Even a 5% reduction in customer churn can increase profitability by 75%. That’s just one of the reasons to take this inevitable but controllable metric seriously. To understand how important this metric is, look at this: an average app loses 77% of its Daily Active Users within the first 3 days after installation, 90% within 30 days, and over 95% after 90 days.
With increasing competition and volatile consumer loyalty, taking active steps toward reducing churn is vital.
But what exactly is customer churn rate? Can you reduce it to acceptable levels? If so, how? We’ll discuss the answers to these questions, and more in this blog.
What is churn rate?
The churn rate or attrition rate is the rate at which your customers stop doing business with your company or stop using your company’s products or services; at any given time. A high churn rate indicates problems with your product, its marketing, retargeting, or support.
How to calculate churn rate with formula?
To calculate the churn rate, divide the total number of customers you lost by the total number of customers at the start of the computation period and multiply that value by 100.
(Lost customers / Total customers at the start of the period) x 100
Use the stats from the beginning of that particular month for the monthly churn rate.
For example, if your business had 1,000 customers at the beginning of the month and you lost 45 customers by the end, your monthly retention rate is:
(45/1000) x 100 = 4.5% monthly retention rate.
7 ways to reduce customer churn
Remember that while customer churn is unavoidable, reducing it is not impossible. Here are 7 practical steps to reduce your customer churn.
1. Arrest churn with cohort analysis
One of the best ways to identify and reduce churn is through churn rate cohort analysis. Customers that behave similarly are grouped in the same user cohort. Studying the cohorts that churn will help you mitigate churn in other such cohorts, thereby reducing overall churn.
Let’s break down the cohort analysis method into simple steps.
- First, segment your app users into different acquisition cohorts—as per when they joined your app. You can create daily, weekly, and monthly cohorts.
- Analyze exactly when the users in these cohorts churned when using the app.
- Then, create user cohorts based on behavior, demographics, acquisition channel, or more to better understand the reason (and spot patterns) why users churn. For example, behavioral cohorts will help you identify the specific activities, or lack thereof, before which the users churned. Similarly, acquisition channel cohorts will help you understand the drawbacks of your different marketing campaigns.
- All these data points will help you understand why users churn in each cohort—is your onboarding process too tedious? Or is there a mismatch between your ads and your products?
- Once you’ve drilled down to the reasons, perform A/B tests to test your understanding and keep improving based on the results.
2. Study user paths to identify friction points
User paths are sequences of events a user takes on your app. Studying user paths will help you understand the actions users take before conversion and the time taken to do so. You can then leverage user path analysis to identify friction points that cause drop-offs and prevent others from going down the same route to reduce churn.
Start by tracking customer interaction with your app and product ads across channels. Next, identify crucial factors and behaviors affecting customer decision-making. These actions will also help you find their preferences. Know your customers’ wants. You can then redesign your app to meet all the new needs you have discovered.
With user paths, you can identify points of drop-offs, helping you effectively tweak your strategy.
For example, you may witness drop-offs in the customer activation phase. Many customers abandon the app here due to a lack of guidance, complex onboarding, or sub-par UI. In this case, leverage in-app messages and nudges to quickly lead your customers to high-value actions and arrest churn.
Topkarir optimized their app and user journey by understanding user behavior in their app with user path analysis.
3. Manage churn on your app using predictive insights
Get accurate and predictive insights on users most likely to churn. Use this information to deliver relevant and personalized re-engagement campaigns at the right time to arrest churn.
- First, define the frequency at which you’d prefer users to use your app—7/14/28 days. This helps predict uninstalls accurately.
- Leverage Raman AI engine to create auto-predicted segments—most likely to churn, moderately likely to churn, and least likely to churn in the next 7/14/28 days. You’ll also have data on how likely users are to churn in each of these segments if you take no remedial action.
- Once you have the data, target your desired segment using actionable and personalized re-engagement campaigns.
- Finally, track the app churn prediction performance to understand the effectiveness of predictions and remedial efforts.
4. Leverage onsite predictive segmentation to prevent churn
Prevent churn at two key points:
- Targeting users after their session on your app/website
- Or, actively, during the session.
Your choice will determine how much churn you arrest.
Reactively target users after their sessions, when they’ve left your website/app, and reach out via external channels (SMS, email, push notification). This is how you influence desired user action to achieve a lower churn rate
But you have got a second (better) option—real-time predictive segmentation.
Identify user sets likely to perform a specific action and proactively set up journeys in real-time for them. This can significantly reduce your churn rate. Of course, it’s impossible to manually set up such journeys for each user. However, an AI-powered platform like Netcore makes it easy to do all that.
You’ll see segment options such as Likely to Purchase, Likely to Abandon cart, Likely to Purchase with Coupon, Not Likely to Purchase Product, Not Likely to Purchase Category, and Custom segments.
Craft high-conversion, personalized marketing strategies easily. Attend to these segments in real time. Reduce churn. For example, offer discounts to customers who are likely to purchase with a coupon or offer relevant, personalized recommendations to customers who are not likely to purchase a specific product.
5. Target ’at risk’ customers with re-engagement campaigns
With Amplitude and Netcore integration, arrest churn even more efficiently.
- Amplitude helps you track, visualize, and analyze user engagement and behavior data.
- Netcore enables you to launch personalized re-engagement campaigns to drive users back to your app.
With the integration, you can feed Amplitude’s advanced customer data analytics into Netcore to create campaigns that target most likely-to-churn or at-risk customers. Then, choose the most relevant channel (email, SMS, push notifications) to target these customers with actionable and personalized re-engagement campaigns. Raman has many more features to enhance all your campaigns’ efficiencies.
Take an e-commerce app, for example; here users often add products to their cart but do not proceed to checkout. Here, use Amplitude to import cart abandonment cohorts into Netcore and craft personalized cart abandonment campaigns that encourage such customers to checkout.
6. Ensure you have a solid customer support system
When deciding to do business with a company, 90% Americans use customer service as a determiner. What’s more, 58% will instantly switch companies due to poor customer support.
Solid customer support is clearly important. With ever-rising customer expectations, it doesn’t take long for customers to switch brands when they experience discrepancies and inconveniences.
Comprehensive customer support is a must. Ensure your customer support is available across multiple channels at once—app, website, WhatsApp, Messenger, email, and phone. This offers the customer flexibility of how to contact you.
Additionally, your customer support system has to be available to the users 24×7. This is almost a non-negotiable. Chatbots on your website/app will help. Chatbots improve customer relations by responding instantly to common queries.
7. Take complaints seriously
Young brands may overlook genuine customer feedback among all the noise. With mature brands, feedback may get lost in the long chain of people. Know that feedback is one of the best ways to identify where your products or service needs improvements.
So, what steps can you take?
Set up systems where customers can track their feedback and complaints and receive relevant updates via email/SMS/WhatsApp. But that’s not enough.
Make sure their complaints/feedback reaches the concerned person and is addressed in the best way possible. Improvements in your product/service are the best proof that feedback is actually being addressed. This will go a long way in reducing customer churn. Doing all this will help your users feel deeply heard and understood and compel them to keep coming back to you. After all, 56% customers reveal that a company’s response to feedback changed their perspective of that business.
For example, when Meru cab witnessed a high churn rate, Netcore helped them gather feedback by reaching out to users via personalized emails and SMS to understand user issues. After 1,500+ responses, technological and service-related improvements, and personalized messaging on email and SMS to churned users, offering discounts and incentives, Meru cabs saw a 36% reduction in churn rate and a 2x increase in total win backs of churned customers.
What is revenue churn?
Revenue churn is the recurring revenue that SaaS brands lose when existing customers cancel or downgrade subscriptions. Today, this also applies to many consumer businesses offering subscriptions.
How to calculate the revenue churn rate?
To calculate Revenue Churn, take the ratio of revenue lost due to downgrades and cancellations during a period and the revenue available at the beginning of that period.
Monthly revenue churn rate = (total revenue lost – expansion monthly recurring revenue) / Monthly recurring revenue at the beginning of the month
Ideally, the added revenue by those who upgraded (expansion revenue) should counterbalance the revenue lost due to customer cancellations and downgrades. If the number exceeds 100%, it is termed negative churn.
Churn rate vs. retention rate
Churn rate and retention rate have opposite meanings but point to the same goal—keeping your valuable customers. While churn rate refers to the number of customers you have lost during any set period, retention rate refers to the total number of customers that have stayed with your business.
There is no definite way to erase churn completely. As long as a competitive market exists, there will be customer churn. However, by using the right tools and implementing the steps mentioned above, you can reduce the churn rate to acceptable levels. Moreover, a healthy churn rate also keeps you on your toes, searching for new ways to improve customer experience.
Learn how career services brand Itemku captured user interest to increase the time they spend on their app.
To know about how Netcore’s platform can help your brand, visit the customer engagement page.