Last editedOct 20222 min read
Churn analytics is the practice of analysing what makes customers move on from your service. It gives you insight into what churn is inevitable and what churn can be prevented. Use this knowledge to address customer pain points and hence increase your chances of retaining their business.
Basics of churn
Churn comes in two forms, voluntary and involuntary. Voluntary churn is when a customer actively decides to move on from your service. Involuntary churn is when they simply drop off your radar.
There is often some overlap between these two areas. It’s typically where customers have payment issues, which lead to them being suspended from the service or being chased for payment.
If a customer is suspended from the service, they may forget about it. Alternatively, it may prompt them to reassess their service provision, which could lead to them choosing another provider. Likewise, if a customer is chased for late or non-payment, they may reassess their service provision and may cancel their package.
Most companies aim to keep their overall churn rate at a maximum of 10%. For SaaS companies, a churn rate of 5–7% is considered healthy. Companies try to stop involuntary churn and manage voluntary churn.
Stopping involuntary churn largely depends on having a frictionless payment system in place. Managing voluntary churn largely depends on using churn analytics effectively.
Role of payments systems in stopping involuntary churn
Since payment issues are linked with churn, make a point of addressing them. Ideally, you want the payment experience to be totally frictionless. This is exactly why Direct Debits are the perfect choice for so many merchants. The customer just has to set up a mandate, and you take care of the rest.
As a bonus, using Direct Debits helps reduce the administrative burden on you. You can set up recurring payments or schedule ad hoc payments through the GoCardless dashboard. Link GoCardless with your choice of accounting package. Then all you have to do is create invoices, which are charged and reconciled automatically.
How to use churn analytics to manage voluntary churn
The key to using churn analytics effectively is to focus on the right metrics. Your starting point is your customer churn rate and your customer retention rate. Depending on your business, segment these by customer type.
The formula to calculate your customer churn rate is:
(customers lost over time period/customer at the start of time period) * 100
The formula to calculate your customer retention rate is:
((Customers at end of period – new customers)/customers at start of period) * 100
The main reason for doing both calculations is that they act as a check on each other. They should give the same result; if not, double-check your calculations.
Get feedback from customers
Customer satisfaction surveys and net promoter scores are both straightforward and effective ways to gauge how customers feel about your service. Keep standard customer satisfaction surveys as short and simple as possible. Many surveys consist of just one question. Five should be considered an absolute maximum.
Run more in-depth surveys from time to time. Be prepared to offer an incentive for customers taking more time on these – anything from a discount code to a donation to charity.
Assess your customer engagement rate
Look for ways to measure your customers’ engagement with your service at all touchpoints. Measure engagement during onboarding and any interactions with support. These areas can make or break a customer’s experience with a service.
Also pay close attention to your website analytics. Identify which areas customers are interacting with most. Make sure that they represent your company at its best. Also, make sure that your pricing information is transparent.
We can help
GoCardless is a global payments solution that helps you automate payment collection, cutting down on the amount of financial admin your team needs to deal with. Find out how GoCardless can help you with one-off or recurring payments.