To put it simply – churn means someone is no longer doing what you would like them to do. For many industries, it is a key metric, particularly in subscription-based models or SaaS. Although understanding churn is critical to the success of any business, working out when a customer is about to churn can be far more challenging than you might first think.
To gain further understanding requires a deeper dive into the behaviour, patterns and psychology of the customer.
Churn is not always immediate
Churn isn’t always instant. Customers that eventually churn may not have made the decision to leave immediately. There may have been subtle hints that suggested that they were a potential churn candidate, however these signs can go unnoticed and may not become more apparent until later in the relationship with the customer.
An example of this would be in a subscription-based business, a customer might stop using your service as often, despite still paying for a few months before eventually cancelling. The time it takes to identify churn in this situation may be longer that it anticipated.
Churn can be subtle
Not every customer follows the same patterns before they churn. Some may decrease their engagement with the product, others may seem to have their issues resolved with customer support but then still reduce engagement without telling you. These subtle changes require a lot more sophisticated analysis to detect and differentiate from the ordinary fluctuations businesses may usually expect.
It is quite common for organisations to fail to spot the early warning signs for churn, because they are currently only looking for major issues or drastic changes in behaviours. However, smaller, more gradual shifts are often the first signs of a deeper issue.
Churn isn’t always a result of poor service
The easiest assumption to make about churn is that it is a result of customer dissatisfaction but that is not always the case. Customers may leave due to a variety of reasons e.g. financial difficulties which have nothing to do with the quality of your product or service. In some circumstances, they may have found a competitor that meets their needs better.
This means that working out the root cause of the churn becomes a little trickier. If company focus is solely on improving customer service and product quality, you might miss the fact that a large portion of customer churn can be associated with factors external to your organisation.
Customer expectations are constantly evolving
The expectations of customers are becoming much more dynamic, meaning that the ideal product today may not be the same tomorrow. Shifts in the market mean that what customers expect from your business can change rapidly. When customers evolve, your ability to deliver value must as well.
The dissatisfaction of your churning customers may not be down to the state of your product but the inability of your company to keep up with the changes that they now expect. An example of this would be when a customer subscribes to a streaming service and their favourite show is no longer available, they might churn because it no longer meets their entertainment needs. The main challenge is staying ahead of the curve and anticipating the issues that might lead to churn before it occurs.
The complexity of predicting churn
Churn prediction is a complex task that involves analysis of a multitude of factors, including customer behaviour, usage patterns and demographics. You can get a false sense of security if you rely on a single metric e.g. low product usage. To predict churn requires a sophisticated model that considers numerous different variables and data points.
To do this effectively, many companies use machine learning algorithms and predictive analytics tools to identify customers at risk of churning. These tools can analyse historical data and identify patterns that human analysts might miss. However, even these systems are not perfect, and there is always a margin of error. Some customers who appear at risk of churning may stay, while others who seem satisfied might unexpectedly leave.
The cost of not addressing churn
If churn isn’t identified early enough, it can provide a significant impact on your business. The cost of bringing in new business is often a lot higher than retaining the existing ones, so by leaving churn unnoticed, it can harm your business in the long run, impacting both reputation and customer loyalty.
Organisations need to be proactive in their approach to churn and implement strategies that don’t just identify at-risk customers but also re-engage and retain them before they decide to leave. This might also include improving customer service, gathering feedback or customising offers based on the needs of the customer.
Building a churn prevention strategy
To mitigate churn, businesses need to implement comprehensive churn prevention strategies that encompass customer satisfaction, retention efforts, and continuous monitoring. A few effective tactics include:
- Personalised communication – frequent, bespoke communication with customers can give you a further understanding of their needs as well as identify any potential issues before they become a churn risk
- Customer feedback loops – taking customer feedback on board is vital to improving your product and service. This also allows you to identify any pain points earlier on, meaning that you can make improvements to reduce the likelihood of churn
- Loyalty programmes and incentives – offering rewards or discounts to long term customers can increase their brand loyalty and reduce their churn
Ready to move from identifying churn to preventing it?
Understanding churn is only the first step. To truly tackle it, you need a robust, strategic approach.
Download our whitepaper to help you explore the five critical questions every business should ask before building a churn model. Discover how to define churn, assess your data readiness, align your team, and implement insights that drive retention.
