One of the most important KPI metrics that a startup business can measure is customer churn. Churn is a measurement of the percentage of accounts that cancel or choose not to renew their subscriptions in a given period, typically calculated for businesses with recurring monthly revenue streams such as a SaaS business. A high churn rate can negatively impact Monthly Recurring Revenue (MRR) and can also indicate dissatisfaction with a product or service. To compound the issue, instead of getting lower-cost efficiencies from retention marketing to current customers, you are forced to take the more expensive route of new customer acquisition and onboarding.
It is unreasonable to assume that you will keep 100% of your customers in perpetuity, with 0% churn, so as a benchmark try to target a churn rate of 5-7% assuming you are a SaaS business. Churn rate benchmarks vary based on which industry your business operates so research your industry for a proper benchmark which can be at 2.5% for example. To see how you are performing each month, create the proper KPI metric and measure performance and optimize accordingly. To give you an example of why this is so important. The difference between a 2.5% churn and a 5% churn, could be the difference in building a 50% larger business in a five year period. Poor churn may not be an immediate problem for your business today, but it will certainly add up over the years if left ignored.
What causes customer churn? Customers often churn when they have a difficult time finding success with your product or pricing. To help reduce churn, survey former customers to figure out why they left. We have created a quick list of items that we most commonly see when assisting clients lower their churn rate…
- The business is attracting the wrong customers
- Customers are not achieving desired outcomes
- The business has weak customer support/service
- Customers feel that competitors do a better job
- The product has bugs or issues that customers believe the business cannot fix
- Customers no longer see value in the product
- Customers think the businesses product is too expensive (or cheap)
- Customer credit cards or payment method has expired (this is more common than you think)
Create a plan to address those issues immediately so can retain current and future customers lowering your churn rate and growing your business. Not sure how to fix the issues? No problem, contact us at MCDA CCG and we will put plans in place to reduce customer churn and skyrocket your revenues.
What is Net Negative Churn? Net negative churn is achieved when the total additional revenue generated from existing customers is greater than the revenue lost from cancellations and downgrades. As we briefly discussed in our blog topic yesterday, “landing and expanding” with current customers is a lot simpler than trying to secure new customers from scratch. The difference between a negative and positive 2.5% churn, is a business that is almost 3X larger in five years.
As it relates to long-term customer satisfaction and retention, it is critical that you are talking to your customers, and constantly looking for areas of improvement. Quickly fix what they don’t like, and deepen what they do like. Make it a difficult and painful decision for customers to leave you. It can be your data, analytics, or the simplicity in your integration with their other systems, just keep them committed to your product or service.
Also, make sure that your business is doing everything it can, operationally, to help reduce churn. Try to structure longer term contracts to reduce monthly turnover. Work on creating and maintaining a world-class level of customer service and train the staff on how best to turnaround a “cancellation or service reduction call” into a “retention or upsell” call. If they are unable to save the deal, train them on transitioning to a survey group and gain the insight on why the customer is leaving. The appropriate information needs to be passed onto the product team for quick action.
If customer satisfaction, growth rate, and revenue were not enough incentive for you to fully embrace the importance of lowering your churn rate, let us quickly talk investments. Investors are steadily focused on these metrics! First, if you do not know or understand your metrics, you are not going to look very smart to your current or future potential investors. If you fully understand your metrics, but they are too low and you aren’t doing anything about it, you will have an extremely difficult time with your current investors and make it next to impossible to secure new investment financing.
At MCDA CCG we can help your business create the appropriate KPI metric(s), increase customer satisfaction, and increase your growth rate and revenue by helping you lower your churn rate. If you are preparing to search for investment capital, let MCDA CCG prepare your business for ultimate success with your potential investors. Contact us today for a free no-obligation discussion on how we can help you. Complete the form below or call us at (714) 872-2393.