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Key Churn KPIs to Watch and How to Calculate Churn

June 30, 2022

As a business owner, it’s important to understand the Churn Key Performance Indicators. Churn KPIs can help you make informed decisions about your business. When I started my company, I had no idea what this term meant. After doing some research, I quickly realized that it was an essential metric for measuring the health of my business. This article will give you the most important churn KPIs to look out for.

Customer Churn 

Involuntary churn is when a customer leaves because they’re unhappy with your service, while voluntary churn is when a customer cancels their subscription or contract.

By preventing involuntary client loss, you can focus on reducing or eliminating your voluntary losses.

The proper use of your CRM system will not only help you retain your current customers but will also help you prevent losing any potential customers.

Retaining just 5% more of your current customer base can increase your profitability by over 100 percent. This is why retaining your customers is such a priority.

Why It’s Important to Track Customer Churn

Churn is a top priority for any business because it directly impacts profitability. New clients are five times more expensive to acquire than retaining existing ones, so reducing customer churn should be a key focus for any company.

If your client retention is low, you’ll have to spend a lot more money acquiring new clients monthly to make up for those who left.

Churn KPIs You Should Track

When preparing a retention rate and churn report, these metrics are important.

  • The number of new customers who joined the company in the last month.
  • The number of new customers that were added in the past year.
  • The number of customers who cancel after the first 30 days.
  • The number of customers who cancel after the first year.
  • The average number of months a customer is a customer before they cancel.

If you lock customers into annual contracts, which is common in enterprise SaaS, don’t worry if customers cancel before the end.

To determine your SaaS churn rate, however, you should offer a free trial of your SaaS business for a month before you lock a customer into an annual contract.

Leading and lagging Indicators

Churn is a lagging indicator of customer loss and measures the damage already done.

To combat the loss of your customers, you need to recognize the warning signs that indicate when your customer is about to stop using your service. By identifying these red flags, you can increase the perceived value of your offering and re-engage the customer.

If users perceive that the value of your service is decreasing, they will stop using it. To prevent this, you need to improve the UX and make it easier for users to use your product.

1. Reducing customer engagement or usage

If you’re noticing a dip in customer engagement or activity, they’re about to churn out. If someone logging into your service 10 times a week is now only doing it 3, this could indicate a loss of interest in your product. Track certain KPIs so you can identify these warning signs early.

Some key indicators of sales success are: a decrease in the number of time users spend on your site, an increase in the number of customers that stop paying their bills, an increase in the number of users who cancel their subscriptions, and a drop in the amount of customer support requests. If you’re noticing any of these, it’s time to improve engagement.

If users have difficulty using your site and are not trying to fix the problem, they are less likely to stay. There is no use in trying to repair something that is not beneficial anymore. This lack of engagement can be a leading indicator of customer churn.

What could be the reason for this? It’s possible that customers didn’t think their problem could be fixed or didn’t think it was worth going through the effort to reach out for support. This is something that RD should investigate further so they can work on improving customer engagement and retention.

2. Customer dissatisfaction with price point and competitors

The prices in the software as a service (SaaS) sector are forever changing, posing a problem for individual businesses. This is a common consequence of a capitalistic economy.

Keep an eye on your competitors’ prices. If they’re lowering theirs, you should too. Otherwise, your customers might churn.

Many customers will compare your pricing to your competitors, so it’s important to offer competitive pricing.

You must stay on top of your competitors in today’s competitive market. You can do this by constantly improving your services, cutting costs, and providing the best customer experience possible.

No matter what, customers will always choose the cheapest option for your services or products.

3. Account changes

As with every update, there will be those who aren’t too happy about the change. Understandably, not everyone will like it, but it’s necessary.

If there are high customer churn rates within the company or if the decision-makers of the company change, this could lead to the SaaS system being changed.

Changes in a subscriber’s business interests, new funding sources, or hiring sources can signal potential customer attrition.

Your company is only as successful as the service it provides. Sometimes you can influence a customer’s decision to leave, but other times you can’t.

Your goal should be to keep existing customers from churning. You can do this by maintaining the perception that your product is valuable.

The more information you have about your customers, the better equipped you’ll be to retain them. By taking the time to strategize a retention plan, you’re more likely to build a loyal customer base.

How to Measure Subscriber Attrition

There are two types of churn: customers and revenue churn. You can use gross or net profits when calculating your revenue from a particular client.

Both formulas and definitions of churn are below, but remember that using “net” means you’re only looking at customers who left, while “gross” includes those who stayed and those who left.

Customer Churn is calculated by taking the number of customers who left during a period and divided by the total number of users at the beginning of the period.

churn kpis (Source)

The formula for calculating gross churn is: (revenue lost in the period total revenue at the beginning of the period).

Formula: Net Revenue Churn = (churned revenue – revenue from up-sells and expansions + revenue from contractions) ÷ total revenue at the beginning of the period.

The formula for calculating net revenue growth churn is (revenue lost from churning customers – revenues from up-selling and expansion – lost revenue from contraction) total customer count at the beginning of the period.

churn kpis (Source)

Conclusion

Churn KPIs are important for any business owner to understand. They can help you make informed decisions about your company’s growth and health. You’ll get a complete picture of your customer base by tracking both churn rate and retention rate.

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