Churn Management Basics: How to Predict and Prevent Churn
Are you struggling with churn management?
Most SaaS companies are. You focus too much on acquiring as many customers as possible and leave retention to chance.
There’s nothing wrong with customer acquisition, but you’ll be wasting resources if you keep acquiring customers you can’t retain.
This article focuses on ”easy to get started” churn management tactics that actually work. You’ll learn how to retain new and existing customers and third-party tools to use to help facilitate this process.
- Churn management is the process of identifying at-risk customers and deploying proactive strategies to retain them.
- Every SaaS should implement churn management strategies, as most SaaS businesses rely on retention to increase revenue.
- There are two types of churn: customer churn and revenue churn. The former refers to the number of users that have dropped over a particular period. The latter demonstrates the financial losses due to churned customers or downgrades.
- Customer churn can be voluntary or involuntary; both need to be addressed proactively.
- There are many reasons for customer churn. The most common reasons are poor product experience, product-market fit failure, and bad customer service.
- There are 3 essential steps to analyzing churn: conduct NPS surveys and analyze user sentiment data, perform funnel analytics to understand where users drop off and use churn surveys to understand the reasons behind churn.
- Proactive ways to reduce churn and increase customer retention include:
- Track product usage and monitor how users engage with your tool, reach out to the disengaged segment and reactivate them.
- Use Net Promoter Score and customer satisfaction surveys to identify detractors, reach out and offer help before they churn.
- Monitor brand mentions and reviews on third-party sites. See if you can make the changes that users demand.
- Examine your most valuable customers and try to replicate their behaviors in your less active user segment.
- Provide proactive help with an in-app resource center.
- Replace empty states with meaningful content that requires less activation energy.
- It’s not enough to be proactive. You’ll sometimes need also to deploy reactive strategies when customers are already churning.
- Userpilot and Mixpanel are third-party apps you can use for your churn management efforts.
What is churn management?
Churn management is the process of identifying important customers that are at risk of churn and deploying proactive strategies to keep them. It can also mean identifying potential drop-off points along the customer journey and addressing them quickly before churn happens.
Why is churn management important for SaaS?
To remain profitable, SaaS businesses need good MRR and ARR. Although many people believe this can be achieved through acquisitions, the truth is most SaaS businesses rely on retention to increase revenue. Customer retention has a better ROI and increases customer lifetime value (LTV), which means you’ll make multiple times as much money as you would by acquiring new customers.
The next advantage of managing churn and retaining customers is account expansion opportunities. If your existing customers are receiving getting value from your tool, they are more likely to upgrade their plans.
Another benefit of churn management is increased customer loyalty and advocacy. People who stick with your brand for a long period of time probably feel good about it and will happily recommend it to their friends.
What are the different types of churn?
There are essentially two types of churn in SaaS: customer and revenue churn.
Customer churn represents the number of customers who left your product during a particular period of time. Revenue churn, on the other hand, measures the amount of revenue lost due to churned customers. Your customer base isn’t necessarily shrinking, but instead, you’re not making as much money as you did before. You can run into this problem if customers downgrade to a cheaper subscription or version of your product.
There are two types of customer churn:
- Voluntary churn: The exit is initiated by the customer. Voluntary churn arises for a variety of reasons, from value gaps to inadequate pricing and poor customer service.
- Involuntary churn: This happens when customers unintentionally churn due to problems not directly related to your product or customer service. Involuntary churn could occur due to payment failures, system errors, fraud, etc.
What are the causes of customer churn?
Common causes of churn include:
- Product-market fit failure: Your product’s value proposition doesn’t satisfy the needs of a market and its potential customers.
- Poor onboarding: Onboarding is the most important step in the customer journey since it sets the tone for future interactions. If you fail to deliver a pleasant onboarding experience with quick wins, then don’t expect your customers to stick with your product.
- Delayed Aha moment: The Aha Moment can be defined as the instant when your users realize the value of your product for the first time. The sooner users reach there, the better. If users don’t experience value after a few interactions with the app, they will get discouraged and go look for a solution elsewhere.
- Bad customer experience: The lack of in-app guidance, empty pages, and non-intuitive user interfaces cause friction which diminishes the excitement customers have about a product, leaving them less motivated to use it.
- Poor customer service: Customers want to make sure that there is always someone or something they can rely on when they run into problems. If you neither have a good customer support team that will help your customers with troubleshooting nor have self-service help resources, your customers will leave as soon as they encounter their first issue.
- Product price change: SaaS pricing is tricky. Many companies have lost customers after reviewing their pricing or subscription plans. In addition, customers tend to leave a product when they find a more cost-effective solution that offers the same or similar features.
How to calculate customer churn rate?
It’s easy to calculate customer churn: Simply divide the number of customers lost during a specific time by the number of customers you had at the start of that period and multiply the result by 100.
How do measure and analyze churn?
Analyzing churn helps you detect your product friction points and understand why users stop using the tool.
Here are the steps to churn analytics:
Analyze user sentiment data with NPS surveys to identify potential churn patterns
A Net Promoter Score (NPS) is a metric that measures customer satisfaction and loyalty based on how likely your customers are to recommend your product. NPS score can be used for more than just a vanity metric. You can cross-reference responses and identify the patterns associated with low customer satisfaction.
With a tool like Userpilot, you can reach out to detractors, collect qualitative data with follow-up questions and tag the responses. Then you can uncover user satisfaction insights by looking at the correlation between the follow-up question responses and the NPS score.
Maybe the majority of users want a new feature or came across a bug? After assessing the user’s needs, you can prioritize and quickly resolve the problem before they churn.
Use funnel analytics to understand where users drop off
Funnel analysis helps to understand how users progress through their journey and detect what steps cause friction in the user flow.
You can use an advanced funnel visualization tool such as Mixpanel to set goals and use their and filter out the sources of high converting traffic.
Use insights from your analysis to determine bugs, misleading UX, or other obstacles that slow down user progress and address them to improve the user experience.
Use exit surveys to determine the reasons behind churn
Proactive churn management strategies
It’s very important to be proactive when managing churn and anticipate issues before they happen. You can’t predict everything and come up with a solution for every single issue, but there are a few things you can do to prevent common problems.
Let’s review some proactive churn management strategies you can start implementing immediately.
Track product engagement and usage
Your goal here is to identify at-risk users by analyzing their product usage. If the customer is logging into their account less frequently than they normally would and doesn’t engage with your core features, that’s a sure sign that they’re at risk of churning.
Identify detractors and reach out to them
Conduct CSAT and NPS surveys regularly to be aware of the issues customers encounter.
Pay attention to all survey responses, but particularly reach out to those who give you a low score. Find out why they’re unhappy, offer your help, and act on their feedback to prevent churn.
Monitor bad reviews and mentions on third-party sites
If someone rates your product poorly on social media or review sites, it is likely that they are about to abandon it. Such reviews often express legitimate issues, so respond to them as soon as possible. Ensure that your customer service agents escalate recurring customer complaints to your product teams.
Offer proactive customer service with an in-app resource center
The primary cause of customer churn is friction – anything that makes your users frustrated.
Friction is often caused by a ‘knowledge gap’ – a lack of understanding about how to get the most out of your product.
Developing an in-app knowledge base and adding multiple types of content formats such as micro-videos, checklists, and knowledge base articles will provide customers with the contextual and timely support they need and increase customer satisfaction.
Understand power users’ behavior and replicate their paths
Your power users are those set of users that are frequently active, have the highest LTV, and are loyal to your brand.
These users stay committed because they’re getting satisfactory value. Your task, therefore, is to identify what they find essential in your product and replicate their path to success to your least engaged cohorts. Perhaps they’re engaging with features that the other cohort aren’t using, or maybe they stick to the happy path while others don’t.
Replace empty states with meaningful content to reduce customer churn
Empty states are depressing and don’t help the user to get started with your product. They require more activation energy to fill than if there was already existing content, therefore users are more likely to get frustrated and leave.
Instead of making users stare at a blank page, use empty states to show customers what life on your product could be like if they used it to its full potential. Show users templates that they can fill in or replace empty states with demo content.
Reactive churn management efforts
As much as you try to be proactive and eliminate every friction point, churn still happens and it’s important to address it properly.
Segment customers to identify disengaged users and reactivate them
Reach out to the disengaged users after identifying them. Aim to understand why they haven’t been active on the app and see if you can provide immediate solutions to their needs. Suppose it’s something that will take time, promise to work on it and get back to them once it’s done. Alternatively, trigger in-app prompts to boost customer engagement.
Use interactive walkthroughs and push inactive users to perform key actions
Interactive walkthroughs eliminate confusion, encouraging users to interact with your product and learn by doing.
After identifying the inactive cohort, use interactive walkthroughs to guide them through crucial actions in your product. This will enable them to experience the value of your product immediately and reduce the likelihood of churn.
Keep the users on the happy path with checklists
If users are left without guidance, they may end up taking unhappy paths and churn quickly.
Trigger in-app guidance for unengaged users
This step is critical because users won’t be motivated to stay if they don’t use your important features and experience immediate value from them.
Offer downgrades as an alternative to cancelation and improve customer retention
You may find that some customers insist on canceling their subscription even after implementing all the churn management tactics you know.
Pull one more trigger before letting them go: offer to downgrade their accounts. This might just be what some users need at that moment. Some users will choose that option rather than canceling their subscription and losing the data they have on your tool. Win-win for you and the customer.
Best tools for managing churn
If you followed the article to this point, you’d have realized that you need third-party apps to implement some of the strategies discussed. Below are two of the best tools for churn management:
Userpilot for product usage analytics and user sentiment analysis
Userpilot is a no-code product growth platform that enables you to tag and measure feature engagement. This will allow you to see how users interact with different features, identify inactive users and reactivate them.
Userpilot‘s goal tracking feature enables you to perform funnel analysis efficiently. All you have to do is set goals for each milestone in the journey and track conversion rates at each step to identify friction points.
Another feature that can help you in your churn management efforts is Userpilot’s NPS response tagging functionality.
The NPS score is automatically calculated for you, and a glance will show you the percentage of detractors, passives, and promoters. You can also follow up and collect qualitative data, tag the responses and analyze the insights.
Mixpanel for product and funnel analytics
Mixpanel is a product analytics tool that can be used to track and analyze user data. This tool is particularly useful to SaaS companies that need to analyze large volumes of customer data.
Although Mixpanel may be the best product analytics tool, it’s also the most user-unfriendly. Expert-level knowledge is required to analyze the collected data, so setting up and analyzing reports is tricky and time-consuming.
Churn management is all about anticipating churn and proactively preventing it to improve customer satisfaction. It’s an ongoing process for all SaaS companies.
This article has discussed several proactive and reactive strategies for managing churn. As you implement them, you’ll realize that you need third-party tools to be fully proactive.
Here’s where we can help you. Userpilot enables you to create and track NPS surveys, measure feature engagement, and perform funnel analysis by tracking goals, among other things. Book a demo call with our team to see how we can help you engage and retain your most profitable customers.