After all, no company is immune to the occasional customer leaving for greener pastures. If a?SaaS company’s net revenue churn ?is above 2% each month, it indicates a fault within the company that needs to be fixed.

In this article, I would like to share most of my knowledge about the churn rate.

What is?the customer churn rate?

In business,?churn rate?refers to the percentage of customers or subscribers who cancel their service within a given period. It's also known as?attrition rate?or?customer turnover.

A company's churn rate is one of the most important KPIs (Key Performance Indicators) because it indicates its growth. A high churn rate means that the company is losing customers at an alarming rate and is in danger of going out of business.

Why is?the customer churn rate significant?

The customer churn rate is important because it's a good indicator of the company's health. If a company has a high churn rate, it's losing customers at an alarming rate and is in danger of going out of business.

Also, I consider it a validator of my products and services; if customers are churning, it means my products and services need to meet their needs.

Finally, a higher churn rate indicates a waste of the marketing budget; if a company is losing customers at a high rate, it needs to spend more money on marketing and more on customer retention.

What are?the causes of a high customer churn rate?

There are many reasons why a company might have a high customer churn rate.

Some of the most common reasons include:

• Products or services are not meeting customers' needs: This is the most common reason for a high churn rate. If customers feel they need to get value from your products or services, they will leave.
• Customers need to receive adequate value from the product or service: This is similar to the first reason, but it's important to note that customers may only sometimes be aware of the value they're receiving. For example, customers may only realize that your product saves time and money once they switch to a competitor's product.
• The prospect's expectations are high due to marketing messages: If a company's marketing messages are not in line with the actual product or service, it will result in disappointed customers.
• The customer is not a good fit for the product or service: Only some customers are a good fit for every product or service. If you try to sell a high-end product to someone who can't afford it, they won't be happy customers.
• The company cannot scale: It will eventually lose customers if it cannot scale. For example, a company that sells products online may only be able to keep up with customer demand if it only sells through its website.
• The company cannot provide good customer service: A company must provide good customer service to retain customers. Customer service is essential because it's the first defense against dissatisfied customers.
• Disappointing after-purchase services: This is similar to the previous reason, but it's important to note that after-purchase services are just as important as customer service. After all, you're not going to keep a customer if they're not happy with the product or service they receive after they make a purchase.
• The company is not listening to its customers: If it does not listen to its customers, it will eventually lose them. Customers want to be heard and their voices to be taken into account.
• The company is not innovating: If it does not innovate, it will eventually lose customers. Customers want new and innovative products and services; they don't want to keep using the same old thing.
• The company needs to adapt to change: If it is adaptable, it will eventually lose customers. The world is constantly evolving, and companies need to change with it.

What is a?reasonable customer churn rate?

This question has no definitive answer because it depends on the industry and the type of product or service the company offers.

Some companies, such as?Dropbox?and?Evernote, have meager churn rates because their products are essential to their customers.

According to their field, here are the average churn rates in various businesses across the United States.

How does?the user?churn rate?affect other?SaaS?metrics?

User churn rate is a metric that affects other software as a service (SaaS) metrics. When customers churn or cancel their subscription to a SaaS product, it affects the company's revenue and customer lifetime value (CLV). A high churn rate can also lead to a decrease in new customers.

What is the average safe churn rate?

I believe you need to compare your customer churn rate with the industry average to determine whether you have a problem.

The average monthly churn rate for a Saas company is 3-8%, and the average annual churn rate is 32-50% (source ).

Therefore, if your customer churn rate is below 3% per month or 32% per year, you are doing better than the average SaaS company.

How can I?calculate the Churn Rate?

There are a few different ways to calculate the churn rate.

The most common way to calculate the churn rate is by?dividing the number of customers who cancel their subscriptions by the total number of customers at the beginning of the period.

For example, if a company has 100 customers at the beginning of the month and 3 customers cancel their subscriptions, its churn rate would be 3%.

Calculate Customer churn rate For SaaS.

For SaaS companies, the common churn rate formula is a bit different.

The reason for this is that SaaS companies often have free trial periods. During the free trial period, customers can cancel their subscriptions without penalty.

For this reason, the formula for calculating the customer churn rate for a SaaS company is?dividing the number of paying customers who cancel their subscriptions by the total number of paying customers at the beginning of the period.

For example, if a SaaS company has 100 paying customers at the beginning of the month and three paying customers cancel their subscriptions, its churn rate would be 3%.

Calculate Customer churn rate For E-commerce.

For eCommerce companies, the customer churn rate is calculated by?dividing the number of customers who do not purchase in a given period by the total number of customers at the beginning.

For example, if an eCommerce company has 100 customers at the beginning of the month and three customers do not make a purchase, the company's churn rate would be 3%.

Annual?Churn Rate Calculation

There is no difference in the previous customer churn rate formula; you need to consider the number of customers you have at the beginning of the year instead of the desired month.

For example, if an eCommerce company has 100 customers at the beginning of the year and three customers do not purchase during that year, the company's annual churn rate would be 3%.

Tips to reduce?customer churn

More than?one-third (36%) of SaaS businesses ?were able to reduce revenue churn and increase the lifetime value of their best customer over the last 12 months.

There are many ways to reduce customer churn rates. Some of the most common methods include:

• Improving customer service is one of the most effective ways to reduce customer churn. By providing excellent customer service, you can keep customers happy and reduce the likelihood that they will cancel their subscriptions.
• Offering discounts and incentives: Another way to reduce customer churn is by offering discounts and incentives to customers. This can be done by providing a discount for renewing early or a free month of service for referrals.
• Improving the product: Another way to reduce customer churn is by constantly improving the product. By adding new features and making the product better, you can keep customers happy and reduce the likelihood that they will cancel their subscriptions.
• Making it easy to cancel: One of the biggest reasons for customer churn is that it is difficult to cancel a subscription. You can reduce the customer churn rate by making it easy to cancel.
• Monitoring customer satisfaction: Another way to reduce customer churn is by monitoring customer satisfaction. By constantly monitoring customer satisfaction, you can identify problems early and take steps to fix them.

Conclusion

Customer churn rate is an important metric for all businesses, especially subscription-based businesses. There are many ways to reduce customer churn, but the most effective way is by improving customer service. By providing excellent customer service, you can keep customers happy and reduce the likelihood that they will cancel their subscriptions.

If you want to reduce your customer churn rate, we recommend trying one or more of the abovementioned methods. If you have any questions about reducing customer churn, don't hesitate to contact me; I would be happy to help.