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Definition of Churn.
Churn is the percentage of accounts that decide to cancel or choose not to continue to consume a product or service, for a given period of time. It is important to measure because it will have an effect on your Monthly Recurring Revenue (MRR). It is the contrary of the growth rate since instead of acquiring new customers you are losing actual ones. The higher your churn is, the more time effort will be needed on bringing new accounts in to compensate for the loss.
How is Churn calculated?
Customers churn = (customers beginning of the period- customer end of the period)/customers beginning of the period
Why is Churn an important customer success metric? It is imperative to understand the reasons behind the churn because the vendor is losing revenue, and most probably having the brand negatively impacted.
Most importantly, some actions can be taken to prevent it from happening, underlying opportunities to improve your solution and customer service.
The 3 main reasons for Churn :
1. Need. Customers may no longer need what the vendor is offering, or cannot afford the cost. In this case, an evaluation of the audience that the solution is being targeted is necessary. Are the marketing and sales teams focusing on the right audiences for the solution? Do churn rates differ between different audience segments? Are the churn rates aligned with the rates accepted by the industry?
2. Competition is offering a service that better suits the customers' needs (price, efficiency, delivery,...).Rather than a one-time analysis, this analysis requires continuous competitive intelligence mapping. Most competitors do not appear overnight and solutions are usually the outcome of a continuous evolution rather than a less common disruptive breakthrough. This one is a complex task, as it may involve understanding the customer's perception of value, which may be subjective, and what can really be considered a technical solution difference.
3. Dissatisfaction with customer service. First and more important: Listen to the customers. They are probably giving many signs, comments, and reviews showing their discontentment. Listening and acknowledge is the first step to de-escalate a dissatisfied customer. Is there a retention plan in place to prevent dissatisfied customers from leaving? Does showing appreciation for the customer,s business a best practice in the company? Are the best customers recognized as such? Is the team well trained to provide better customer support than the competition? You can find out more about de-escalation here.
The investigation of reasons for churn may be a great opportunity to find out if all the important steps are being taken to assure customer success. A successful customer will never interrupt the consumption voluntarily.
Photo by Brodie Vissers