What is Customer Churn and How to Reduce It - 2024 Guide

There is not one successful business with a zero churn rate.

Churn is inevitable.

And as your product grows bigger and bigger, you'll have more churn, and take it from me; it is completely fine.

No one can prevent long-term customer churn.

But you can learn how to keep it to a minimum and today, we are diving into that.

Let's talk about:

👉 What customer churn is,

👉 How to calculate customer churn rate,

👉 Why customers churn, and

👉 How to reduce customer churn

Don't have the time? Here's the TL;DR ⬇️

TL;DR

• Customer churn is a term referring to customers ending their relationship with a product or service.
  
• Customer churn can be calculated by dividing the total number of lost customers by the total number of customers at the start of a given period and multiplying that value by 100.
  
• Voluntary churn means that a customer has actively stopped using your product or service by their own will; meanwhile, involuntary churn means a customer has stopped using your product or service due to an error or inability.
  
• Customers churn because of various reasons, such as poor customer onboarding, failure to build customer relationships, and poor customer service.
  
• You can start reducing churn by knowing your product and customer base, tracking and analyzing with the right metrics, segmenting users according to CLV, revising customer experiences, designing a better user onboarding process, and with some other best practices.

Now, if you're ready, let's get on with the definition of customer churn ⬇️

What is Customer Churn?

Customer churn or customer attrition is a term referring to customers ending their relationship with a product or service for a variety of reasons stemming from either side of the transaction. Thus, companies look into a business metric called customer churn rate or customer attrition rate as well as related metrics like customer retention rate, customer lifetime value and to be able to map out a business model and often also a churn prediction model.

So, in summary, customer churn is when customers stop doing business with you.

How to Calculate Customer Churn Rate?

Calculating your customer churn rate is quite an easy process as long as you have the right data and know the customer churn formula.

Here's how it goes:

So, here's an example.

Let's say we are calculating your customer churn rate for Q1.

You have 100 customers in January.

And by the time the quarter is over, you are left with 80 customers.

So if we put it in the equation the formula looks like:

20 * 100 = 0,2

0,2 x 100 = 20%

Which means your customer churn rate is 20%, which my professional advice would be to start looking into it immediately.

But hey, did you know that there are some variations to the formula according to different types of churn?

Here are the main types of customer churn you might come across:

What are the different types of customer churn?

Churn in and of itself can have different types like:

👉 Customer churn, when you lose customers,

👉 Revenue churn, when you lose revenue,

👉 Gross churn, customers or revenue lost in a specific period of time

👉 Net churn, customers or revenue lost minus upgrade & expansion revenue 

But when it comes to customer churn and how we classify it in itself, there are 2 main types of churn:

1- Voluntary Churn 

Voluntary churn or active churn refers to the type of churn that can take place in different time periods and lengths with the customer actively churning.

The reasons behind customer churn, in this case, can be:

❌ Failed customer activation & conversion

❌ Failed user onboarding

❌ Lack of stickiness

❌ Failed reactivation & re-engagement

Meanwhile, it doesn't always stem from a fault on your or your product's side...

2- Involuntary Churn

Involuntary churn or inactive churn refers to the type of churn that can take place due to:

❌ Expirations

❌ Credit card limits & processor issues

❌ Security protocol updates

And other common reasons that don't necessarily frame your product as the culprit.

More often than not, involuntary churns are either resolved by your customers or you end up losing them.

So let's focus on the type we can fix, shall we?

Here's a closer look at why customers churn voluntarily ⬇️

Why do customers churn?

Not all the reasons for customer churn arise from the company’s performance.

But you might wanna keep in mind that only 1 out of 26 customers complain about a problem they are having.

The rest simply churn. 

That means they'll just leave, and unless they are kind enough to answer your emails later on, you'll never know why 🤷

So let me list the top reasons why to make it easier:

1- Poor customer onboarding

Customer onboarding can be more influential than you think when it comes to retention and churn rates.

Customer loyalty starts out in the very first interactions in the customer journey.

That's customer conversion, activation, and onboarding.

After pulling off the first two, you don't want to fail the customer onboarding part since it is where your customers go through Aha! moments and see your value with their own eyes.

2- Failure to build customer relationships

You have to establish a bond of trust between your brand and your customers.

That's branding 101, but hey, just so we remember 🤷

After the customer acquisition stage, you have to make sure you turn the good vibes into an actual relationship to keep customer loyalty increasing.

If you fail to be honest about your value proposition and provide good customer support, you might experience higher churn rates than the industry average.

3- Overselling

One of the reasons why your customers churn might be overselling.

Overselling means that your customers' expectations of your product might be more than what your product actually offers.

And trust me, that's almost never their fault.

This over-expectation might stem from ambitious product marketing and can result in high customer churn rates as they realize you've overpromised.

💡 Pro Tip:

You might get rid of that "best", "all-in-one", "the only" on your landing page unless you really mean it.

4- Poor customer service

Let's see if this is the reason for you in 2 questions:

❓ When your customers experience a pain point, can they easily reach your customer support?

❓ Can you solve their problems every time they contact you?

If your answer is “no” to any or both of these two questions, your customer service might be lacking efficiency.

This might be the biggest reason you are experiencing churn, as customers who feel that their problems and request are not being listened to have no reason to stay with your company.

5- A more convincing competitor

You might be a perfect product that does everything it offers without a problem, onboard your users like a pro, and provides the best customer support there is...

Yet still have a customer churn rate higher than average 😬

The reason behind that can be a more convincing competitor that offers more features for a lower price.

Thus, it is best to be aware of the competition and try to establish a good position in the market.

Focus on creating content that clearly - and candidly - compare the pros and cons of your solution with your competitors.

As long as you mean to help beyond your brand, you will be convincing.

Just, keep it true 🤷

How Can You Reduce Churn?

Let me be brutally honest for a second.

Customer churn is highly dangerous and it can end up killing your business.

The decrease in your revenue, the negative reviews all around the web, and unhappy customers will not do you any favor.

The good news is, there are effective ways to reduce customer churn.

Let's go over the main strategies for reducing churn and making churn prevention a daily practice for your customer success team and others ⬇️

1- Know your product & customer base

This one step is where it all begins and stems from.

One thing I will always stand by is the fact that you cannot grow your business without knowing:

1️⃣ What you do,

2️⃣ Who you do it for,

So before giving your current customers suspicious looks 👀 make sure you are actually familiar with your product's value proposition and why your customers prefer - or should prefer - your solution over others.

If your answers are fuzzy, or if your team cannot answer confidently and consistently, you might want to resolve this before taking drastic measures for churn.

2- Track & analyze with the right metrics

Once you and the entire team know what you're working with, it is time to get your hands on real, actionable data.

And I mean it.

Also, keep in mind that customer churn rate is not the only relevant metric to look into when investigating high-risk customers and the risk of churn for your entire customer base.

You need to look into:

👉 Customer satisfaction scores,

👉 Monthly and quarterly churn rates,

👉 How it reflects on your most valuable customers & their average churn rates,

👉 High-quality customer feedback and NPS scores,

👉 Recorded and expected reasons for churn,

👉 Concerns of potential users, and more

Now, you might not need everything I listed or might need completely different data depending on your specific case, but the point is, you'll need to deep dive and make sure you connect the data at hand right.

No churn problem was solved with only churn data at hand.

3- Segment users according to CLV

Upon looking into data, you might have started seeing clear segments of customers.

The best way of segmenting them at such a time when you are focusing on churn rates, it could be best to create separate segments according to customer lifetime value to avoid big loses.

By doing so, you decide easier on how to approach your customers in specific groups rather than deciding to go with one singular churn strategy.

Remember, "one-size-fits-all" is never really true.

You can't possibly treat all your customers the same; why use the same tactics on all?

4- Revize customer experience

Seeing your customer segments in the context of churn, you might now be able to tell exactly where they start to churn in the customer lifecycle.

If it is any time after activation, one of the possibilities you wanna look into is your customer experience not being good enough if I'm being direct 😬

The solution? Simple.

Start revising your entire customer experience.

Not like it is a whole process that needs a dedicated marketing and product team working on it for months 🤷

Jokes aside, if you are not in the position for a CX makeover, little tweaks can still work fine.

Jump to our customer experience best practices piece here or just start looking into:

👉 Personalization in customer service, support, UI, and email campaigns,

👉 Better landing pages with high usability and readability,

👉 Gamification for better engagement,

👉 Self-service options for less friction and waiting time

Think ClickUp and Asana for B2B businesses; think Duolingo for B2C.

Plus, of course, whatever your customer success team had in the ideation stage.

Don't forget to listen to your own people too!

5- Design a better user onboarding process

Now, the problem might very well be one of the most crucial ones.

That your users don't see your value.

And a user onboarding process is your best shot at quick Aha! moment visits and a terminal ticket to an ultimate value.

Remember how Grammarly does onboarding?

If that didn't hook us all I don't know what else could 🤷

Well, the good news is, you can start creating interactive onboarding processes in-app without writing a single line of code.

With UserGuiding.

Here's what you can do in just 5 minutes ⬇️

Imagine what else you can do with UserGuiding's main set of features including:

✅ Interactive guides, product tours, walkthroughs,

✅ User onboarding checklists,

✅ Tooltips, hotspots, in-app messages,

✅ Resource centers,

✅ In-app surveys, and more

Powered with powerful analytics, customization, localization, segmentation, and targeting. 

👉 Try UserGuiding for FREE 👈

6- Offer better customer support & service

Excellent customer service is not an option.

It is a must.

And if data tells you that the churns are happening upon bug reports or from segments using problematic features regularly, you might want to talk to your customer support team.

Some quick solutions are:

👉 Revising help center, knowledge base, support documentation,

👉 Considering more available slots for live chat & support from customer support specialists,

👉 Offering more self-serve options like chatbots, resource centers, interactive guides,

But it still might require more.

If the surface-level solutions don't help, get your customer support team to look into other negative experiences they are aware of and get regular data from their side.

You might not return old churners, but support data can mean a lot for future churn possibilities.

7- Talk to your customers

When all else fails - and ideally before all else fails - you HAVE TO talk to your customers.

What is the problem?

Why are they churning?

If they haven't churned, what would make them churn?

Customer satisfaction surveys, as well as NPS surveys, are always helpful.

But if you need to dig deeper, open-end feedback questions in-app can be helpful AND show that you care.

It can even become a crucial part of the UX, like in Uber's case:

Trying your luck via email can help as well.

Don't be afraid to attach that incentive in there; it's your business on the line!

8- Get the right people on the case

The monthly average churn rate for SaaS is 3-8%

If you are well over 15%, it might be time to make the emergency call and get help.

It is essential that your whole team, from the sales team to the devs work on the problem when your churn rate is above average.

✅ Get the product team to work on the customer experience and onboarding.

✅ Get the customer support team to go over documentation and look into becoming more available.

✅ Get the marketing team to redefine your messaging and website conversion strategy.

✅ Get the sales team to handle your most valuable customers; those are the ones who will actually make an impact if they churn.

Wrapping Up...

The first step to reducing churn is to understand why customers churn.

You can manage if you get your head in the game.

Once you are in the safe levels, it is okay to loosen up a bit, but remember:

Churn is serious.

Never let it go over the safe zone.

And if you do, just scroll up and start over.

You got this!