Everybody hates goodbyes, especially when they come with a personal loss. In the business world, these goodbyes are known as Churn. Simply put, Churn is the measure of how many customers stop using your product or service.
On the other hand, Customer retention refers to the number of customers who remain loyal to your business over a period of time.
In Subscription-based and SaaS models, customer churn and retention are critical metrics that often determine a business’s success or failure. These concepts are two sides of the same coin, offering vital insights into customer satisfaction, loyalty, and the overall health of a business. Let's take a closer look at these key metrics and explore how they impact business performance.
What is the “Churn rate” ?
Customer churn is basically when customers stop using your product or service. It’s the rate at which people leave your business over a specific period. Think of it as an "exit rate." If it’s too high, it’s a sign that something’s not right—maybe your product isn’t meeting expectations, or the competition is pulling customers away.
How to calculate the churn rate? - formula and an example
It’s pretty straightforward:
For example, if you start the month with 1,000 customers and lose 50, your churn rate is 5%. Easy, right?
What is a good churn rate? And why is it important for businesses ?
There is no universally ‘average’ churn rate. The average churn rates differ greatly across different industries and companies. Moreover, a good or bad churn rate also depends on what growth stage and product lifecycle your company is in.
As a general rule, a 5% to 7% annual churn rate and around 1% or less monthly churn are considered acceptable churn rates for established SaaS companies.
As opposed to this, early-stage startups will understandably have a higher churn rate, since they still may not have product-market fit yet. For them, an average annual churn of 10% to 15% is considered good.
Revenue Loss: Fewer customers mean less money.
Costly Acquisitions: It’s more expensive to get new customers than to keep existing ones.
Reputation Issues: High churn can hurt your brand and make people think twice about you.
What is the “Retention rate” ?
Customer retention is the opposite of churn. It’s all about keeping your customers around and happy. A high retention rate is a great sign that you’re doing something right—your customers see value in your product and want to stick with you.
How to calculate retention rate? - formula and an example
Retention Rate Formula:
For example, let’s say you start with 1,000 customers, get 200 new ones, and end with 1,150. Your retention rate would be: 95%
What is a good retention rate? And why is it important for business?
There’s no such thing as a one-size-fits-all churn rate. It really depends on your industry, the type of business you run, and even the stage of growth your company is in. For well-established SaaS companies, a 5% to 7% annual churn rate or about 1% monthly churn is often seen as acceptable. But if you’re an early-stage startup still figuring out your product-market fit, don’t be surprised if your churn rate is higher. In fact, a churn rate of 10% to 15% annually can be considered pretty decent for startups. It’s all part of the growing pains as you fine-tune your offering.
Churn vs. Retention: What’s the Difference?
As said before, they’re two sides of a coin. Here’s how they’re different:
How to Reduce Churn and Boost Retention
Tips to Cut Down Churn:
Spot At-Risk Customers: Pay attention to signs that customers might leave, like inactivity.
Streamline Onboarding: Make it super easy for new customers to get started with your product.
Listen to Feedback: Ask your customers what they think and act on it.
Be Proactive: Don’t wait for issues—reach out to customers before they hit a roadblock.
Ways to Keep Customers Coming Back:
Make it Personal: Tailor your interactions to each customer’s needs.
Show Value: Keep improving your product and show customers how it helps them.
Reward Loyalty: Offer perks or discounts to your long-term customers.
Build a Community: Create a space where customers feel connected to your brand and each other.
How FunnelStory Helps Predict and Prevent Churn
FunnelStory is like your secret weapon for managing churn and retention. Here’s how it helps:
1. Predictive Analytics for Churn Prevention
FunnelStory predicts customer likelihood to renew or churn, allowing revenue teams to identify potential problems or growth opportunities early on and take action accordingly.
2. Diagnose & Resolve Churn with AI
FunnelStory AI analyzes Churn Drivers, goes deep into accounts, diagnoses recent and long-term symptoms of churn, and recommends pathways to resolution.
3. Unlock Churn Drivers Benchmark Accounts
FunnelStory provides insights into the factors behind customer churn/retention prediction, their relative weightage for the prediction, where a particular account stands, and where the other account stands relative to the rest of the population.
4. Ease of Implementation
No static rules, no constant configuration changes. FunnelStory AI automatically determines what factors drive churn and makes predictions. Stop having to guess what matters and instead focus on your customers.
To know more about how FunnelStory can help your business reduce churn and increase revenue, Click here
