What is churn risk?
Churn risk describes the likelihood that a customer will stop using or paying for a service. Churn is a metric companies use to measure how many customers choose not to renew their subscriptions or have discontinued using or purchasing their products. It’s important to track because new customers cost more than retaining existing customers.
It’s common for organizations to utilize customer success software to track success metrics like churn rate. These tools can track specific customer KPIs and the likelihood of churn to help expand the relationship with the customer and extend the customer lifecycle.
Churn rate quantifies the percentage of an organization’s customers that stop using a service in a certain period. It can be calculated using the following formula:
Churn rate = Customers lost in a period / Total customers at the beginning of the period
Reasons customers churn
Churn risk can arise for a variety of reasons. Identifying these reasons helps companies keep customers from abandoning the organization. Some reasons include:
- Dissatisfaction with the product: When customers are disappointed with the quality of a product or how it performs, they are bound to seek an alternative. This is the main reason for customer churn.
- Ineffective customer onboarding: On occasion, customers don’t know how to use the product effectively, which can be due to ineffective customer onboarding. Onboarding resources should be readily available so customers can learn how to make the most of the product. Organizations should also use client onboarding software to manage post-sales activities related to the delivery of the services sold by the company and help reduce the likelihood of customer churn.
- Failure to convey value: Most organizations prioritize communicating their value proposition during the sales process but drop the ball once a purchase has been made. Continuing to convey the value proposition throughout the entire customer lifecycle can help reduce churn by reminding customers why they chose the product over others on the market.
- Lacking customer feedback: Giving customers the chance to provide input throughout the entire customer lifecycle easily helps companies identify churn risk and product issues that need extra attention. This allows companies to proactively reduce risk by solving problems before they lead to churn.
How to identify churn risk
Companies can analyze specific metrics and patterns to identify churn risk. Once identified, steps can be taken to mitigate the risk. The following methods can be used to identify these risks:
- Cohort tracking: With the help of big data, organizations can identify at-risk customers through strategies like cohort analysis tracking, which identifies behavioral patterns that often lead to churn (for example, overusing support services or underutilizing certain features).
- Customer segmentation: Identify segments of customers likely to churn. An example is segmenting active customers from inactive customers who haven’t logged into their accounts in a specific amount of time.
- Prevent involuntary churn: Involuntary churn can occur when customer payments fail to process. Eliminating the number of failed payments helps retain customers who never meant to stop using the service.
- Track net promoter score: Calculating the net promoter score (the likelihood that customers would recommend the products to others) can indicate customer satisfaction levels. This acts as a warning sign for increased churn risk. When these levels drop, companies can prevent churn and boost satisfaction.
- Analyze customer support tickets: Support tickets are a good source of free customer feedback. If customers are inquiring about the same problems, those problems pose a churn risk and need to be addressed.
How to eliminate churn risk
Once the risk has been identified, steps can be taken to mitigate the risk and prevent future occurrences. Companies can use the following strategies to reduce and prevent churn risk:
- Create re-engagement campaigns: Automatic campaigns designed to re-engage inactive customers can help remind customers why they enjoy a product while offering support to customers struggling to use the product effectively or as intended.
- Make knowledge and help accessible: Making information that helps customers use the product readily available can prevent the churn risk associated with inadequate onboarding or difficulty using the product.
- Learn from customers who churn: Feedback from customers who churn can reveal significant issues and frustrations that need attention. Addressing these can prevent future churn risk. Additionally, at-risk customers appreciate being heard, and gathering feedback might prevent them from churning.
Martha Kendall Custard
Martha Kendall Custard is a former freelance writer for G2. She creates specialized, industry specific content for SaaS and software companies. When she isn't freelance writing for various organizations, she is working on her middle grade WIP or playing with her two kitties, Verbena and Baby Cat.
