Reducing Your Churn Rate: Churn Reduction 101

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You can’t operate your business under the outdated assumption that customers are going to stay with you, just because. Customer retention takes work. To create a sustainable business, you don’t just move on once the deal is signed. You need to actively drive customer retention – and drive upsell in the process. Nick Mehta, CEO of Gainsight, provides 4 keys to building a solid foundation for churn reduction.

Churn reduction

You know that your success depends on not just getting customers, but on keeping them over time. If your churn rate stays low as you accumulate new customers, you will grow faster overall – it’s a simple spreadsheet thing. Investors recognize the importance of churn reduction and pay close attention to your churn rate. If you have high net retention, you’ll be valued more. So, with low churn, not only are you growing faster, but, for every dollar of revenue you have, investors will apply a higher multiple.

I previously addressed The Big Five of Customer Churn in Zuora’s first edition of their Subscribed magazine. I recommend you check out that article for more tips and insight. But it occurred to me that I skipped right to advanced tips and skipped over some basics. I’d like to backtrack a little to lay out the groundwork for churn reduction.

Let me start by saying that the number one way to reduce your churn rate is to consistently set, meet, and then exceed customer expectations by providing valuable solutions – and to stay in touch with your customers and monitor how they’re interacting with your service so that you can continually assess your performance and the quality of your relationship. Easy peasy, right?

Assuming you’ve already got that covered, let’s move on to specific tactics to reduce churn.

1. Get company agreement on churn definition

There is a lot of math behind retention, and it can turn into a kind of numbers game, depending on how you measure it. Everyone calculates net retention in churn differently. Some people count up-sell, some people don’t. Some people look at it on a dollar basis, some people don’t. Some people look at it on an annual basis, some people look at a quarterly basis.

So the first step is getting agreement in your company on what the number is. It helps, of course, if this agreement is grounded in solid accounting and data analytics so your calculations are accurate.

2. Smart churn coding

Churn coding is creating a custom field in your Customer Success Management platform where you can identify why a customer was lost, and then run reports to identify your core customer retention issues. Some reasons are macro, focusing more on a core issue, while others are more micro, touching on related issues. For example, a core issue might be “ineffective onboarding,” while a related issue might be “competition” – in other words, would you really have lost that customer to one of your competitors if they had been successfully onboarded? You may want to set up two different sets of churn reasons to address this issue.

Another issue with those pretty churn code pie chart reports? Let’s say your chart shows that some percentage of customers left because of product issues, and some left because of support, and some left because of technical, and some left because of bugs. But what about the bugs that were technical and product-related that caused support? Or a lot of times I’ll see a company saying that customers left because they didn’t have specific features, and competition, and value, and price. There’s just too much overlap and not enough category distinction.

Your pie chart isn’t going to give you real insight into customer churn if you don’t take the time to set up precise and distinct churn options that acknowledge the complexity of this issue.

3. Ask the "churn question"

Where better to determine the reason for customer churn than the actual customer. Rather than assuming why your customer is leaving you, go straight to the source. Be timely about asking for feedback: ask as soon as the customer has disengaged for the most honest answer. And make sure that it’s not just sales or customer service asking the question. Getting an impartial third party to ask can yield more candid responses.

4. Look at every phase in the customer life cycle to reduce churn

I think it’s really valuable is to look at churn sequentially. Consider the entire life cycle to find the true source of churn. For example:

Onboarding. You ring the gong, everyone’s excited to high five, and then the onboarding is slow, or painful, or confusing, or fraught with issues. Then the customer goes live and there are all these problems and adoption issues. So customers just give up, and go dark. This kind of poor onboarding experience will drive your customers straight into your competitors’ waiting arms. So you need to address this with an improved onboarding process: faster, better, more consistent.

Customer support. Establish a regular cadence of customer check-ins. These check-ins are central to relationship building and customer retention. This is when you can uncover those little things that could eventually become issues that lead to churn, if left unchecked and unresolved.

Also important is to proactively manage churn reduction for all your accounts – not just your larger accounts. A bigger account might have a kickoff meeting, an onsite meeting, a quarterly business review, a renewal health check, and a renewal. But what about your midsize accounts, where you maybe talk to them twice a year, or your smaller accounts whose entire relationship may be managed online? The cadence for these accounts will be different – quantitatively and qualitatively – but you need to establish check-in processes for all your customers.

Tech support. Likewise, you need to make your tech support better. This may seem basic, but I can’t tell you how many companies I’ve seen who are failing in this area. Give customers plenty of channels to access support, resolve issues quickly, and communicate fixes.

Towards 0% churn rate...

Once you have defined churn and are coding for churn (with customer input) at every stage of the customer life cycle, you’ll be headed towards a 0% churn rate (the holy grail for any subscription business!).

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