As a product manager in the digital era, metrics are more important than even for gauging the health of your product. While your first instinct might be to focus on growth, you need to make sure that you also keep an eye on the customers you’ve already brought on. It’s vital to maintain and build loyalty among your existing users, otherwise growth won’t matter.
The best way to track how well your product retains existing customers is through churn. At this point you might be thinking, what is churn? How do I calculate it? And what if the numbers are against me?
There’s no reason for concern. In this article, you’ll learn what churn is, how to interpret it, and strategies for improving it.
Churn is a quantitative measure of the number of customers a business loses over a certain period of time. In essence, it’s a statistical snapshot of customer departure. You express it as a rate or percentage, but it’s more than just a number. It’s the big picture of your customer’s experience with your service, their satisfaction, and their loyalty.
If you are not a huge fan of crunching numbers, then several online tools can save you that headache.
However, calculating churn rate isn’t difficult at all. There are three easy steps:
Suppose you started with 500 clients (initial number of customers). At the end of the month, you count 450 customers. That means, at the end of the month, 50 people have unsubscribed. So your customer churn rate comes out to be 10 percent. You can also say that, for every 25 clients, one client leaves your platform.
If you find that your churn rates are increasing, it’s probably because of one of these six reasons:
With your product team, try to examine your approach to each of these and identify areas of improvement. You might try by determining which ones you already feel confident about. From there you can redistribute resources, or tweak your strategies to make up for loss potential.
Churn rates, if evaluated correctly, can save you a lot of money and time because it keeps you pinpoint where you should focus your customer retention efforts.
Let’s say your churn rate has increased over a month, but for that same month your revenue hasn’t drastically decreased (yes, that’s possible).
Such cases typically mean your customers are downgrading to a lower-tier package of your services instead of quitting altogether. Conversely, if your churn rate hasn’t increased all that much but your revenue is spiraling downward, then it strongly indicates that you are losing your largest stakeholders.
Your developers might be pulling all-nighters to work on features that don’t offer the value your clients expect. Your UI design might look interactive on paper, but your clients are frustrated by it. Your customer service might not be adequately trained to handle complaints from customers of specific demographics.
Churn rates provide you with feedback, and if you ignore it, you might lose more than you could ever gain.
Churn rate helps you diagnose problems with your product, but it’s up to you as the PM to do something about the data you receive. The following are strategies you can use to help curb churn.
Everyone likes to feel heard, and most people have a lot to say. There’s substantial research backing the notion that people feel more comfortable giving their opinions in online forms. You can use this to your advantage and provide feedback forms for customers churning from your product.
Instead of bombarding your customers’ inboxes with uncalled for bills, first suggest your proposals and ask for feedback. The more your customers trust you, the easier it’ll be to keep churn at bay.
After releasing a new update, it’s always a good practice to send follow-up emails to your users to rate their experience. However, be mindful that your forms are simple and concise.
If your customer service is terrible, like Windows troubleshooting, then you might as well be sending farewell postcards to your clients. The traffic on your website comes from a diversity of demographics. Even how a visitor’s day went can affect their experience with you, which is why most customer service scripts make sure to ask the customers how they’re doing.
Your CS department should be well versed in interpreting a technical problem within the first few words of the conversation and effectively communicating the solution in a layman’s tone. Apart from the call facility, chat boxes should be conveniently available to visitors to your site. You can leverage the power of generative AI tailored to your organization’s framework.
Just like advertisement campaigns, encouraging a community on social media can go a long way in promoting your brand. This gives you the real and raw perspective of your clients because without such platforms, your users can only interact with you and not each other.
Create a subreddit for your product or a YouTube channel, and if your services are as great as they sound, you might even open another income stream!
The cost associated with retaining a customer is five times less than replacing them if they’re gone.
Let’s say each customer brings a monthly revenue of $100, and the retaining cost for a customer is just $10. Now if the net expense of bringing in a new client onboard is $50, then the net profit of retaining a customer is $90 per customer.
However, if say 50 customers stop paying for your services, you’ll lose a heart wrenching $5,000 in revenue.
Because of this, a high churn rate is detrimental to budget planning. To make accurate revenue projections, you need to roughly predict the number of customers who are on the brink of churning so you can take preventive measures beforehand.
To help you get a better sense of how successful companies approach churn reduction, let’s take a look at Netflix and ICON.
With over 207.64 million subscribers, Netflix is the only premium media streaming business that has the lowest churn rate, at merely 2.3 percent to 2.4 percent in the years 2023 and 2022. Netflix has won the engagement of its subscribers with its highly sophisticated recommendation algorithm that suggests movies and TV series tailored to its user’s taste.
To do this, Netflix relies on extensive user demographic and activity data. Netflix also creates a profile of user preferences and never misses the chance to inform them of new seasons or episodes as soon as they air.
ICON provides personalized outsourcing solutions and it prides itself on a 98.8 percent customer retention rate. It takes their feedback forms seriously, driving new referrals, providing a rich user experience, and taking a client-centric approach to problem-solving. This not only earns them the unwavering loyalty of their customers, but also attracts a steady influx of new ones.
Most startups fail to realize the significance of customer retention and don’t harness the power of analyzing customer churn rates. The math is ridiculously straightforward, and by employing effective strategies for reducing customer churn, you can get an edge over your competitors and earn the staunch loyalty of your customers.
Knowing churn rates can make it easy for you to determine what type of customer churn you’re dealing with and point you towards early warning signs of potential deal-breakers. To this end, your customer service department can make you or break you, so investing in their training is worth every dime. Let the voice of your customer be heard loud and clear on social media, and the market will organically turn towards you.
Featured image source: IconScout
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