StatusBrew, a social media tool, found itself with high churn in 2017. Customers were leaving, and the team at StatusBrew wasn’t exactly sure why. Ultimately, they were able to reduce churn by 20%. But it wasn’t a single retention hack that did it. Instead, meticulous customer churn analysis helped the company understand what was going wrong and how to fix it.
When customer churn rears its head, it’s tempting to want to throw the proverbial kitchen sink at the problem. There’s no shortage of excellent retention-boosting advice out there:
Offer long-term contracts. Improve your customer service. Give customers incentives to stay.
But a shotgun approach to reducing churn distracts you from finding out the real reason customers are leaving—and robs you of the chance to fix the root of the problem.
In this article, I’ll explain why churn analysis matters and how to apply it to your business. I’ll also share churn analysis advice from a few businesses to inspire you as you think about how to use this process to transform your business.
What Is Churn Analysis?
Churn analysis is an investigation into why customers are quitting, with the ultimate goal of reducing churn. This process can be as zoomed-out or zoomed-in as you want.
One approach is data-heavy analysis. You can survey customers at scale, look at product interaction and cancellation data, and start to draw conclusions.
But it’s also smart to get granular, playing the role of Sherlock Holmes and digging into individual customers’ decisions to cancel. While anecdotes alone aren’t as compelling as larger sets of data, talking to customers individually adds context and emotion that’s missing from the data.
For example, let's say you run an app and you notice that there’s a big spike in customer cancellations after 90 days. Your customer churn analysis plan might look like:
- Adding a pre-cancellation survey to ask customers why they’re canceling.
- Looking at product usage data in the weeks leading up to the 90-day mark.
- Segmenting customers to understand what type of customer is canceling most frequently.
- Interviewing customers one-on-one to understand challenges with your product.
By collecting and reviewing all this data, you can start to put together a churn reduction plan that addresses the specific reasons customers are leaving.
Why Churn Analysis Matters
Churn is a big deal.
When left unchecked, churn can mean the beginning of the end for your business.
Fortunately, churn analysis can help prevent that situation. By identifying exactly why customers are churning, churn analysis impacts everything from profit to growth to customer satisfaction.
When churn goes up, you’re faced with the urgent prospect of spending money on customer acquisition just to replace the revenue you lost. Sometimes this leads to the “leaky bucket” effect where even frantic sales activity doesn’t bring in enough revenue to compensate for customer cancellations.
That’s why churn reduction has a powerful effect on profitability.
According to Bain & Company, a 5% increase in customer retention produces more than a 25% increase in profit.
Here’s what happens when your retention rate increases:
- Loyal customers refer others.
- Customer lifetime value goes up.
- Customer acquisition costs go down.
- Operating costs to serve existing customers go down.
2. Customer Satisfaction
Venture capital company Andreessen Horowitz has called churn “the ultimate proxy for customer satisfaction.” Low churn means happy customers. High churn means unhappy customers.
In the course of churn analysis, you’ll uncover all kinds of customer comments:
- “The price is too high.”
- “I’m not getting enough value.”
- “Customer support wasn’t helpful.”
- “I don’t understand how to use the product.”
You’ll also encounter involuntary churn—especially billing issues, which are frustrating both for the customer and for you.
By using churn analysis to uncover and address these issues, customer satisfaction will improve as a byproduct. In some cases, you’ll be able to actively prevent customer dissatisfaction by monitoring product usage, flagging potential issues, and proactively reaching out.
When it comes to churn, the worst thing you can do is make assumptions.
That’d be like a doctor performing surgery without first examining the patient. (Yikes).
In the best-case scenario, you’ll waste resources on a churn initiative that has no impact. In the worst-case scenario, you’ll harm your business by sending it down the wrong strategic path.
Churn analysis helps you vacuum up all the data you need to make strategic decisions around product features, customer satisfaction, and business growth in general.
Analyzing churn also helps you understand which customers groups tend to churn the most, which means you can:
- Focus marketing efforts on customer demographics with a low churn risk.
- Target customer service interventions towards customers at risk of churning.
4. Continuous Improvement
While profit is an important motive for taking action on churn analysis, I’d like to suggest adding another (slightly more) altruistic motive into the mix:
Making your product as good as it possibly can be.
Sure, this helps your business, too—a world-class product helps you fend off competitors and charge a higher premium.
But there’s also an inherent satisfaction in putting a product out into the world and working to make it incredible. By giving you a precise roadmap of what customers do (and don’t) like about your product, churn analysis means you’ll never stop improving.
Churn Analysis Examples: 3 Real Stories from SaaS Leaders
To demonstrate how churn analysis works in the real world, I chatted with three businesses that experienced high churn and managed to overcome it with churn analysis.
As you’ll see, the root cause of churn is different for each business—which is exactly the reason churn analysis exists. Remember that the churn reduction methods that are relevant for another business won’t necessarily be relevant for yours.
SE Ranking decreased churn by 18% with win-back campaigns
Anastasiia Kinichenko is the Product Marketing Lead at SE Ranking, an SEO software company. After investigating her product’s high churn rate, Anastasiia found issues with product onboarding as well as with the company’s win-back campaigns.
A quick note of clarification here—when you think of win-back campaigns, you might think of an attempt to recover a customer who’s already canceled. But your first win-back campaign should actually happen during the cancellation process itself.
Here’s what worked for SE Ranking:
First, they designed a win-back survey with customized incentives:
“Before our users have an opportunity to cancel their subscription, they must complete a survey about the leaving reasons. Depending on their response, we create and offer them different options to make them stay.”
Then, they reduced the appeal of switching to competing products by giving the customer an explicit comparison of each product’s features and advantages.
“If we are figuring out that the user consider switching to the competitor, we show him/her a comparison table of how we distinguish from the rival.”
Although it worked in this case, Anastasiia doesn’t recommend relying on win-back campaigns as a go-to strategy:
Remember that onboarding clients and preventing churn is much better than trying to win back users after they have canceled.Anastasiia Kinichenko, Product Marketing Lead at SE Ranking
SE Ranking decreased its churn by 18% year over year through improved win-back campaigns.
Rephrasely cut churn by 56% with discounts on annual plans
Matthew Ramirez is the founder of Rephrasely, a multilingual AI rephrasing tool.
Rephrasely was experiencing a high churn rate of 32%. When Matthew conducted a churn analysis, he found a strong correlation between the churn rate and the length of the customer relationship.
“When we looked into churn patterns, our main problem was dealing with the “free plan” users who never upgraded and thus never contributed any direct revenue," Matthew explains.
When we eliminated those users from our churn analysis, we were able to see a strong correlation between how long a customer had been with us and the chances of them leaving.MATTHEW RAMIREZ, FOUNDER OF Rephrasely
Here’s what worked for Rephrasely:
Rephrasely focused on reducing churn by incentivizing customers to sign up for longer-term plans to keep them around for at least a year. They offered a discount on the first year’s bill within the cancellation flow—and it worked.
"This approach worked well and churn dropped. The best part was that we didn’t have to spend any more on customer acquisition. We were able to cut [Rephrasely’s] paid subscriber churn in half (from ~32% to ~14%) by offering discounts in the cancellation flow. Other efforts had more marginal effects.”
Rephrasely’s churn decreased by 56% by offering annual plan discounts in the cancellation flow.
SEOAnt reduced churn by 78% by changing its target audience
Alvin Wei is the Chief Marketing Officer of SEOAnt, a SaaS SEO tool.
SEOAnt was experiencing a high churn rate of 45% when the product first launched. After running a churn analysis, Alvin found that the product had an especially high rate of early-stage churn because it targeted the wrong audience:
“While our product was best suited to e-commerce stores doing dropshipping on Shopify, we targeted all online stores. The churn was due to subscribers trialing our free plan and noticing that it did not serve their needs as they had hoped.”
Here’s what worked for SEOAnt:
SEOAnt repositioned its product toward a more niche target audience that their churn analysis indicated was less likely to churn.
We refocused our strategy and started targeting dropshipping stores on Shopify and followed this up with a thorough onboarding process. The result was a reduced churn of 10% which also shifted to late-stage compared to the previous early-stage churn.Alvin Wei, Chief Marketing Officer of SEOAnt
SEOAnt’s churn dropped by 78% after repositioning the product toward a better-fit target audience.
How to Conduct Churn Analysis
Don’t let churn analysis become so daunting that you never get started. It can be as simple as reviewing the data you already have on user behavior and customer feedback.
That said, while there aren’t any rules to churn analysis, there are some good practices.
1. Identify Data Sources
The first step in churn analysis is identifying the data sources you'll need to analyze.
Common data sources include:
- Customer data from your CRM
- Usage data from your product
- Customer support interactions
- Billing information
- Customer surveys
Collecting this churn data will help you identify patterns in your customers’ behavior that may contribute to customer attrition.
2. Choose Churn Analysis Software
While it’s possible to run your churn analysis from a spreadsheet, remember that you’re dealing with huge datasets—so a spreadsheet is also an easy way to drive yourself crazy.
There’s no need to start from scratch.
There are purpose-built customer success software options—ChurnZero, for example—that make the process easier. These tools can help you visualize your data, identify trends, and even run customer churn prediction models.
By connecting data sources to your churn analytics tools, you’ll be able to organize the raw data that will enable you to make good decisions.
Related read: Best Customer Analytics Tools
3. Identify the Types of Churn
Not all types of churn are created equal.
When you’re navigating large amounts of data during the churn analysis process, you’ll want to look for the “why” behind each instance of churn. Involuntary churn, for example, can often be improved dramatically with technical changes to your billing system.
You’ll also want to keep an eye out for so-called “good churn”—when customers cancel because they were never a good fit in the first place.
Voluntary churn is when customers quit on purpose.
Usually, this is because something’s wrong with their experience:
- Poor customer fit
- Poor onboarding experience
- The product is missing essential features
- The customer is switching to a competitor
Occasionally, voluntary churn might happen for reasons unrelated to your product. A customer’s business might close, for example, or they might pivot in such a way that your product is no longer needed.
Involuntary churn is when customers quit by accident.
Usually, this is due to billing issues like expired credit cards. But these issues add up fast—involuntary churn can account for as much as 34% of churn, according to a Forrester survey.
To tackle involuntary churn, you’ll want to look closely at your customer billing history to spot trends. Offering multiple payment options, payment reminders, and expiring credit card reminders can all help reduce involuntary churn.
Early churn is when new customers quit soon after signing up.
This is critical to pay attention to because it suggests problems with your customer fit or your onboarding process.
To reduce early churn, make sure you’re targeting the right audience for your product. Also, design an onboarding experience that gives customers an easy win fast.
Late-stage churn is when long-time customers decide to cancel.
While late-stage churn isn’t fun to see, it’s preferable to early churn and can be the natural result of a long-term customer relationship. After all, no one is going to be a customer of your product forever.
Pay attention to why your late-stage churn is happening. If loyal customers are switching to competitors, it may be a sign that your product is no longer meeting the needs of the market.
Good churn is when poor-fit customers quit.
Maybe their expectations were sky-high. Maybe they misunderstood your offering. Maybe they were the wrong target audience entirely.
Whatever the case may be, when poor-fit customers quit, it’s a good thing—it allows you to shift your resources toward customers you can serve better. It also gives you crucial data that helps you target your ideal audience.
Downgrade churn is when customers move to a lower-priced plan.
Since customers aren’t quitting entirely, downgrade churn isn’t too concerning—but it does have an impact on revenue, so you’ll want to watch it carefully. If your downgrade churn starts to get out of control, you may want to experiment with new pricing tiers or usage-based pricing.
4. Define Churn Metrics and KPIs
Next, you'll want to determine which metrics and key performance indicators (KPIs) are most relevant for your business.
Some common churn-related KPIs include:
- Customer engagement
- Product usage
- Customer behavior
- Net Promoter Score (NPS)
- Customer Lifetime Value (CLV)
- Average revenue per user (ARPU)
- Time to first value
These metrics will serve as an early warning system, helping you take proactive measures to address churn before it grows.
5. Segment Customers
When you’re conducting churn analysis, make sure to segment your customers.
It’s especially important to separate free and paid users. But you’ll also want to explore different segments like:
- Length of time as a customer
- Frequency of product usage
- Behavior patterns
Customer segmentation will help you understand if some groups have higher churn rates than others. This will help you plan your approach to reducing churn. You’ll also be able to use this data to target your marketing toward low-churn customers.
6. Establish a Baseline
Make sure to make a note of where your churn currently is before starting any retention initiatives.
This will help you understand if your churn reduction efforts are having an impact or not. It’ll also tell you how good (or bad) your churn rate is relative to your industry.
To calculate your baseline customer churn rate, divide the number of customers who left during a specific period by the total number of customers at the beginning of that period. Churn rates are commonly calculated on a monthly basis, but you might also want to calculate churn using quarterly or annual time periods.
It’s Time To Unleash Your Inner Churn Buster
If you’re looking for a silver bullet to improve your business’s performance, there’s no better use of your time than reducing churn. Lower churn leads to more profit, happier customers, faster growth, and a better product.
As exciting as all that is, be careful not to go rogue.
Don’t fix things before you know what needs to be fixed.
Instead, use churn analysis to approach the process methodically. In addition to learning exactly how to reduce churn, churn analysis will give you actionable insights on which customers to target, how to make your product more relevant—and how to grow your business as sustainably and profitably as possible.
Looking for more ways to burn churn and level up your customer experience? Subscribe to our newsletter and stay up to date with the latest CX industry trends and tips.