By Gerry Carr
Customer churn as the silent killer of growth for a company and in particular companies who are trying to build a business on recurring revenue. The biggest cost most companies bear is the cost of acquiring customers, moving them through onboarding and getting them active on a platform. We have written extensively about these challenges and how to optimise them for any business. So when a customer churns the cost is a multiple of the actual lost revenue - not to mention that it is demoralising for all involved as another customer falls out of the bottom of the sieve. So what’s to be done…
First of all churn will never reach zero. No matter how precise the messaging, how ‘on rails’ the sign-up process or how well informed the sales people are, inevitably some people will still come on board your platform with a very different idea of what it is your product does. The only way to avoid this is to make the barriers to entry to your product so arduous that you are turning away many potentially happy customers at source - and that is not good for anyone.
So what is an acceptable churn rate? If we are talking about paying customers who were active (so not a conversion rate of freemium) users then a churn rate north of 10% is a concern. But more importantly is a spike in whatever the historical churn rate was is something that needs to be acted on quickly.
There are many legitimate ways for customers to churn - their needs change, their scale changes, they go out of business etc. The key is to understand what it is that is causing the churn. Baremetrics recently wrote a very interesting blog about their experience in trying to discover the cause of their churn but for larger companies there are other tactics.
Net Promoter Score surveys have their detractors and supporters. If you are not familiar NPS is a very simple customer survey that asks usually one question - ‘How likely is it that you would recommend our company/product/service to a friend or colleague’ on a scale of 1-10. Only scores of 9 or 10 are considered a success. The simplicity of the question is supposed to generate a large response and NPS only works as a predictor if the response percentage is large But there is clearly not much granularity in the feedback. However in my experience it is a very useful predictor and indicator of churn. Rises in dissatisfaction one month often see an increase in churn in the next.
Excluding pricing and commercial changes a rise in NPS dissatisfaction is often related to changes in the product - either a new feature or a change in how a previous feature worked. Or it could be a performance outage. In each case a key learning has to be whether users were sufficiently educated about the introduction of the feature. Or if something went wrong were the reasons for this sufficiently explained and people appropriately compensated. If not, don’t be surprised when those detractors become churners.
It can be hard to get companies to invest in exiting customers. But their insight is key to stopping a trickle becoming a flood. Customer success teams do what they can to retain customers hopefully not with the now legendary tactics of Comcast
However sometimes it is better to simply listen to what the customers is saying and learning from it, rather than trying to turn the situation around. For business products in particular a common complaint is the inability to get sufficient value from a product. Assuming this is a user in a target market this is worrying feedback especially if that churn rate is growing.
As a product matures, adds features, becomes used by a broader set of customers it is not unusual for the customer education tools to fall behind. Poor NPS scores, higher churn rates and a growing number of customers failing to understand the value of a product should act as a wake up call for the customers education teams. An audit the tools used is a strong recommendation. For instance:
An increase in churn is certainly a worry but it should lead to positive action. Customer education should form a central part of that turnaround story. Users will appreciate the efforts and again the impact can be tracked through NPS and, done right, a gradual reduction in churn.