For Software-as-a-Service companies just like us, churn matters. A lot. We’re obsessed with tracking our churn rates, through various methods. We care about lesser-known – but important – nuances, like dollar-weighted account churn. Simply put, we have churn on our minds, all the time.
But are we missing the big picture?
Companies want to know when their churn rates increase over time, but an increasing churn rate is kind of like a fire alarm in a big building. You know there’s smoke and probably fire…but where exactly is it coming from? If you don’t know where it is, you won’t do a very good job of putting it out.
Which is why CEOs and CFOs at SaaS companies need to go beyond the surface level analysis of their churn rate – simply knowing if it’s increasing or decreasing each month, over time, isn’t very compelling – and drilling down deeper. They need to know real insights and get truly actionable insights on their churn rate analysis. They need reports that give them their churn rates for various customized segments.
Churn Rate by Product Type
An obvious place to start is to look at your churn rate for the various different products your company sells. Software companies that have several different product lines would be naive in thinking that all their customers in the same way. The truth is that one segment of customers might have nothing in common with another group at all, other than the fact that they both buy software from you. Knowing where specific churn trouble spots are will give you better opportunity to troubleshoot.
Let’s consider the above example from the ACME Corporation (click on image to zoom in). Selling 5 different subscription products – some more popular than others – ACME needs to know where they are losing the most customers each month. In this case, it’s pretty clear: their ACME Rockets and ACME Wheelbarrow customers cancel at a much higher rate than the others, at 8.8% and 4.8% respectively.
There could be several reasons for this. Maybe the Wheelbarrow and Rockets are relatively new offerings that are still being tweaked and perfected from a product standpoint; their initial customers might have received beta or incomplete versions of the product. Or maybe ACME doesn’t do a good job of onboarding new customers for these products; giving customers a complicated ACME Rocket without teaching them how to properly use it could have resulted in lots of accidents, and subsequently, angry customers.
Now that the ACME Corporation knows where their real trouble spots are, they can work with their product, marketing or onboarding teams to sell these products to the right customers, ensure they are onboarded effectively and end up becoming happy, long-term ACME customers. Without that level of insight, they would have been working blindly with an increasing churn rate, but without knowing why.
Churn Rate by Customer Size
Another good way to look at your company’s churn rate is by opportunity value range. Not all your customers will buy at the same volume – bigger companies might need more subscription licenses, and therefore their customer value will become higher. Similarly to the example above, not all of these customers will behave in the same manner.
Fortunately for the ACME Corporation, their biggest customers – those whose annual subscription payments are $300,000 or higher – churn at a very low rate, much lower than any other customer segment. Customers could be less likely to cancel after having made such a substantial investment, or maybe ACME just takes more care in onboarding and satisfying that group of valuable customers. Whatever the case, they should keep it up!
Unfortunately, the largest segment of customers by far – those between $50,000 and $99,999 – churn at a high rate. With so many customers here, it is a huge red flag that the company is losing 4.1% of them each month. This is the company’s bread and butter, their sweet spot where they find the vast majority of their customers. It would behoove ACME to improve these customers’ experience with their Dynamite, Rockets and any other products. Maybe they need to qualify these group of relatively small customers more stringently, instead of just letting in any customer who demonstrates a modicum of interest.
Churn isn’t a problem that can be solved with a blanket solution. There is no one-size-fits-all panacea for curing all your churn issues. You need to identify the root of the problem – and we mean really home in on it – before you can even think of solving it. Start by determining which of your products or customer types is the biggest churn trouble spot, and you’ll take a big step toward solving your churn issues altogether.