How do you Identify Churn?

Oct 12, 2021 10:58:34 PM | How do you Identify Churn?

The story of churn cannot be told by a single figure alone. To understand churn is to understand your customer base, the different cohorts of customers, what they love about your product and, most importantly, what they don't like.

The story of churn cannot be told by a single figure alone. To understand churn is to understand your customer base, the different cohorts of customers, what they love about your product and, most importantly, what they don't like.

Despite this complex definition, churn is quite simple to understand. 

In the B2B world, people buy things for a specific purpose - whether to achieve a goal or contribute towards a clear business objective. If you help them achieve this objective they will stick around. And if you do not? They will leave- otherwise known as churn.

Within virtually all solutions there are different pricing plans, different personas, different geographical locations- the possibilities are almost endless. The first question we must ask is do they all churn at the same rate? 

Sure your overall churn rate might be 3%, but say you have a gold plan and a silver plan - do they both churn at 3% or does one churn at 2% and the other at 4%? 

Your Rate of Churn

To get a true view of churn in your business we must define each of these different cohorts and assess churn individually.

Begin by asking these questions:

  • Does your business offer different plans within the business? (Platinum, silver, basic premium, etc.)
  • What are the different personas using the business/product/ service?
  • Are there any key differences within the groups from questions one and two? For example, platinum plans may have people in the USA and UK or have two different personas

Once you have your list of relevant cohorts you need to identify the churn rate for each of them. Are there any baseline similarities? What are the underlying factors shared amongst the churned customers within the different cohorts and personas? 

Remember, your overall churn rate will be a specific amount but within each cohort, there is a churn rate specific to that cohort. It is common for different cohorts to churn at different rates. 

Now that we understand who your important cohorts are and at what rate they are churning, we must answer two simple questions:

  1. Why are they churning?
  2. How do we fix it?

Armed with these questions and their answers you are equipped and ready to bring your churn rate down. 

💡Quick Tip

Breaking down your customer base into individual cohorts like this may seem like a lot of work but it is worth it. Personalisation in marketing and sales is accepted as the norm so why not customer success?

Breaking down your customer base into similar cohorts based on important data points will deliver far greater results, as marketing and sales have already discovered. 

 

Why are people churning?  

When it comes to understanding why people churn there’s one important word to remember: Feedback. 

The more feedback we can acquire, the better we can become at preventing churn from happening. The best place to start is at the point of churn, or, more specifically, when people cancel their subscription with you. 

It is your responsibility to include a mandatory step in any cancellation process to ask why they are leaving. Provide this in the form of a drop-down option and offer a text box for further clarification. 

Ensure you include an option for “other” in the drop-down. This way if you see a large percentage of people selecting ‘other’ it tells you that the predefined options you provided didn't quite hit the mark and need further investigation. It often means there’s a prevalent issue that you haven’t quite identified yet. 

You can segment these churned accounts by the cohorts we identified in step one and further supplement your insights by building automated emails and tasks for your customer success reps to reach out via the phone to understand why the customer left. 

Simply jumping on a quick call with churned customers can offer you invaluable insights and turn a rejection into an opportunity for growth.

While gathering data at the point of churn helps tackle future churn, it is also very reactive in the sense that you do not receive feedback until the point of no return. 

To complete our feedback loop we want to receive feedback at every stage of a customer's lifecycle. For this, there are two key feedback tools that we can implement, the CSAT (customer satisfaction score) and NPS (net promoter score).

Before we can finalise our feedback loop, let’s touch base on what the CSAT and NPS are, how do you use them effectively, and the main differences between them:

CSAT vs NPS

The biggest difference between a CSAT and NPS is that CSAT is typically thought of as a short term evaluation of customer happiness designed to be used as a data source for iterative product improvements. Whereas the NPS is a long term indicator of loyalty issued twice per year in many organisations.

A typical example of a CSAT question would be:

“How would you rate your overall satisfaction with the [goods/service] you received?”

Respondents use the following 1 to 5 scale:

  • Very unsatisfied
  • Unsatisfied
  • Neutral
  • Satisfied
  • Very satisfied

As you can see, this type of question allows you to be very targeted in evaluating happiness with a particular feature or service that you offer and can therefore make the necessary improvements. 

A CSAT questionnaire can be issued as many times as you like in multiple different formats to different customer cohorts. 

For a full understanding of how to implement a CSAT, you can read the article by Qualtrics.

For your NPS you would typically ask:

“Using a 0-10 scale: How likely is it that you would recommend [brand] to a friend or colleague?”

Respondents are then grouped based on their responses:

  • Promoters (score 9-10) are loyal enthusiasts who will keep buying and refer you to others.
  • Passives (score 7-8) are satisfied but unenthusiastic customers who are vulnerable to competitive offerings.
  • Detractors (score 0-6) are unhappy customers who can damage your brand and impede growth through negative word-of-mouth.

Your overall NPS is calculated by subtracting the percentage of detractors from the percentage of promoters. Your NPS can range from -100 if every customer is a detractor to a high of 100 if every customer is a promoter.

An NPS is usually shown no more than 2 times per year to any customer, indicating longer-term loyalty and happiness rather than the CSAT’s focus on specific features or offerings.

For a full understanding of the NPS, you can read the article by Net Promoter.

 

Consistent Feedback Loop 

With these steps completed, you will have identified your key customer cohorts. You have also created a successful feedback loop for each cohort that you can use as a source of data for analysis. This analysed data will feed your continuous improvements, reducing churn and increasing expansion. 

The final remaining weakness in this system is that it is reactive. To complete the puzzle we must be proactive in our hunt to answer why people churn. To do this we must analyse our cohorts’ engagement.   

 

Analysing behaviour

If we want to identify reasons for churn it makes sense to start by defining how you expect your product to be used. Once we have this definition it stands to reason we can measure how many are meeting this definition and how many are not. As a simple example, if you expect customers to send at least one marketing email per week on your platform, how many users do this and how many do not? 

With this data available to us we can segment our users into four engagement groups.

  • Onboarding - new users going through the onboarding process
  • Running fine - those users who are meeting the engagement definition consistently 
  • At-risk - those who fall below the engagement threshold
  • Evangelists - those who exceed the engagement threshold

Analysing these segments and the cohorts that they belong to will allow you to be proactive in who you survey, what questions you ask and how you handle the response. 

As an example, imagine you have a bronze package in your pricing plan but you consistently see these users in the at-risk segment of users - you are now able to focus your attention on a specific set of features, personas and problems. In turn, this makes your efforts to reduce churn far more effective.

By completing this analysis for all segments of your users it means you are no longer being reactive in your pursuit of feedback. Instead, you are now actively hunting through your engagement analytics to identify cohorts who are most at risk of churn. Additionally, you equip yourself with the visibility to do something about it before the churn happens. 

 

Reasons For Churn Identified

By following these steps you will create a complete process for identifying the reasons for churn in your business and arm yourself with the information needed to reduce churn. 

Written By: Dan Wheatley