Customer churn comes in many forms
To be blunt: churn is expensive for your business. A high churn rate forces a business to compete with the stress and difficulty of bringing enough new customers in to plug the holes in the ship. Even seemingly small, single-figure increases in churn rate (%) can quickly have a major negative effect on your company’s ability to grow. What’s more, high churn rates are more likely to compound over time.
That’s why having a grasp of churn analysis is so important. Understanding the different reasons behind customer churn is a fundamental step in addressing and reducing your rate.
Canceled subscriptions are probably the first kind of churn you’d think of, and they can be motivated by a number of different reasons.
1. Poor customer fit
Selling your product to the wrong type of customer can result in them churning soon after signing on, immediately invalidating the cost of the resources used to win them.
2. Missing functionality
Customers may ask for new features to your product as their needs change. A sense that your company is resting on your product’s laurels and not being responsive to changing customer needs is a route to churn.
3. Failure to achieve outcome
Customers who fail to get what they want out of your product will certainly churn. This kind of churn represents a particularly poor loss of opportunity if the customer could have gotten what they needed from your product, but didn’t. Poor onboarding or a badly designed setup process is frequently the culprit.
Switch to a competitor
Certain aspects of churn analysis require you to focus on your company’s own operations. However, there’s a competitive element as well.
Keep an eye on competitors offering a similar service—how they set their price points and how they package their deals. If they’re bundling in more services for free than you are, including what you offer in a better package or at a lower price, you may find that customers are canceling their plans with you in order to churn to your competitor.
Your business is especially susceptible to this kind of churn if it is not properly attuned to the changing needs and support requirements of your customers. More dynamic competitors will be more likely to win business from your customer base.
Not renewing a subscription
Some churn is not the result of active dissatisfaction with a product or service but the result of improper maintenance of customer relationships. Oftentimes, customers who are not being engaged with sufficiently will just drift away from a product. They'll forget how it might be useful for them and not renew at the end of the subscription period.
A lack of engagement also leads to an increased likelihood of delinquent churn, in which customers are lost due to payment problems related to delinquent credit cards on file. This may be a passive form of churn, but it can account for up to 40% of a SaaS company’s overall churn. What’s more, customers lost to this form of churn are rarely regained.
Closure of account
Even if your customer is leaving your business, delighted with the service you’ve provided and with their needs fulfilled, it’s still a form of churn.
You may have done your job well, but a customer lost in this way is still a lost opportunity and an expense to be dealt with. You’re losing the MRR you draw from them, and you’ll be incurring expense to replace them. Moreover, a customer leaving after they got what they want suggests that, while you’re doing well at providing your basic service, your product doesn’t have much repeat-use value.
You can mitigate against this kind of churn by expanding your product range or increasing the repeat-use value of your products.