In this tutorial, we will focus on the metrics of customer churn and how to calculate your customer churn rate. Customer churn rate is the percentage of your customers that leave the platform. It is often measured in comparison with Revenue Churn.
Calculating your customer churn
Customer churn calculation is pretty straightforward. You have to take the number of customers you have lost during a specific time period and divide it by the number of customers you had in the beginning of the same time period.
For example, you have 500 customers at the beginning of the month, and 450 at the end of the month.
The churn rate is: (500 – 450) / 500 = 10%
Bessemer Venture Partners state that an acceptable annual customer churn rate for SaaS companies is between 5% – 7%. If you have a higher churn rate, you should work more closely with your customers. You can learn specific strategies to improve churn here.
3 Key indicators of customer churn
1. Customer log-in/time on product/service use
Tracking your customers’ frequency of log-in shows you how engaged your customers are. Is it once a month, weekly, or on a daily basis? You can also track the time of use of your product or service i.e. how long your customers are logged into your system. To avoid churn, ensure that your customers are engaged with the product. The goal is to create frequent visits and dependence on your product or service.
2. Use of key features of your product/service
Key features of your product or service are the unique advantages you have over your competitors. Tracking the customer’s use of your key features gives you insights if the customer is using your product/service as expected. If the customer is not using your key features, you have to question if the unique feature is truly valuable for a customer. In this case, it can be more likely that he/she changes to competitors due to other factors, such as cheaper price.
To avoid churn, make sure that your customers are educated about your product/service and understand the value of key features. This can be done by a strong onboarding, providing training and tutorials.
3. Support tickets raised by a customer
Raising support tickets shows the request for new features and specific improvements of your product/service. Submitting multiple support tickets can have a positive or negative effect on customer relations. On one hand, it can show the customer engages with your product and wants to improve it. On the other hand, it can also show that the customer is not educated enough to use your product/service and raises support tickets about issues and is unhappy. This puts the customer at risk of churn.
To avoid churn here, ensure that you quickly reply to the requests. Another tip is reaching the customer through his/her preferred channel.
Customer Churn vs. Revenue Churn
Churn in general is important to track in SaaS business. But which churn is more important?
It is difficult to name a clear winner here. What can be said that it is highly recommended to track customer and revenue churn together. Revenue churn shows you the business health of a company.
Should you need to decide on one metric, we recommend focusing on customer churn. This metric educates you more about customers’ behavior and can help you improve your product/service. Customer churn is also a leading indicator to revenue churn. Losing customers will automatically lead to revenue loss. The best strategy is to keep track of it at an early stage and focus on customer churn reduction.