Churn analysis: Why you need it in 2024

Understanding why your customers do or don’t purchase more goods and services from your company is key to driving consistent growth. Successful businesses know that succeeding in a competitive landscape isn’t just about capturing as many new prospects as possible.

You also need to ensure you’re retaining the customers you connect with. After all, studies show that in many industries, the most successful businesses in the sector have a retention rate of 94%. 

Not only do retained customers purchase more from your company in the long-term, giving them a greater lifetime value, but they’re 60-70% easier to convert, reducing your acquisition costs. 

The only way to effectively boost your retention rates is to understand how often, and why customers are leaving your business in the first place. Enter churn analysis.

What is Churn Analysis? An Introduction 

As you may already know, churn analysis is the process of evaluating your customer “loss rate”, or how often customers abandon your business. The idea is that by getting a deeper insight into how frequently customers are “churning”, you can take steps to improve loyalty and retention. 

At a high level, churn analysis just tells you the percentage of customers who don’t return to your business after making an initial purchase. However, if you dig a little deeper into the numbers, your statistics, and qualitative data, you can find out why they don’t return too. 

Notably, churn can come in many different forms, depending on your audience and industry, such as:

• Cancelled subscriptions: Customers can cancel subscriptions to software, and other services because of a range of reasons, such as poor customer fit, missing functionality, and failure to achieve the right outcome with your solution.
• Switching to a competitor: Customers might choose to switch to your competitor because they think the service from another business is better, or they’re looking for new features. They may also choose a cheaper service if yours is too expensive.
• Not making additional purchases: If a customer isn’t entirely committed to your product or service, they might simply make one purchase and never interact with you again. This is usually a sign that your solution didn’t address their needs.

Why is Churn Analysis Important in 2024?

Effective churn analysis has always been important for companies with a strong focus on customer retention, such as those in the SaaS industry.  It’s more expensive and time-consuming to acquire a new customer than it is to sell to an existing client. 

However, it’s becoming increasingly essential in the modern world. The simple reason for this is customers aren’t as loyal as they once were.

A recent study published in 2022 found that customer loyalty and retention rates have been dropping since the pandemic. Customers now have more opportunities to quickly switch brands and vendors with minimal effort, allowing them to seek out better service, features, and pricing.

Investing in regular churn analysis in the years ahead will allow companies to:

1. Increase Profits

The ultimate goal of churn analysis is to increase your profits, by giving you insights into how you can improve your customer’s lifetime value and your chances of repeat purchases. The more customers buy from your company in the long term, the more you’ll earn. 

Additionally, churn analysis can also help you to reduce your expenses. It can show you which marketing strategies aren’t working, and what you need to do to minimise your customer acquisition costs. The lower your acquisition costs are, the more budget you’ll have to spend on other projects.

2. Improve Customer Experience

An in-depth churn analysis – one that looks at the reasons why customers might avoid purchasing from your company again in the future – is crucial to boosting customer experience. If you can find out why customers abandon your company, you can take steps to fix the issue. 

For instance, you might find many customers churn because they can’t access rapid support when they need it, or because you don’t have a self-service option on your website. Addressing these issues will improve your customer’s perception of your brand, boost your earning potential, and increase loyalty.

3. Optimise Products and Services

Comprehensive analysis of customer churn can also give you insights into which aspects of your products or services are more appealing to your customers. Reading reviews that tell you which features your customers use most often, and which they struggle with will help to guide your product development teams. You’ll learn which capabilities you should improve, eliminate, or introduce.

This paves the way to a more informed growth process. The more feedback you receive, the more you can refine your solution to be the ideal option for your target audience. This could not only help you retain more customers, but it could also be crucial to capturing new leads. 

How to Calculate Customer Churn: A Quick Guide

There are various tools available on the market today that can help you get a deeper insight into customer churn rates. You can even leverage intelligent tools like Salesforce and Akkio to predict potential churn, based on previous data. 

However, calculating churn is relatively easy to do manually too. All you need to know is how many customers you have at the start of a period, and how many of the same customers are still buying from you at the end. The difference between these two numbers shows you your churn. 

For instance, say you started with 10,000 customers at the beginning of a sales quarter, and end the quarter with 12,000 customers. This looks like you’ve earned a 20% growth rate. 

However, if you dig a little deeper into which of those customers are new, and which are retained, you can see the churn issue. If 6,000 of your 12,000 customers are new, this means you lost another 6,000 customers during the period, giving you a churn rate of 50%. 

The key to successful churn analysis is looking at the number in context. This means choosing the right period to analyse (such as the run-time of a new sales campaign) and using additional resources like surveys to find out why customers abandoned your business.

How Often Should You Analyse Churn?

Some ERP systems, CRM tools, and other solutions can calculate customer churn on an almost consistent basis, automatically. However, these tools simply give you a number to work with – most don’t go into the details of why customers actually abandoned ship.

To gain the most from a customer churn analysis, you need to invest in a formal approach regularly. Before you launch a new product, update your existing solution, start a new marketing campaign, or implement a different sales tactic, benchmark your existing number of customers.

At the end of each “experiment”, conduct a churn analysis for insights into how well your strategy helped you retain customers, and how effective it was at capturing new ones. 

The Value of Analysing Churn

Analysing churn is an important task for any business. It’s crucial to ensure you can learn as much as possible about your retention rates, and how you can improve them. Now that customer loyalty scores are dropping, and economic conditions are becoming more complex, churn analysis is more important than ever. 

Only by understanding when and why customers abandon your business can you start taking steps to reduce your churn rate.