4 types of churn, 3 approaches to maximizing CLV, 2 elusive metrics everyone biffs, 1 start-up who beat average churn by 1000% – and ChurnZERO
Customer Success teams of all sizes and compositions can agree on at least one thing: Churn Rate is an critical metric to measure and track over time. But all too frequently, this is where a team’s analysis stops, with a single metric that lacks nuance. After all, at the end of the day a lost customer is a lost customer, right?
WRONG. Commit this to memory right now: Not all churn is created equal. Tell your co-workers, bring it up incessantly at meetings, maybe even make a poster for your team’s area – it’s that important.
Now to be clear, this doesn’t mean that you shouldn’t know and care about your overall Churn Rate; you absolutely should. This metric is extremely valuable as an evaluation of the effectiveness of your Customer Success programs. But when it comes to developing practical plans to combat churn, this metric is next to useless because it doesn’t tell you anything about the cause of your churn. And you can’t solve a problem if you don’t understand why the problem exists.
Today we’re going to explore how to more clearly classify churn with the help of a thoughtful post from Predictable Revenue. Types of churn and how to measure them is an extremely deep topic (43 ways to measure churn, anyone?), so for sanity’s sake we’re going to focus on a single method of distinguishing different “flavors” of churn; if you’re interested in some other methods, we recommend this read and this read. We’ll also take a look at key metrics you can use to predict each specific type of churn.
This type of churn happens when things get off to a bad start and your onboarding program fails to provide your customer with a meaningful “a-ha” moment; this is where they understand how your product will solve their problems and begin to really care about investing in it. As we discussed last week, the first 90 days will decide the fate of most implementations; if a customer feels let down and uninspired by your onboarding, the seeds of churn may have already been planted.
- Key Metrics: To predict and effectively combat Onboarding Churn, pay attention to:
- At Risk Users: Identifying at risk users begins by determining how to measure your app’s “a-ha” moment; Ross suggests figuring this out by looking at what your current customers did in your app that your churned customers didn’t do. Once you know these “a-ha” metrics, Ross recommends that, “Your Product team should change your onboarding flow to increase the likelihood that customers will have an “a-ha” moment soon after signing up. And Customer Success will want to keep a close eye on who hasn’t gotten value after signup (your at risk users) and proactively reach out to help them get to the “a-ha” moment.”
- Trial-to-paid conversion: Ross puts it pretty plainly: “This is the ultimate indicator that a customer values your service: what percentage of signups end up paying you?”
- 30 or 60 Day Churn: Even after customers pay you, the risk they churn in the first couple of months is higher. So measuring churn in the first 30 or 60 days after a customer starts paying you will help you understand and overcome the obstacles they face that prevent them from using the tool regularly. As Ross points out, “Once you uncover which customers are leaving in the first couple of months after signing up and understand why, you’ll be in a better position to fix your onboarding churn.”
This type of churn happens when the product doesn’t appear to solve the problem that the customer needs solved. This is fatal if not resolved; not only are you going to loose the customer, but you’ve probably also created a detractor, who is going share their negative experiences with others. This type of churn can happen for a variety of reasons, including a bad product, the wrong customer for the product and/or a price that’s too high (hint: you should also be tracking all these reasons/sub-types).
- Key Metrics: To predict and effectively combat Product Churn, pay attention to:
- Engagement: What are the key activities that a customer should do to get ongoing value from your product? And what are the activities they should do to engage deeper and make it more valuable to them? As Ross explains, “These are your key leading indicators of churn. It’s key that Customer Success is on top of these metrics to understand who’s at risk.”
- 30+ or 60+ Day Churn: Once a customer gets over the post-sales high-churn hump, you want to keep an eye on this figure and make sure it stays low. If it creeps higher than you like, Ross suggests, “Looking at 60+ day churn on a cohort basis by signup date, marketing channel, pricing plan, amount paid, feature usage, and cancellation reason. You’ll likely find some clues as to how to bring it down.”
Credit Card Churn
This type of churn is the ultimate hassle for any business that takes credit cards and it occurs when there are failed payments and/or expired cards. As Ross points out, “Roughly 3% of your customers’ cards will expire every month, which means 36% of payments may fail per year just due to expiring cards. This doesn’t include cards that fail due to other reasons (card over limit, card number changed, etc).” In short, this type of churn is extremely frustrating and a hassle to manage.
- Key Metrics: Since credit card churn is immediate (in the case of a failed payment) or possible to see coming (in the case of an expiring card), Ross suggests the following metrics help you understand and anticipate the impact on your cash flow:
- Expiring Dollars: How many dollars are expiring in the next 30-60-90 days? How will this impact your ability to spend over the next 90 days?
- Failed Dollars: How many dollars are currently in a failed state? These are dollars you’ll lose unless a customer updates their card.
- Time to Recover: How long does it typically take to recover a failed payment? When can you be reasonably sure to get the money back, or kiss it goodbye?
- Dollar Recovery Percentage: Of all your dollars that go into a failed payment state, what percentage do you recover?
This type of churn happens when your customer champion or economic buyer leaves and the new one wants to use a different solution. The best way to handle this is to build other “mini champions” at your customer. Doing this is especially important if switching costs are low; you need to be ready to fight for them to stay and the more people you have on your side, the better.
- Key Metrics: There aren’t really any here; keeping on top of champions is a matter of regular contact from your Customer Success team. But Ross also recommends keeping on top of LinkedIn, though he cautions that, “If you’re hearing about your champion leaving via LinkedIn, you’re probably behind the curve already.”
Customer Success Around the Web
- 3 fresh approaches to maximizing customer value with data: New customer acquisition is costly and customers are increasingly demanding, fickle, and empowered with endless options to spend their dollars. So businesses are rightly focused on increasing retention and share of wallet to maximize customer value – and data is the key to making the customer value gains they want to see. Yet many businesses struggle to leverage that data in the right way. This post explores 3 fresh approaches many businesses are not using, but should consider, to improve customer value.
- 2 elusive metrics most companies completely biff: If you were to ask industry leaders what non-obvious metrics they use to guide their businesses, what do you think you’d hear? Probably not “customer success,” right? That one seems pretty obvious. But Ara Mahdessian from ServiceTitan puts a important twist on the phrase: “We define ‘customer success’ as enabling our customers to generate more prospects and close more sales. In other words, are we measure whether or not we are truly making our customers more successful.” This post dives into the process of truly tracking your customer’s own success, going beyond the classic gauges of satisfaction surveys, churn rate and renewal rate, which all actually measure your company’s success, not that of your customers. A quick but thought-provoking read.
- CS KPIs you should care about: Customer service has changed. Instead of being a cost driver, it is now viewed as a revenue-generator. To adapt to this rapidly shifting mindset, you and your team need to be able to understand how to measure success within your organization, think about metrics through the lens of your own business model and tailor these measures to help your end users become product experts. But how do you do this when your organization has one foot stuck in the past and the other inching towards a customer success model? Simple: through basic, hard-earned education. This post discusses some important KPIs to help your business measure success.
Word to the Wise
This week’s wisdom comes a recent post by Steve Klein, co-founder of StatusPage, which allows web infrastructure, developer API and SaaS companies to set up their own status pages in minutes. While Klein admits that StatusPage has always been pretty blessed in the churn department (never having a multi-month period in which they’ve averaged more than 3% churn), in the last 18 months they have averaged only a 1% monthly churn rate. Compared to the average startup, this churn rate is 1000% lower! So how are they managing this incredible feat? Klein shares lots of nuggets of churn fighting wisdom in his post but his thoughts on relentlessly redefining your onboarding process really caught our attention:
“The most talked about benefit of a good onboarding process is that it converts free trialers to paying customers. But that’s not the only benefit to take into consideration. A good onboarding process can dramatically improve your churn. A good onboarding process quickly and effectively helps your new signups realize the value of your product. Contrary to popular belief, onboarding doesn’t “stop” after the user’s first time interacting with your product. It goes on for weeks or even months, continuing to educate and nudge the user into benefiting from using your product, continuously helping them get more invested. It’s simple, customers who are getting more value out of your product are going to be less likely to churn. So how do you improve your onboarding process? There are a few specific onboarding hacks that we implemented: Usability testing, a set-up wizard, knowledge base, better empty states, 24/7 live chat (or close to it), user segmentation (person who signs up vs. their colleague), design for the novice, configure for the pro.”