Everything you need to know about customer churn
More than other types of retention metrics, subscription commerce companies rely on customer churn as a critical measure of success. Understanding it, tracking it, and using it to inform the future of business is essential.
Anytime a subscriber opts to terminate their relationship with a business, the customer churn rate ticks higher. Due to the nature of the industry, subscription-based companies are more susceptible to high churn rates compared to traditional perpetual licensing business models.
As a subscription business leader, you are all-too-familiar with what it means to lose subscribers due to lapses or cancellations. Your company’s churn rate not only results in a loss of revenue, but it also provides a strong indication of the long-term success of your business.
Even well-established, seasoned business owners have questions when it comes to customer churn in the subscription industry. As your friendly customer success experts, we’ve compiled a list of your most pressing questions on the subject of customer churn.
Ready to get started? Here we go!
1. What is the customer churn rate in my business?
Simply put, customer churn is the percentage of subscribers who have discontinued their subscription to your service within a set, given time period.
Also known as rate of attrition, your company’s churn rate must be smaller than its growth rate to ensure long-term viability. Comparing your overall churn rate (measures the loss of customers) with growth rates (measures the acquisition of new customers) is an effective way to determine whether overall growth or loss took place in a set period of time.
2. What is involuntary vs. voluntary churn?
Did you know there are two types of customer churn you should be keeping track of?
Voluntary churn is when a subscriber makes the conscious and deliberate decision to cancel their subscription with your product or services. Combating voluntary churn can be as simple as improving customer satisfaction scores and knowing which customers are at risk of cancellation.
Because none of these reasons have to do with customer satisfaction or team performance, fighting involuntary churn is much more difficult to do. Even so, customers on the receiving end of involuntary churn will oftentimes interpret their sudden inability to access their account as poor customer service. This can have a negative effect on customer satisfaction, and as a result, increase the voluntary churn of confused customers.
3. What is the average churn rate for subscription companies?
Subscription-based companies span several industries. From SaaS to media and entertainment, to box of the month clubs, to business services—there’s no denying the reach of the subscription business model.
The average churn rate for subscription companies sits just above six percent. B2C companies lead the charge with an above-average churn of 7.69%, while B2B companies boast below-average rates at 5.56%.
Just as important a sit is to distinguish between voluntary vs. involuntary churn by definition, it’s also important to calculate each rate separately. The industry average rate for voluntary churn is 4.68%, while the involuntary churn rate average is 1.44%.
4. Do I need to use a churn rate calculator to determine my company’s churn rate?
While a churn rate calculator might make it easier, you certainly don’t need special tools or gadgets to determine your company’s churn rate.
As Evergage explains, “To determine the percentage of customers that have churned, take all the customers you lose during a time frame, such as a month, and divide it by the total number of customers you had at the beginning of the month. Do not include any new sales from that month.” This helpful explanation is about as straight-forward as they come, but if you need further support, jot down and save this calculation for future reference:
Customer Churn Rate = (Customers beginning of month – Customers end of month) / Customers beginning of month
Your organization can determine the window of time that’s best suited to your industry, but due to the fast-paced nature of the subscription business, most companies in this space calculate monthly churn rates for more accurate insights.
5. How do I lower my customer churn rate?
Now that you’ve calculated your company’s churn rate, it’s time to take action.
The first step to reducing churn is to understand what’s driving customers away. If involuntary churn is more of a problem than voluntary, you might want to analyze your payments stack. Making a simple adjustment on the payment processing side may provide a simple and quick fix to the problem.
If your voluntary churn rate is higher, you’ll need to dig much deeper. Looking at where in the subscription cycle most customers are churning is a good first step. There are also tools and platforms available that give you 360 degree visibility into the entire subscription sales pipeline, so you can understand the probability of particular customers renewing or churning, see how much value they are getting from your product, and get specific recommendations for each customer for actions to reduce the chance of them churning
However you go about it, don’t ignore voluntary churn. Identify it, rectify it, and make organizational changes until your average churn rate starts ticking steadily down in the right direction.