This week's Newsletter:
DID CUSTOMER CHURN GET WORSE IN 2023? The answer might surprise you...
This has been a tumultuous year in the SaaS business. Early in the year, I started receiving panicked calls from business leaders telling me their customer churn had worsened severely. These calls have increased throughout the year.
I'm aware that the conventional way we measure churn can sometimes make churn look worse than it really is. The solution is Cohort Survival Analysis, which accurately shows if churn is getting worse or better, and which our tool ChurnRX generates automatically.
When I ran these companies' customer data through the analysis, the results often surprised these CEOs. Most of these companies were NOT experiencing higher churn.
The reason why has to do with a fundamental flaw in the way we calculate Churn Rates and Retention Rates. Sales growth heavily distorts these metrics (link to a detailed explanation below).
When sales slow down, Churn Rates artificially spike upward, which is exactly what happened in 2023.
HAS CHURN GOTTEN WORSE IN 2023 OVERALL?
At ChurnRX we've created the world's most detailed customer retention benchmark where we've been tracking the steady increase in customer churn across the industry for several years.
Most companies have seen their customer churn creep up year after year, even as their products and services - and even their NPS scores - improved!
📈 From 2017-2021:
⬇ Churn got WORSE for 63% of SaaS companies.
➡⬆ Churn stayed the SAME or got BETTER for 37% of SaaS companies.
BUT HERE'S THE SURPRISE IN 2023:
► This steady increase in churn SLOWED DOWN significantly!
📈 From 2022-2023:
⬇ Churn got WORSE for only 54% of SaaS companies.
➡⬆ Churn stayed the SAME or got BETTER for 46% of SaaS companies.
That's a significant improvement over the previous few years.
SO THEN WHY IS EVERYONE PANICKED OVER CHURN?!
As I said, Churn Rates are highly sensitive to changes in sales. The benchmark shows sales were DOWN dramatically across the industry in 2023, which has driven the apparent sudden increase in churn.
DO YOU KNOW HOW YOUR CHURN IS DOING?
If you'd like to find out whether your churn REALLY got worse and how it compares to the benchmarks, DM me. Through January 2024, I'll get you a free ChurnRX Trend Analysis.
Recent Webinar: How Sales can move the needle on churn! With Chad Rawlings
THE KEY IS TO PREDICT CUSTOMER FAILURE - NOT CHURN! Here's how to do it...
Customers don't fail on the same day they churn.
📈 Our research shows that most customers have already failed long before we find out they are churning.
The problem is that we can't save a customer AFTER they've already failed. Our data consistently shows customer "rescues" have a very low success rate.
This is why health scores or other methods that appear to accurately predict churn are generally useless (and frankly not very impressive). It's not hard to guess that a customer who has already failed will soon leave!
So, how do you predict a customer is going to fail? The answer is surprisingly simple...
👉 You know a customer will fail as soon as it is clear they are not doing what it takes to get results. 👈
Put another way... In order to get results, customers have to change how they work. Customers who get results stay 6 times longer than those who don't.
So, the key to predicting and addressing customer failure is to:
❶ Show customers what they must do to get results.
❷ TRACK WHEN THEY DO IT.
❸ When they fail to complete a key action in a reasonable time, immediately intervene to get them back on track.
Sound too simple? It turns out that this behavior signal appears VERY early.
📉 In a recent study, we found that 87% of customers who changed key behaviors in the first 10 days remained after 4 years! Whereas only 4% of customers who didn't change were still subscribed after 4 years.
In many companies, the signal appears in 30 or 90 days. Either way, you can detect failure far earlier than churn.
This is how you can know whether a customer will succeed or fail LONG before they churn.
👀 This is the key to knowing a customer is failing before they do. 👀
And that extra time gives you the opportunity to intervene and get them back on track before it's too late!
QUOTE OF THE WEEK:
Customer churn doesn't happen in spite of your process; it happens because of your process.