Churn rate, or rate of attrition, refers to the percentage of customers who stop using your products or services within a set period. This could be annually, quarterly, or monthly, but your churn rate gives you a clear idea of how many users are moving into your business vs how many are moving out.
Properly analyzed, and all things being equal, an organization’s churn rate is the key metric that gives the clearest idea of how long the organization will be in business. If more people are leaving a business than are joining—or if not enough people are joining compared to the percentage of people leaving—it’s only a matter of time before the business dies.
Avoidable customer churn is said to cost U.S. businesses a whopping $136 billion annually. In a study that analyzed growth of technology companies, McKinsey found that if a SaaS company grows at less than 20 percent annually, it is 92% likely to no longer be in existence in just a few years. Zoho also found that if you can reduce customer churn from 2.5% to 1%, you’ll have double the number of customers in eight years.
So how do you reduce churn and retain more customers? Here are six research-backed strategies that you can start using today.
First impressions matter when it comes to customer churn. Most customers will make up their minds about your brand based on the first interaction they have with you, and it can be difficult to change their minds once an impression has been formed.
An example of a good first impression is this welcome email from Envira Gallery.
The welcome email does a few things well to build trust with customers and potentially reduce churn:
Paying careful attention to customers’ first interaction with your brand is so important that, according to research by thinkJar, 67% of customer churn can be prevented if a customer’s issue was resolved at first engagement.
Of course, it is worth noting that there are both direct and indirect ways of achieving this:
Your product is cool and all, but it is important to come to terms with the possibility that you’re suffering from the curse of knowledge.
The curse of knowledge is a cognitive bias in which someone communicating with others unknowingly assumes that those being communicated with have the background to understand. When you develop a software or any product, it is easy to assume that your product would be easy to use for the majority of your users; however, this isn’t always the case. And when people keep hitting roadblocks in the process of using your product, they’d rather cancel than go through the hassle of asking for help.
By creating educational materials on how to use your product and making it very easy for users to locate these educational materials, you can significantly reduce churn. A case study by payments and subscription analytics company Baremetrics shows just how important it is to ensure that users are educated about the features of your products and how to use it. With user churn at 10% and revenue churn at 13.1%, they decided to take a series of measures.
These changes included working on better educating users about how to use the product through means, such as:
Thanks to these changes, in just one month, Baremetrics was able to reduce churn by 68%. They brought user churn down to 3% and revenue churn down to 5%.
Churn and user security go hand in hand. In almost all instances, being a victim of a cybersecurity attack or simply appearing not to be a safe option to users could result in users moving elsewhere.
According to a compilation of cybersecurity statistics by Restore Privacy, the average American is more afraid of being hacked than of terrorists, burglars, and muggers.
In the banking industry, for example, a Harris Interactive study (conducted on behalf of Entersekt) found that 71% of Americans are likely to switch banks if they became a victim of phishing.
In other words, churn is going to be highly dependent on how much trust users have in your brand.
You can build and reinforce trust in your brand by doing the following:
Poor onboarding experience is one of the major reasons for high churn. Up to 60% of users who sign up for your SaaS application will use it once and never come back. This isn’t necessarily due to a defect in your product or poor user experience. Instead, it is due to a lack of proper onboarding.
Onboarding is the process through which you familiarize customers with your products or services and get them to maximize the value they get from using it. It is important to realize that this isn’t simply getting users to use your products. Instead, it is showing them how to maximize the value they get out of using your product so that they can’t not use it.
An example of a good onboarding experience is that used by QuickBooks:
Instead of using a one-size-fits-all impersonal approach for all customers, the company allows each user to select what they want to use QuickBooks for and then customize the experience based on that.
You can improve your onboarding experience in so many ways:
Often, a lack of regular communication with users can lead to high churn.
When users don’t hear from you, they eventually start to forget about you or consider you to be of reduced priority to them. Increased communication fixes this.
Online brand monitoring service Mention is a notable case study on the importance of constant communication with customers. Struggling with high churn, the company formulated a three-month plan to improve communication and reduce churn. Mention started sending more messages to customers, including “Pro Tips” that show users how to more effectively use features of their application:
Mention also started sending emails showing how different brands are using their product:
This increased communication was responsible for reducing Mention’s churn by 22% in one month—despite their initial target being three months.
If all else fails, you can also consider incentivizing users to continue using your product or services.
A case study of the effectiveness of this particular method is Lead Peep. By offering its customers an incentive to stay at the point of cancelling their account, the company has been able to reduce churn by more than 50%. What Lead Peep does is to offer users a 20% discount on their current package or a free upgrade to a higher package at the point of cancellation.
This example from Fotolia shows this in action; this company was able to reduce churn by offering 30% in extra credits when they noticed a user wasn’t active.
You can also leverage a similar option—possibly with a personal touch. For example, if you offer more personalized support or a DIY service to people on a higher plan, you can extend this to users on a lower plan at the point of cancellation in order to reduce churn.
Of course, this will only work provided that you are aware of the real reason the cancellation is taking place. A good way to incentivize customers to stay will be to actually interview them to find out why they are cancelling, see how this can be addressed (for them and for others if you notice a common trend) and then incentivize them to stay.
Your customer churn rate is the most important metric that shows how healthy your business is. Try out these six techniques you can use to reduce customer churn and prioritize customer experience:
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