Churn is inevitable in every customer-centric business – be it a darling of Silicon Valley or a daring startup in a small town. Churn usually refers to the exit of customers in a given period. It can also refer to the loss of business from an existing customer. What matters is how the company identifies and addresses it to minimize the adverse impact.
Customer success programs, meanwhile, can only be effective and sustainable if they are complemented by tools to analyze customer churn.
“Analysis helps predict churn and figure out the cause by drawing insights from data that is collected from multiple sources. For example, an analytics solutions provider helped a company reduce customer churn for a particular project by 30% in just one quarter after analyzing data and using predictive models.1”
Before you go about the task of addressing churn, it is essential to classify it and create a standard framework for long-term use. Though the churn rate varies as per the product, target audience, business model, sales channels and other factors, it pays to arrive at a strategy to make a start. The idea is to be in the know about what’s happening and what can be changed to make things better.
As per insights drawn from different theories, expert opinions and project experiences, churn can be broadly classified based on three parameters – stage, level and scenario. Let’s examine each of them:
Based on the Stages
1. Initial
Some wavering customers take impulsive decisions and buy products without much homework. Soon, post-purchase dissonance sets in, and they exit. Maybe, they realized that they made the wrong choice, and opted for a competitor’s product. Who knows, they may have been trying multiple brands! This churn happens shortly after the purchase is made.
2.Intermediate
In this case, the customer is well informed. They have used the product and understand the features and benefits of the same. The decision could be based on detailed analysis and deliberations with experts or peer users. There is also a possibility that they did the groundwork to home in on the best two, before reaching the comfort zone.
3. Advanced
This kind of churn is serious! The customer has been with the product owner for a long time, and the latter knew the requirements precisely. One day, they decided to pull the plug for a reason known to both. But the product owner is unable to do anything about it, though he has already done his bit to retain the customer.
Based on the Levels
1.Account
This is a grave issue. When an account is gone, everything is gone! Users cease to exist and revenue becomes zilch.
"The account-level churn could indicate a mismatch between the product and the customer’s requirement. It could also happen because the product has been sold to the wrong users. The answer to this challenge lies in smarter account-based marketing. ”
2.User
This is a grassroots-level issue. Picture this: A designer uses CAD software for a few months and realizes that it does not meet the performance expectations. Though he has done an apples-to-apples comparison before suggesting the switch, some issues can be spotted only after prolonged usage. Maybe, the product requires an upgrade. Easier still, the brand can demonstrate the unseen value (if it exists) to the end-user.
3. Revenue
It is the ratio of lost revenue to the overall revenue for a given period. This can happen due to a decline in the number of users in an account or even a reduction in the number of accounts. Both are bad. This could also be a result of a sudden planned downgrade by users or unplanned discounts by desperate sales teams.
Based on the Scenarios
1.Predictable
There are some customers who just had to call it quits, and they were good enough to let the product owner know about it. The reasons could be many – business closure, change of ownership, relocation, etc. In other words, a good customer gradually turned into an alien. Though it was predicted, nobody could do anything to salvage the situation.
2.Unpredictable
The reasons for the predictable churn can be applicable even here. But the customer, in this case, does not reveal the truth about his business until the eleventh hour. It’s a nightmare, and nothing could have been done to stop it. In certain cases, the customer would have been disgruntled but decided to remain silent.
Once you have classified the churn, focus obviously shifts to how you can prevent it. According to Accenture, 82%2 of customers feel that a service provider could have done something to prevent them from switching. Your organization needs to ensure customer issues are heard and dealt with before it’s too late.
Summary
Let’s conclude with a question: Is churn always bad? Yes and no. It’s bad because it directly shrinks revenues. That’s a no-brainer. But there’s another way to look at it. What if droves of customers quit and the business stakeholders have no clue about the reason for the same? In this case, churn can also be a source of enlightenment for product owners who are counting on valuable customer feedback to improve their products or eliminate flaws. If churn is addressed pragmatically with the right tools and know-how, the damage can be minimized. But yes, every meaningful journey starts with a meaningful first step – classification of churn in this case.
References:
https://www.salesforce.com/blog/2017/06/guide-to-customer-loyalty.html
https://sixteenventures.com/churn-classification
https://useriq.com/blogs/customer-churn-mastering-saas-metric/
