How to Uncomplicate Your Churn Problem
“Some of the greatest poetry is revealing to the reader the beauty in something that was so simple you had taken it for granted…that, I think, is the job of the poet.”
– Dr. Neil DeGrasse Tyson
Between the discussions on molecular science and astrophysics, science bard Dr. Tyson had somehow bared the bones of the one philosophy that underpins the product and services economy – that the ingenuity of any innovation (product or process) is in how simply it could answer a complex question. And that will help us appreciate simplicity for what it truly is – uncomplicated and profound.
In 1991, Bic poked a hole in the traditional pen cap, which looked like a trivial design change. Instead, it led to two monumental upgrades. First, the cap-hole helped maintain air pressure and (surprisingly) prevented the ink from drying faster, breaking standing notions on how pen caps should be designed. And more significantly – it allowed air to pass through so people who accidentally inhaled the cap wouldn’t suffocate.
Soon, other pen manufacturers followed suit, and simplicity made its way to Lego, who designed their blocks with holes to significantly decrease tragedies from accidental inhalations.
Often, the best answers are so simple that we mistake them for being unremarkable.
Now, put this in the SaaS business context. Having worked with multiple SaaS and eCommerce businesses over the years, Chargebee Retention (formerly – Brightback) found that a 5% increase in customer retention can increase profits for a business by anywhere between 25 to 95%. All this by being more attentive to customers already transacting with you, which is far easier than trying to acquire new customers.
Yet, marketing teams often focus on optimizing acquisition metrics like return on ad spend (ROAS), average order value (AOV), and revenue per user (RPU), while churn is thought about reactively.
We often find companies operating on a high cash-burn model, looking for a lifejacket only because they waited too long. They usually start thinking about churn when it becomes painfully apparent in their bottom line, by when it is already too late. That is because too many businesses consider churn unavoidable and incredibly complex to determine or react to. But that, we find, is a business myth. Especially since churn, like any other business/revenue metric, can be tracked, analyzed, and predicted. Here’s how –
Signs that your churn deflection game needs work
- Customer Acquisition is no longer outpacing cancellation: The truth is every new customer is an expense. If you’re a B2B company, you spend copious amounts of time in the lead-to-deal stages, so you must be able to get the most value out of your new customer to ensure better unit economics. You need to keep convincing them to pay for your product/service long enough to turn a profit after recovering the acquisition costs. If the rate of customers exiting is higher than the number of customers you can bring in – as in, your proverbial leaky bucket drains faster than it fills – you will eventually run up to high cash burn and regrets.
- You have over-tapped your current market: Companies that overspend on customer acquisition to drive revenue run out of prospects they can sell to. Also, letting high-churn sustain for too long leads to osmosis of disgruntled ex-customers bringing further bad press and shrinking referral potential. Eventually, you will dry up your net addressable market and would have built enough discontentment to prevent customers from returning.
- You have more than 10k subscribers without a deflection strategy: The more sales you garner, the more significant the impact of a deflection strategy becomes on your revenue. If you’ve grown to 10K subscribers and don’t yet have a deflection strategy, we highly recommend building one. Exhaustive internal research also found that companies that start to track churn improve deflection by 50% in 1-year.
- A significant proportion of customers have uninitiated subscription expiries: If you don’t yet track cancellation reasons, we highly recommend you do it. Often because the insights generated can be astonishing. 20-40% of all churn for any business is often due to something as simple as card failures. Involuntary churn (where your subscribers do not actively cancel) accounts for quite a large proportion of churn experienced by businesses. If many customers seem to be jumping off the ship without pressing cancel, you clearly have an involuntary churn problem.
Thankfully, these also come with a few well-known mitigation steps. Many subscription management and billing providers come with out-of-the-box dunning to keep active subscribers – your best brand advocates – engaged.
Learn more about dunning and involuntary churnUnless you’ve spent significant time and energy optimizing your cancellation flow and billing systems, the business is likely sub-optimized for retention.
Churn rates are industry-sensitive
Benchmarks for churn also show large variability based on segment and AOV for subscription orders. It’s entirely possible that your churn rate seems low but is not optimal for your specific vertical.
Even for the same industry (e.g., eCommerce), we found a sizeable deviation in benchmark deflection and save rates, like below –
The deviation in benchmark customer churn rates is also significant based on the growth stage of the business lifecycle. Larger SaaS companies show significantly lesser churn than younger ones, thereby exhibiting survivor bias in the industry.
If anything, this highlights that churn is highly subjective, depending on your business/revenue model, industry, geography, and other variables. Recurring revenue success is therefore defined by collecting data available internally and then vetting said data to measure up against similar players in the industry.
Learn more about the industrial churn benchmarks for eCommerce
That said, at Chargebee Retention (formerly – Brightback), we spend our days obsessing over improving retention strategies for businesses globally. This means actively working with some of the biggest companies in the world to analyze and intercept churn signals and give their retention strategies a facelift.
With years of solid customer data behind us, we realized that there are three fundamental considerations when building a foolproof churn deflection funnel –
The Churn Interception/Deflection Funnel
In many ways, the funnel for deflecting churn is the reverse of an acquisition funnel. As a growth or product professional, you are looking for ways to reduce cancellations and increase customers deflected or saved.
The most significant difference between acquisition and deflection funnels is time. While acquisition is often a once-through endeavor, retention is a continuous exercise. The shorter your subscription plan (monthly or lesser), the more frequent the window for your customers to opt-out. Often, these subscribers’ exit’ even after having deflected once. Reverse Conversion (or Deflection) rates, therefore, will usually need to be analyzed for a month or more, depending on the frequency of your subscription offerings.
Tracking intent means more than tracking cancels
It is difficult for businesses to realize a churn problem without the guardrails to analyze customer engagement beyond the onboarding phase. Good optics on how customers navigate your owned channels open up more opportunities to improve customer journeys.
For example, tracking multiple customer outcomes, including cancels, deflects, or saves Chargebee Retention, helps customer success managers build a watchlist of at-risk customers and then proactively nurture them. Hence, customers visiting the cancel page frequently can then be automatically redirected to an offer/resource page to prevent churn or provide more information about finding ROI from your product/service.
This data is richer than monthly cancells because it gives perspective and context to a reasonably abstract idea. Knowing how many customers don’t like you is essential, but it will never be as actionable as knowing why you’re losing business.
Deflection is smart-work over hard work
For subscription businesses, not all customers are the same. Therefore, treating each customer equally on the cancellation page makes little sense. While umbrella metrics like monthly cancels can point to general user sentiment, they should not be the primary signallers of your deflection strategy.
If you were to give a free month extension offer at cancel to a non-ICP customer, they would still accept the offer. But they’d equally be eager to leave once the benefits expire. On the other hand, that same offer to a highly-engaged long-term customer would not only deflect them from churn. Still, it could also go a long way in extending an already meaningful relationship and converting them into brand advocates.
It is advisable, therefore, to not only track intent but also assign importance to each cancel intent based on variables like LTV, subscriber tenure, and more. It helps build customer cohorts based on the value they generate for your business. In turn, this allows you to focus on retaining the most valuable customers of your business.
Building customer cohorts is what Chargebee enabled landing page creation software – Unbounce, achieve. By uncovering insights about different customers and paving the way to build custom offers depending on tenure Unbounce, could deflect 11% of customer churn at the very first exit instance.
Learn more about building customer cohorts from Unbounce
Data is nothing without context
Merely collecting data is as effective in identifying churn as Clark Kent’s disguise in keeping his superhuman identity a secret (it only works in imagination). Not my best analogy, I know. But it doesn’t detract from the fact that data without filtration and interpretation is mere numbers. It doesn’t take a data analyst to emphasize the importance of data cleanup and how the minutest of trivialities can aggressively skew customer-generated insights.
Churn metrics are wired around customers first, it is possible that customer-side glitches – like pressing on cancel too many times or individually canceling each subscription product (instead of bulk cancel) – can also skew your data. To bypass a potential data misappropriation risk, here are a few things you must consider:
- Unique Save Period: This prevents customers saved more than once from showing up twice in your reporting within a set window.
- Unique Cancel Period: This prevents customers who cancel more than once from showing up in your cancel counts within a set window.
This helps you refine your dataset further and minimize parsing errors, ensuring you are not over/underestimating your churn problem.
Keep going back to the drawing board
USA’s largest prepared meal delivery service – Freshly, distinguishes itself through personalization and high customer intent mapping – a rotating menu of 50+ balanced dishes to choose from. Hence, when they started building their retention muscle, it was only natural that they’d implement the same principles to save customers from churning.
The result – experimenting with personalized offers to customers at the point of cancellation and testing against a control to determine the highest performing offer categories.
One such experiment in the post-Covid era included offering the option to skip multiple weeks of delivery instead of exiting. The offer had high acceptance rates. And despite initial fears that this period was delaying inevitable churn, the data revealed that a significant number of customers who accepted the offer were retained and went on to generate more revenue.
The new findings helped them generate close to a million dollars in saved revenue and an 800% ROI on their partnership with Chargebee Retention.
Learn how Freshly built their retention strategy
This perhaps is the basal characteristic of an excellent retention strategy – that there is no everlasting truth. One can never have a ‘set-and-forget’ approach to churn and expect it to transcend time.
All data on churn needs to be regularly tracked, updated, and reflected upon to gauge for seasonality or a significant pattern from information generated from within your business systems. Like Dr. Tyson’s poet – our job then becomes not one of creating new strategies, but looking at the simple, more readily available insights to undisclosed fresh perspectives to base our future process innovations upon.
Make more sense of your churn data with Chargebee Retention
A focus on churn can improve offer save and deflect rates by 50% in 12 months
A review of key customers in the eCommerce vertical shows the power of focusing on churn. To learn more about their success stories, follow these links: