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Your Churn Spike Isn't Real

This week's Newsletter:

 

Has your company's churn rate suddenly spiked?

It's probably an illusion. Here's why...


I've been getting a lot of calls from panicked leaders telling me their churn has suddenly gotten much worse. But it's USUALLY not true. WHY?


The reason has to do with how churn rates are calculated...


► THE DENOMINATOR PROBLEM

The problem is that Customer Churn Rate doesn't JUST measure churn; it also measures growth! →


Churn Rate is an equation:

⦿ The numerator is lost customers (churn)

⦿ The denominator is total customers


CHURN

--------

TOTAL


This means that your Churn Rate can go up or down based on changes in sales (denominator) even if churn didn't really change!


This is why so many companies appear to have dramatically rising churn lately. For most, it's not because churn went UP but because sales have gone DOWN.


There's a simple reason for this...


👉 CHURN IS DELAYED 👈


This means that some amount of time passes between when customers join and when they leave. The delay varies between companies, but it's always there.


So when sales suddenly go down, it causes the denominator to stop increasing immediately. BUT churn from the past is still arriving and won't go down in response to lower sales for some time.


In the meantime, the Churn Rate will spike up because the numerator is growing faster than the denominator.


IN OTHER WORDS:

ℹ️ The denominator changes in response to sales BEFORE the numerator changes in response to churn, and the churn rate goes up.


This is the primary reason so many companies are seeing sudden churn increases lately.


📉 Our SaaS Churn Benchmark data show that new customer sales are dramatically down across the SaaS industry.


📈 But the data do NOT show significant increases in real churn overall recently, just the steady increase that has been going on for several years.


Nearly every churn analysis we've done for companies recently revealed that churn has not gotten significantly worse.


That demonstrates that you cannot rely on Churn Rates!


HOW DO YOU KNOW IF CHURN IS REALLY GETTING WORSE?


The way to solve this problem and determine if churn is changing is to use cohorts and survival curves.


Looking at customer cohorts removes the sales distortion, and comparing cohorts to each other shows if churn is actually going up or down.


🔗 You can get my complete guide to measuring churn using cohorts, which includes a template here: https://www.gregdaines.com/guide-to-churn


Or just contact me, and I'll do it for you!


 

(September 4, 2023) Greg emphasizes that business has fundamentally changed and old ideas about customer retention no longer work. Customer success at scale is challenging and even seemingly similar customers can have different outcomes. Greg stresses the importance of data in justifying best practices for customer retention.


Listen to the interview here: Customer Success Playbook ep. 8

 

Upcoming Appearance: CS100 Summit - Sundance, Utah

Sept 25-27, 2023

This is my favorite event of the year and I never miss it. Come join us and be inspired!


Use code: "CS100Daines" to save $500 off your ticket price. Tickets prices increase after today — Friday, September 8th.


Buy your ticket today: https://lnkd.in/gHjsf_GU


Full agenda, speakers and topics are live now: https://lnkd.in/gZmUY4nz


See you at Sundance!

 

QUOTE OF THE WEEK:


The key mindset shift is from focusing on what your product does → to focusing on what it’s FOR..


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