The churn rate, aka attrition rate, indicates the average customer loss over a period, whether they stop buying a product or cancel the subscription to a service. This definition is used to refer to customer churn, which is the most common metric. However, revenue churn is used to refer to the situation in which the customer cancels after receiving a special offer, or has already paid for an annual subscription. In any case, the churn rate should always be approached as an outcome and not the cause itself.
In our previous article, A Guide to Churn Rate Part 1: The Basics, How to Calculate it & How to Reduce it, you can learn more about this concept, the different types of churn, how to calculate it, and the”why” behind this metric.. This article takes things a step further in analyzing the status quo of this metric and whether or not monitoring churn is still important for businesses. To make it into a valuable metric, you’ll see some of the best practices of using customer or revenue churn as a reliable metric.
This article will cover:
- Is churn a dying metric?
- Why monitoring churn is important
- What your churn could be telling you
- First, acknowledge your churn
- Revisit your onboarding strategy
- Offer specialized training for Customer Support and Sales agents
- Implement proactive customer support
Is churn rate a dying metric?
Let’s not forget that the churn rate is highlighting an outcome, not the cause of churn. This is something that you’ll need to explore further by analyzing it in comparison to other metrics such as monthly recurring revenue (MRR) and customer lifetime value (CLV). Let’s explore how churn can directly impact these key metrics:
- Monthly recurring revenue (MRR). In SaaS companies, MRR is crucial as it indicates long-term viability. A low churn rate means less revenue, so it is crucial to keep a closer look at it.
- Customer lifetime value (CLV). The lifetime value (LTV) of a customer is an indication of how profitable your company is, and will be long term. Churn is the result of low CLV since the potential revenue decreases when users cancel or stop buying your products.
Another metric to measure against is customer acquisition cost (CAC) since it will increase if the customers leave before you’re able to cover the cost of their acquisition. Once again, the churn rate won’t tell you why customers are leaving, but it may be a sign that you need to work on your customer retention strategy.
Why monitoring churn rate is important
We could safely say that monitoring churn is as important as any other metric. As described in the previous section, it has a direct impact on your finances and bottom line. For example, it can alert your team on improving monthly customer retention, it’s a required metric to calculate CLV, and it can also be used to further understand customer success and product success. Let’s see what are the best ways to optimize its purpose for any business.
What your churn could be telling you
Don’t forget that the churn rate can be calculated monthly, quarterly, or annually, depending on your product or service. If you are a SaaS or e-commerce, it’s common practice to calculate monthly as this will give you more control over revenue. As you’ve read so far, calculating churn is not tricky; the interesting part comes when you use it for decision-making. Here are some of the best practices when using churn rate as a guiding metric:
First, acknowledge your churn rate
Churn happens. It just does. The key is to use this as an opportunity to understand why your customers left so that it won’t happen again, at least in similar circumstances. This is why you need to monitor churn and retention rates closely. FROGED offers its very own Churn Calculator, so you can easily calculate your churn rate and register the retention rate over the specified period. By combining this with other metrics such as monthly recurring revenue (MRR) and customer lifetime value (CLV) you can get a better idea of what the following step should be.
Revisit your Onboarding strategy
A customer leaving your product or service is a sign that something is not working in your retention strategy. Having a solid onboarding process for users is something that any business should have, no matter how healthy or profitable their business is. Nowadays, some of the best practices consist of developing educational content to show customers how to get the most of your product. For example, FROGED offers onboarding tools that allow you to design, develop, and monitor your strategies from the platform.
Offer specialized churn training for Customer Support and Sales agents
Sales and customer support are two key departments when it comes to your business reputation. Not only this, but you need to make sure that they are transmitting the right values and relevant information, so your customers don’t get lost in their journey. If you want your customers to understand the true value of your product, your employees will have to know first.
Implement proactive customer support
Proactive support entails engaging customers regularly and providing tools that empower customers 24/7. For example, FROGED helps other SaaS companies improve their customer support through an omnichannel platform, customizable widgets, and live chat. What’s more, you can create “Product Flows” to guide users on new features, test product updates, or retarget inactive users who are at churn risk.
So, is churn a dying metric? We don’t think so. However, it is a lagging indicator, so you’ll need to plan for the next steps to prevent it. When you look at your churn rates you are in a position to take immediate action because you understand the context of your data and, most importantly, have identified the customer needs.
This is why using product success platforms such as FROGED is essential to make this process easier and more accurate. With access to all data related to your product and your customers, you gain more reliable insights into customer experience and whether your product or service is understood and valued. As a result, you’ll not only understand your churn rate but also anticipate future issues and avoid it altogether.
To learn more about best practices when it comes to reducing your churn rate, read our blog post on the 4 Customer Retention Strategies You Need to Implement.