Most of the advice you’ll see in relation to building great digital products focuses on how to retain users. User/customer retention is often the lifeblood of a business, especially in the software spaces. If your product or service cannot keep the customers it attracts, it cannot grow.
So what can we do when we have a high churn rate? First, we have to understand it…
What Is a Churn Rate?
In Product Management, we use the ‘leaky bucket’ analogy. If your business is a bucket, you can keep pouring as much water (customers) as you want into it, but if you have a lot of leaks, you’ll never fill the bucket. Without filling the bucket, you’ll never achieve growth.
Customer churn rates are these leaks. Keeping an eye on your churn rate can answer a few different questions. What’s the average customer lifetime? Does our product deliver what customers expect? How do our churn rates impact our Monthly Recurring Revenue (MRR)?
A good Product Managers knows that paying attention to churn rates is another step towards understanding your customer base, and how well you serve their needs.
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Customer Churn vs Revenue Churn
While different companies measure churn in different ways, churn can largely be split into two categories, customer churn and revenue churn.
Customer churn refers to how many individual customers have deleted their accounts, cancelled their subscriptions, or not logged in for X amount of time. Revenue churn focuses on the value of these customers, and measures the monetary loss of the future transactions rather than the loss of relationship.
For example, you could simply say ‘100 users churned this month, compared to 50 last month.’ But it might be more helpful to know that this month only 2 of them were premium users valued at $100 per month, compared to last month when 20 premium users churned. For the bottom line, it’s better to lose six $5 customers than it is to lose one $100 customer. (Not that this is the rule for all businesses, it depends entirely on the business model!)
Looking At Your Options: Identifying The Source of the Churn
You can’t fix a problem you don’t understand, so finding out the main reason (or reasons) why customers leave your product will be the first key step in improving your retention rates.
A few common causes for high churn rates are:
- Competitors. If a new competitor has appeared in your industry and is making some serious waves, it’s natural to expect a peak in your churn rate as customers shift over to see what they have to offer.
- False advertising/disingenuous marketing. This is why marketing teams deserve a lot of credit for customer retention. Bad marketing leads to churned customers, who may arrive at your product with the wrong expectations. If your marketing team has been selling A when really your product is B, customers will end up running in the other direction.
- Usability/accessibility issues. Customers are very picky, especially when they have a lot of options. An interface that isn’t easy to use, appealing to look at, or adaptable for those with special needs, will be dropped like a hot potato.
- Reputation damage. A CEO caught saying things they shouldn’t on Twitter. A cybersecurity hack. Partnership with a controversial company. Anything that damages your reputation will also spike your churn rates. Customers have values, and when a company doesn’t align with those values, they’ll take their money elsewhere.
- Users no longer need the product. It is possible for users to leave a product they like simply because they no longer have the problem it solves. Perhaps they had a bike sharing app, but ended up buying their own bike. That doesn’t mean there’s anything wrong with the app, just that it no longer meets the needs of that particular customer.
- Bloated price point. If the price isn’t justified by the value the product provides, customers will likely search for an alternative.
- Reduced functionality. Did you scrap a feature that you thought no one liked? If you then see floods of users abandoning your product, it’s probably missed!
- Unmet needs. Quite simply, your product doesn’t meet the need or solve the problem the way the customer thought it would.
- Poor customer service. Word of mouth is a powerful thing, and a bad customer service experience can ruin a customer relationship for life. Taking a payment by mistake or having a harsh cancellation/no refunds policy can turn customers against you. If you’re seeing a correlation between customer service complaints and the number of customers churning in a given month, that may be something to look into.
There are many moving cogs in the product machine. As you can see, while the product itself may be flawless, aspects of the wider business can sorely affect a customer’s relationship with the company.
It’s also important to note that some products will lose their customers for good reasons! For example, MagicLab’s VP of Product spoke at #ProductCon London in 2020 on Good Churn vs Bad Churn. When someone leaves a dating app because they found love and no longer need it, what looks like customer churn on paper is actually a customer success story! The same could apply to a variety of products.
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Looking At Your Options: How to Reduce Churn
Experiencing higher churn rates due to a loss of trust is a hard thing to recover from, but not impossible. The key is not to shy away from the conflict, but to lean into it. Pretending that the controversy doesn’t exist will only deepen the distrust between you and your customers.
Let’s say you’ve had a security breach. Users, fearing for their data, are quickly deleting their accounts and heading for the hills. You need to re-establish trust, and fast.
The first step is to communicate openly. Tell your customers, as much as you can, what happened and why. Next, tighten up on security and roll out an update. You can do this quietly, but it’s better to announce the update, and make sure customers are aware of it. You can also reward the customers who stick with you.
While many companies focus heavily on providing discounts and freebies to new customers, it’s a grave mistake to ignore your existing customers. They should be rewarded for their loyalty just as much as you reward new customers for taking a chance on you. You’d be amazed at how quickly neglected customers are willing to turn away from a product they like for another.
It could be as simple as giving them a free month when they reach the 6 month mark, or a free trial of premium features to mark special occasions (which could be seasonal or milestones in each customer relationship). For example, a food delivery app could give users free delivery for the week of their birthday.
While not a step that should be taken lightly, if your product/service is one of the older ones on the market, it could have fallen out of fashion. Branding is a very powerful thing, and customers are paying attention to design now more than ever!
Your marketing messages could be falling on deaf ears as a new generation enters your core target market. Looking into the needs and likes of these new potential customers could be the key to retaining them, and reducing churn. A fresh design can bring your users attention back and give the product new life in their eyes.
Talk to your customers
Does that sound shockingly simple? Maybe it does, but it can be a very effective way to understand and fix the source of your high churn rate. If you’ve ever cancelled a subscription before, you’ve most likely been on the receiving end of a ‘we’re sorry to see you go’ message, along with a short survey about why you’ve decided to cancel. It’s a small step, but most customers will be motivated to tell you why they no longer need you. Airing grievances is much more satisfying than giving praise after all.
But don’t just ask your customers who are already out the door! Ask the customers who are sticking with you what else they’d like to see. Making them feel heard will strengthen your relationship with them, and also give you some valuable data on what customers expect from you. Both of these together are powerful tools in preventing future churn.
How Should We Measure Churn?
There’s no one-size-fits-all method for properly measuring churn. As we’ve already seen, different business models will need to think about churn in different ways. A user leaving Bumble because they’ve found love and a user deleting their HBO account because they don’t think it’s worth the money are two different things.
Figuring out how churn impacts your company will help you better understand how to measure it. The important thing for any business to measure both customer churn and revenue churn. You won’t have the full story if you’re missing one of them.
What Are a Product Manager’s Responsibilities?
As Product Managers, the question we’re really asking in the back of our minds when looking at a high churn rate is; is that my fault?
A Product Manager is, overall, responsible for the success or the failure of a product. Finding that your new product has a high churn rate may be down to causes outside of your control. But how you respond to that churn rate is absolutely down to you.
When management sees a higher than usual annual churn rate, it’s you they’ll be looking to for answers. Even if the ‘problem’ lies outside of your control, it’s your responsibility to understand it and own the response to it.
At the risk of sounding repetitive (because we say this a lot), but collaboration really will be key here. All aspects of a product impact churn and retention rates. That means you’ll need all hands on deck in order to get the needle pointing in the right direction.
In Product Management, the buck often stops with you. So keeping an eye on those churn rates is not only in the best interests of your product…it’s in your own self interest!
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