Reducing Churn

Churn can be a big problem in business, especially if you operate a subscription model. Admittedly, churn is a rather amusing term and might make you think of a washing-machine on full pelt, but it’s worth looking into more deeply. When you understand how it works, and what you can do to fix it, you put your business in a far healthier place.

What exactly is churn?

It’s a simple truth that, to grow your business, you don’t just need to attract customers, but to retain them.

Let’s use a little story to illustrate this:

Imagine you start the month with 1,000 customers and by the end of it, 50 have left. That’s a 5% churn rate. It might sound small, and hardly something to be worried about, but in the School of Churn Studies that’s considered a high churn rate. There could be one of three reasons for it: dissatisfaction with your product, fierce competition, or a misalignment with your market. Combined, these three problems form one big headache. The snag for you is that these can drag your business down — and quickly.

The harsh truth is this: every time one of your customers leaves, you’re not just losing today’s payment — you’re losing all the future payments that customer would have made. There’s another word for this: Customer Lifetime Value or CLTV. For subscription-based businesses, this can be a slow bleed that’s tough to stop. If your average customer is worth $1,000 a year and you lose 50 of them, that’s $50,000 gone into thin air.

If this isn’t bad enough news — forgive us, but we’re just being honest with you here — lower CLTV has a compounding effect. This means you have less money to reinvest in finding new customers or improving your product. So your situation goes from bad to worse.

When churn is high, your business is essentially sprinting on a treadmill: working hard to acquire new customers, but never really moving forward because you’re losing them just as quickly. Now going on a treadmill is good for you, but when you’re operating a business on that model, it’s not a lotta fun.

So how do we fix this?

To tackle churn effectively, you need to know the enemy. There are two types:

• voluntary churn

• involuntary churn

Voluntary churn is when customers choose to leave. Maybe they don’t like your service, found something better, or no longer need what you offer. It could be a mixture of these elements. They’ve made their choice, and off they go.

Involuntary churn, on the other hand, sneaks up on you. It’s not that customers want to leave; it’s that they accidentally do. This could be due to an expired credit card, a payment glitch, or other logistical snags. Sneaky, huh?

But don’t underestimate it — involuntary churn might seem less dramatic, but it can still take a big bite out of your revenue. All that said, there’s a silver lining here: it’s often easier to fix than voluntary churn.

The good news: you can take charge of churn

So how can you fix this?

First off, don’t fret: churn is a big deal, but it’s not something you can’t get to grips with.

The first step to slashing it is understanding it inside out. By defining churn clearly and breaking down its types, you can start to zero in on the real issues that are driving your customers away. And that’s good news for you, good news for your customers and good news for your business. In short, everybody’s happy.

Now that you know the basics of customer churn, let's start identifying its warning signs.