6 ways to analyze churn
When preparing a churn analysis, it's important to think about churn in relation to both your business and your customers. The following analysis methods will help you achieve this.
Before starting your churn analysis, it's important to ask yourself: What problem am I trying to solve? This will help guide the analysis process to avoid wasting time doing random searches in churn data and instead get some actionable insights.
To understand how to reduce churn, you'll first need to know the following:
- Which customers are churning?
- Why are they churning?
- Which customers are at risk of churning soon?
Next, make sure you have accurate subscription data to work with. Once you've got all the data in front of you, it’s time to analyze it.
1. By cohort
Cohort analysis is a good way to begin your churn analysis. In cohort reports, you segment your customer base according to a specific time period.
For example, you might decide to analyze churn according to a cohort of all customers who purchased your product in January 2021.
Cohort reports are useful because they produce numbers which are not influenced by new customer acquisition.
Smart customer segmentation also allows you to easily spot patterns in your customer base. You can easily compare different cohorts to figure out if seasonal trends affect your churn rate. The downside is that if you have a lot of cohorts, the analysis can get confusing.
2. By customer age
In this approach, you group your customers according to the length of time they’ve been with your company. Analyzing churn by age is invaluable for identifying patterns across your entire customer base without getting bogged down by too many cohorts.
For example, you could measure churn rate during the first month of subscription, second month, and so on.
If you find a higher churn rate during the first month, it might be indicative of your poor onboarding processes. Churn after 12 months could mean customers are leaving at the end of an annual contract, and the problem is at a later stage of the customer journey. You can then focus efforts on ways to encourage them to renew.
3. By geography
You can gain important context by examining your customers’ locations. For example, local tax regulations, payment processing methods, average pricing, and payment gateways vary according to country. It’s essential for SaaS businesses to comply with these rules.
If your customer base is widely spread around the world, you might be losing customers due to a lack of local payment options or lack of compliance with regulations. This is an urgent problem to address.
4. By customer behavior
Analyzing churn by behavior can reveal important patterns related to certain features of your product. Perhaps customers churn right after they use a specific feature. In that case, your product and engineering teams should dig in further to identify the issue and create a fix.
On the other hand, if certain features help to retain customers, then you should focus on further improving and promoting those. Churn analysis of behavior is also a good opportunity to gain a better understanding of customer engagement.
5. Voluntary vs. involuntary churn
There’s a critical difference between voluntary and involuntary churn. The former happens when a customer deliberately cancels or downgrades their subscription.
Customers can churn voluntarily for various reasons, including receiving bad customer service, jumping ship to a competitor, or having a negative experience during onboarding.
Or, voluntary churn could simply be down to changes in the customer’s budget situation or their overall needs. Whatever the reason, you should focus most of your strategic efforts on reducing voluntary churn.
On the other hand, involuntary churn is often due to expired or declined payment cards, lack of funds, incorrect payment information, or poor payment routing. The unfortunate customer is left none the wiser. In fact, they’d likely have stayed with you if it weren’t for involuntary churn.
The good news is, you can easily fix involuntary churn by implementing a robust payment processing infrastructure that includes smart and flexible dunning workflows.
6. Payment methods
Issues with payment methods are a major driver of involuntary churn. Yet, despite their importance, many SaaS companies continue to ignore the role of this core workflow.
Your business’ approach to taking payments and optimizing for payment acceptance is a vital aspect of driving overall revenue. Even the world’s best sales team can’t overcome a poor payment acceptance workflow.
Your payment acceptance rate is the proportion of successful payments out of the total payments attempted. Here's how to calculate it.
You can download this data from your payment processor. It's important to take a nuanced approach when analyzing it, which requires examining retried payments, failed payments, different payment methods, payments from different countries, and so on.
Here’s a detailed guide with further explanation of how to analyze and improve your payment acceptance.