We all know how it hard can be to find clients. That’s why every time we lose one of them, worse if it is a regular one, it breaks a piece of our entrepreneur little heart. Because the loss of a client doesn’t only mean wasting the effort invested on getting it but there’s also a chance that we’ll never get it back if the abandonment is due to dissatisfaction with our service or product.
What is churn rate?
One of the most important metrics for a company whose business is based on a subscription or recurrence model is churn rate. Churn rate is the percentage of users of a service who abandon the subscription in a determined period of time. Is obvious then, that for a company to grow it needs its growth rate to be always higher than its churn rate.
Thanks to this metric we can draw other derived metrics that will help us understand the impact of churn rate even better. One of the most interesting is the “Value of business lost”, we only need to multiply the number of users we have lost by the user’s monthly average revenue and we’ll see what is the volume of billing that we’ve lost thanks to the churn rate.
Now, the problem is that the churn rate turns out to be very difficult to control. The reason for that is that it is not just a matter of product, but also of marketing and marketing factors like trends, competition or even macroeconomic trends. To try to reduce churn rate representatives from all the departments involved in the development and promotion of the service have to meet and discuss until they find the root of the problem.
Types of churn rate
Not all of the users abandon a service in the same way. Basically we can find 2 types of churn rate:
Passive: Is the churn rate of all those users who don’t precisely quit but rather let their subscription period end without renovating it. Normally when a user is in this situation is because of lack of interest in the product and is even possible that they have forgotten about it. To avoid this type of churn rate many companies add to their billing system self-renewal options that are selected by default.
Active: is the churn rate of the users who decide to terminate the subscription to the service or product and search for the necessary mechanisms to be able to quit it. (Usually access the web or calling by phone).
How can churn rate be reduced
1. Create a product with value
If your product is bad and doesn’t add any kind of value to the user, forget it; there’s no technique that will allow you to reduce churn rate without fixing the product first.
As we have mentioned in the previous section, reducing churn rate is something that practically involves the whole company, but it is true that the first department taking responsibility for this metric is usually the product development department. When your business model is based on a recurrent payment from users, product quality is important. If the product is terrible for a client, the next billing period they will cancel that subscription.
What reasons can ruin a good product rate from the users? Let’s take these three examples:
- A product that doesn’t add value
- A bad usability
- A product full of bugs
2. Don’t generate false expectations
Don’t try to sell a product that you don’t have. If you generate false expectations and the users are disappointed after trying your product they will not only cancel their subscriptions but also probably won’t try it again. This is usually a pretty common topic of discussion between selling, marketing and product departments.
If we are clear from the first moment setting expectations to our customers we’ll know that at all times the clients who join us are interested clients. Having clear which are the expectations that we can offer will also help us posing a marketing strategy more focused in our objective clients so it will allow us to save costs on acquisition of clients who are not really interested in our product.
3. Do a good and simple onboarding
One of the most critical processes in the relationship between a user and a product is onboarding. A bad onboarding can be a clear reason for abandoning your product even before the user actually try it. Onboarding is particularly important in those products or services that may be a bit more complicated to understand and manage, if the onboarding doesn’t help, users may get frustrated and give up.
The onboarding process should be as easy, simple and clear as possible. It is also important to give the user all the facilities so they can contact us if they have any doubts or problems.
To improve it, you must analyze every step of onboarding and detect those who are the cause of more dropouts. Once you identify them you have to work on them until they cease to be an obstacle.
4. Continue evolving
Even if you have a good product that appeals to the majority of your users, you can’t stop. You must continue evolving giving increasing value to your product. By doing this you will avoid churn rate produced by obsolescence or loss of value compared to the competition.
The more you evolve and the more value you add, the bigger the gap you create between your product and your competition will be. In addition, this continuous evolution will make your users feel like they are working with a product that is a commitment to the future, a product that in 5 or 10 years will still be useful and therefore they’ll discard other proposals from the competition.
5. Follow your unhappy users
Everyone has unhappy users but instead of resigning to it you must track them and understand the source of their discontent to try to fix it.
At times the problem is that it isn’t easy to detect the unhappy users, many times they leave and we never hear about them ever again. To detect these users there are some formulas that you can implement, we propose 3:
- Create an easy access section for users to give feedback and comments.
- Stablish metrics that help you detect unhappy users (for example users who give little use to the product).
- Make satisfaction surveys periodically (you can offer small incentives to encourage participation).
Once you’ve detected who are the unhappy users you’ll be able to contact them to clarify the problems they see in your product and find possible causes of abandonment.
6. Create a relationship whit your community of users
Creating a loyal community of users is easier said than done, but if we achieve it, it’ll help reduce the churn rate and give us a bigger action scope against specific problems and failures.
How can we create a community and get involved in it? Basically enhancing our communication channels and encouraging the relationship between users. Good management of social profiles, writing personal emails to users or promoting collaboration between users through surveys, questions or blog discussions are some ideas to get it.
7. Make users develop by your side
To explain this point is interesting to comment the paradigmatic case of Hubspot and the Inbound Marketing. Although Inbound Marketing is nothing new, the marketing software Hubspot appropriated this concept and developed it through its different content creation channels.
Nowadays Inbound Marketing has become a huge trend in marketing and many professionals who want to develop their abilities in this area end up doing it in Hubspot. Why? Because Hubspot has created such an important amount of resources in this subject that it became the main reference of it on the internet.
All of this content is not only useful to attract new users, it also allows them to retain their customers for much longer as they learn directly from the methodology proposed by HubSpot and change tool and methodology would be costly.
7. Facilitate payment and encourage long term plans
Another factor to have in mind to improve churn rate is the easiness of payments for the user. The easier and more automatized this process is, the less temptation those undecided customers who aren’t still quite convinced of our product users will have to unsubscribe.
Another interesting idea that almost all SaaS companies implement, is encouraging long term plans. For example you can offer a 10% discount when hiring an annual plan against a monthly one. Faced with the possibility of saving, many customers prefer to commit for longer and this will give you the opportunity to demonstrate the full potential of the tool to make make decide to stay permanently.
How you shouldn’t try to reduce churn rate
I consider this section more than necessary since some companies try to reduce churn rate with techniques that are not only unsuccessful but also generate frustration and anger to the user.
I bet that on more than one occasion you’ve found a product or service that seems to be deliberately hiding how to unsubscribe so you don’t get to. This technique, more typical of large companies coming from an offline business model is still very present in sectors such as telephone or insurance. Usually on the websites of these companies you will easily find the way to hire a product or service, however, you have to spend hours and hours searching the web to unsubscribe, filling out forms or talking to sales agents.
Sometimes this might dissuade the user from unsubscribing, for example if you have no time to deal with it at that time or if you are too tired to do so, but eventually, sooner or later you’ll end up doing it, problem is that their rating on the service will go down because of the difficulty of ending it.
What are your strategies to reduce the churn rate? Share them with us