What to do if your Churn Rate is…

CHURN RATE

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ACTIONABLE SAAS METRICS

Customer Churn Everyone loves talking about how to calculate it, how to reduce it, and how bad it is (us included!).

But isn’t it time to sit down and figure out how we can actually influence it, and what actions we can actually take, given certain characteristics?

How to measure Customer Churn Rate 1. The “basic” formula

Customer Churn Rate

Number of customers who churned in period

Total number of customers at start of period=

*source: https://www.shopify.com/technology/4018382-defining-churn-rate-no-really-this-actually-requires-an-entire-blog-post

How to measure Customer Churn Rate 2. The “iterative” formula (suggested by Shopify*)

Customer Churn Rate

=1 - Active customers at end of day

Active customers at end of daySUM ( )

Learn more in The Ultimate Churn Rate Cheat Sheet: https://blog.chartmogul.com/2015/02/the-ultimate-saas-

churn-rate-cheat-sheet/

What to do if your Customer Churn Rate is…

1. LOW

!

Well, you’re sitting in a pretty good position that a lot of businesses would be envious of - Well done you.

But just before you pop the champagne and log off for the day, we should be sure that the numbers you’re looking at actually make sense…

What is “low” churn rate? Many SaaS companies at growth stage report monthly churn rate of around 2-5%.

Remember that this level of monthly churn rate still equates to losing a significant amount of your customer base in the longer term (half of an entire cohort over the period of a year!)

Actions to take • Make sure you’re measuring Customer

Churn correctly (see previous slides) • Continue to invest in customer success and

lowering churn – what you see may just be a temporary characteristic of your business at this point – i.e. maybe nobody has reached the “critical” churn risk period yet.

• Pat yourself on the back. You’re doing okay so far!

ChartMogul breaks down your MRR to give you deeper insights - simply connect your billing platform.

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2. HIGH

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High Churn Rate is the Achilles’ Heel of any growing business. Tomasz Tunguz (Redpoint Ventures) illustrates this perfectly:

source: http://tomtunguz.com/negative-churn/

What is “high” churn rate? Anything over 3-5% should be sending warning signals.

Some businesses by design are more tolerant of higher churn levels – i.e. B2C businesses (a large number of customers paying a tiny amount will always exhibit a higher customer churn rate.)

Actions to take • Segment your churn into Cohorts – look at a

Cohort Analysis. You can use a platform such as ChartMogul for this.

• Find out why customers are churning, particularly in those high-churn months you just identified. Talk to them! (Or set up a survey)

• Implement a framework for customer success in your business, aimed at helping customers achieve their goals within your product.

If you have a high churn rate, use Cohort Analysis to identify when customers are churning:

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3. UNSTABLE

😕

Unstable Customer Churn Rate (jumping around from one month to the next) is actually quite a common symptom, particularly in smaller SaaS startups with just a few customers.

*https://blog.chartmogul.com/2015/02/the-ultimate-saas-churn-rate-cheat-sheet/

Actions to take • Make sure that you’re calculating Customer Churn Rate

correctly and consistently. Check The Ultimate Churn Cheat Sheet* for more detailed examples.

• If your number of customers is fairly small (less than 100 customers), consider removing focus from the Customer Churn Rate metric – an unstable number will not help you make consistent, positive decisions about your business.

• Focus on talking to your customer base to understand their experience and needs from your product.

We’ve got your back! More great resources, guides & cheat sheets at blog.chartmogul.com

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