For companies operating on a subscription-based model, each sale doesn’t end at Closed-Won. To continuously profit off current customers, these companies need to prioritize and cultivate their customer relationships over the entirety of each customer lifetime. It costs a lot more to acquire new customers than to retain existing ones or reacquire deflected ones.
Your churn rate tells you how many customers you retain and at what value. The lower the better – in fact, a low churn rate can double your company’s value over 5 years. A negative churn rate is ideal because it shows you’ve gained and retained more customers than you lost in a given period of time.
Churn rate is a key indicator of the overall health of your business, so it is very important that you take preventative steps to reduce it. Reducing churn rate means prioritizing customer success, building it into your culture, hiring experts on it and dedicating resources to it. With the right data, your customer success professionals can catch the warning signs of churn by tracking specific customer behaviors over time. They will be able to reach out to at-risk customers and try to turn them around.
To spot warning signs of possible churn, ask yourself these questions about every one of your customers:
Are your customers actually using your product?
Of course you want to know if your customers are really using what they’re paying for. If not, then chances are when the next payment period comes around, they’ll cancel.
What to look for: To figure out how your customers use your product and how often, you should look at both quantity (how often do they log on?) and quality (which parts of the product do they use the most?). Take into account things like someone making your product page their homepage so it looks like they visit your site often. Depending on your product model, you should assess individual versus company-wide usage, too.
If you see a warning sign: If people aren’t logging in or if they are only engaging with certain parts of your product, set automated drip campaigns to send bite-sized educational material they can use to get excited about your product again – or that will expose them to parts of your product they didn’t realize were useful. If you’re a B2B company and your customer has one or several product administrators, those administrators are the champions for your cause. Engage them in an open dialogue to gauge ongoing interest or lack thereof, and offer your support and free educational material to help re-engage them.
Is usage growing or decreasing on a per capita basis?
Track how many users are being added to or subtracted from a single company’s subscription.
What to look for: Look for a decrease in number of users. If your number of users is not increasing, that doesn’t necessarily mean your business is unhealthy. A decrease in users indicates unhealthiness. Set a threshold for what you consider to be healthy so you can give clarity to a set of otherwise meaningless statistics. For example, a B2B company could say they want one user per client to log in x number of days a week, and that that user engages with a particular part of your product that you know to be especially compelling for the average customer.
If you see a warning sign: Go after the subscribers in the red zone first – the ones whose user base has been decreasing, for example. It’s easier to spot this category of subscribers without having to really dig into their data, and you can learn a lot from looking at their usage history.
What is each customer’s Net Promoter Score?
You know those surveys you get that ask questions like “How satisfied were you with our product on a scale of 1 to 10?” Those surveys exist to calculate your Net Promoter Score, which measures the loyalty that exists between a company and a consumer.
What to look for: We have found that NPS is useful for understanding how much customers in different categories use and like your product. (Unless you send out really frequent NPS surveys, you can’t really get a NPS for individual customers.) Categories could be large versus small companies, domestic versus international companies, and so on. You can learn things like whether a customer is using your product regularly, how much they like it, and how helpful your customer service department has been. Be judicious about what you use NPS for and how often you use it – if the data isn’t useful to you, then it could be a waste of time and resources.
If you see a warning sign: Use NPS to spot easy red flags, like if a customer rates the quality of your product very low. Reach out to that customer individually to find out why they gave such a low rating and what you can do to help and support them.
Are customers paying bills on time?
Keep careful track of invoices for each customer to see if customers are paying on time and whether their payment pattern has changed.
What to look for: Payment patterns are a really useful way to see if customers are at risk of churning. For example, if one of your customers is not paying their bills over a long period of time, they may be ignoring invoices because they aren’t using your product or are trying to get out of their contract.
Overdue payments aren’t enough to signify that a customer is at risk of churning, though. Make sure you pay attention to payment pattern history. The fictional company below tends to pay in full every quarter rather than monthly, so a 90-day overdue invoice should not be a red flag.
If you see a warning sign: If the red flag is related to financial data, have your accounting department reach out to the customer first to figure out why their payments are overdue. If they discover that the customer isn’t planning to renew, then your customer service professionals should reach out to them personally to see what issues they’re having and if they can do anything to help.
Put data analytics to work for you to spot warning signs of churn and keep your business healthy.