How often should you renew your entire customer base?
Churn, the number of customers who leave you, is hugely important to your success with subscriptions and service agreements. Read on to learn what churn is and how to work with churn.
Why churn is a huge problem for your subscription business – and how to fix it
If you run a business based on subscriptions or service agreements, you’re probably already aware that there’s a lot to keep track of. The amount of data you can draw from your business is vast, and opinions on which data points to analyze often vary greatly. I believe it’s possible to keep subscription and service agreement management simple while focusing on a select few essential data points. You can read more about my recommendations for the most critical metrics for subscription businesses if you’d like. Anyway. You need to find new customers, ensure they stick around, and keep your business running smoothly. But there’s one factor that’s often overlooked and can be a hidden pitfall for your success. That factor is your churn. Churn, in its simplest form, is about how many of your customers are saying goodbye. While it might seem like an unavoidable part of doing business, it’s actually something you can—and should—manage. In this blog post, we’ll explore why churn is so important, how it affects your business, and what you can do to keep your customers happy and loyal so they don’t head for the exit.
What is churn really, and why is it so important?
Let’s get the definition straight first. Churn, also known as attrition, cancellations, or terminations, is the percentage of your customers who drop off within a given period. Churn is typically measured monthly or annually. These are the customers who cancel their subscriptions, stop paying for your service, and essentially say goodbye to your product. "Okay, but isn’t that just part of the game?" you might think. Yes, it’s true that some customer churn is natural, but that doesn’t mean you should just accept it without question. Churn is one of the most direct indicators of how well your business is performing. A high churn rate means you’re losing a lot of customers and need to spend significant energy finding new ones. Let’s say you have a churn rate of 2% per month. That’s 24% in a year, meaning you would need to replace your entire customer base every four years. This can be quite critical if acquiring new customers takes a long time or if you operate in a niche industry with a naturally limited customer pool. It’s almost always more expensive to acquire a new customer than it is to retain an existing one. That bears repeating: It’s almost always more expensive to acquire a new customer than it is to retain an existing one. Put simply: Once you’ve brought a customer in, it’s vital to keep them. That’s why churn can be a massive burden on your subscription business if you don’t actively work to keep it low.
The real value in holding on to your existing customers
When we talk about churn, it’s crucial to understand why your existing customers are so valuable. Newer businesses often focus on acquiring new customers – and that’s obviously important. But the customers you already have are worth their weight in gold. They know your product, they’ve gone through the onboarding process, and if they’re satisfied, they’re much more likely to stick around and keep paying. Think of it this way: If you’re constantly losing customers and replacing them with new ones, you’re essentially just treading water. It’s like filling a bathtub without a plug – you’ll never get the tub full. By focusing on reducing churn, you can build a stable customer base, which is much easier to grow over time.
Hvordan måler man churn?
Churn is actually easy to measure. There are several ways to do it, but here’s a simple formula for calculating your churn rate: Churn rate = (Number of customers lost / Number of customers at the start of the period) x 100 For example, let’s say you start the month with 100 customers and lose 5 of them. That gives you a churn rate of 5%. It might seem small, but if you have a churn rate of 5% every month, you’ll have lost half of your customers in under a year. And you’ll need to completely renew your customer base within two years. Once you’ve got a handle on your churn rate, you can start using it as a KPI for your business. If you notice a rise in churn, alarm bells should ring, and it’s time to figure out what’s going wrong.
How churn affects your earnings (it's more than you think)
Churn directly impacts your revenue, and here's why: Every time a customer leaves, you lose not only the money they were paying but also the future revenue they could have generated.
Think of it as a snowball rolling down a hill – the longer it rolls, the bigger it gets. The longer you keep your customers, the more you earn from them over time.
A customer who might only cost you 100 kroner per month could be worth thousands over time if they stay with you for several years. That's why reducing churn is so crucial – it's not just about the money you lose now, but also about the future value you're missing out on.
How do you reduce churn?
1. Understand Your Customers' Needs
The first step is to figure out why your customers are leaving. Are they not getting enough value from your product? Is there something about your customer service that frustrates them? By directly asking your customers and analyzing their behavior, you can start identifying the reasons behind churn and take action. The easiest way to understand customer needs is to talk to them. Consider making it a goal to speak with two customers every week. As mentioned earlier, it pays off.2. Create an Outstanding Customer Experience
Customers stay where they feel valued. If your service is easy to use and you deliver top-notch customer support, the chances of them leaving are much lower. Ensure that your customers always have a positive experience, whether they’re interacting with your product or your team. This also applies during onboarding. Companies that draw a clear line between sales and customer service risk falling into gaps where customer expectations aren’t met.3. Ongoing Engagement and Reminders
Don’t forget to check in with your customers. Remind them why they chose your service in the first place and show them that you’re still working to deliver value. This could be as simple as a renewal reminder or a follow-up call to ensure they have everything they need. Several services can help automate the process of maintaining ongoing engagement with your customers.4. Loyalty Programs
It’s always a good idea to reward loyal customers. Offer them something extra for staying with you – this could be exclusive updates or other perks that show you value their continued business. If you can make them feel special, you’re on the right track. And you know best how to create that sense of appreciation for your customers.
How Alunta helps you manage churn
No more practical challenges – Alunta keeps track of the renewals
