How To Manage, Measure, And Lower Churn Rate

The best way to understand churn rate is as a bellwether. In practice, that means when you look at churn rate, what you’re looking for are clues as to what’s happening with your customers and product. Armed with that knowledge, your team can leap into action to address anything that’s impacting churn rate. 

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Revenue Operations (RevOps) teams are responsible for creating well-oiled revenue engines within companies. One of their chief imperatives to that end is measuring, managing, and ultimately lowering their organization’s churn rate. 


But what is churn rate? What is an acceptable churn rate? How do you measure it, and what can you do to slow customer churn down?

What is churn rate?

Churn rate is a measure of how many customers reduce or stop doing business with a company over a given period of time. 

Understanding the rate at which your customers leave is essential to evaluating the effectiveness of your RevOps efforts. Generally, a lower churn rate indicates a higher level of overall satisfaction among your customers. 


It’s not difficult to measure churn rate. At a baseline, it’s simply the number of customers you’ve lost over a given period of time divided by your total number of customers, among other things.


There’s no hard and fast rule about what an optimal rate looks like, either, but about 5-8% annual churn is within a reasonable range. If you’re creeping up to 10% customer churn, that’s cause for some concern. Monthly churn should be much lower—around 1-2%.

 

The best way to understand churn rate is as a bellwether. In practice, that means when you look at churn rate, what you’re looking for are clues as to what’s happening with your customers and product. Armed with that knowledge, your team can leap into action to address anything that’s impacting churn rate. 


Here’s where to start. 

1. Define an acceptable baseline for churn

You need to have a benchmark to aim for, or else you won’t have a sense of how your rates are trending. Decide on a reasonable percentage as a baseline and constantly drive towards it. You’ll know your efforts are effective when you meet or drop below that range.


  • What does “good” look like? ~5-8% annual customer churn; ~1-2% monthly customer churn. 
  • What do you need to achieve that? A process and system for calculating and assessing churn on a regular basis.

Dive deeper: To measure churn, you divide the number of lost customers in a given period by the total number of customers to see how close you are to that desired baseline. A “given period of time” could be a month, a quarter, or a year—or even a season.


Measuring churn against different time periods tells you different things. For example, by calculating churn for a given month and examining what else was happening during that time, you may be able to find some additional nuance or insight as to why and how the rate was affected. If seasonality impacts your market, you can factor that into rates rising or dropping.


Further, there’s a difference between customer and revenue churn. “Customer churn” refers to a lost customer—one that is no longer doing business with your company. “Revenue churn” examines actual revenue, which fluctuates for multiple reasons. It can indeed reflect a lost customer, but revenue churn also includes contractions or expansions of existing customers’ subscriptions as well as revenue coming in from new customers. 


In practice, customer churn rates and revenue churn rates tell you different things. You could be bringing in tons of new revenue with many new customers to cover losses, but if your customer churn is increasing, that indicates problems you need to address. Think of a leaky bucket: If the volume of water exceeds the loss of volume from leaks, the bucket remains filled, but if you fix the leak, you won’t need so much volume to keep it full. To continue the metaphor: If your bucket leaks badly, and the input volume dries up, the bucket will empty quickly.   

2. Know where to look to find problems impacting churn rates

The issues that impact churn rates are typically not mysterious, but you do need to know where to look to uncover and identify them. Effectively tracking churn requires examining lots of related metrics that, taken together, can provide a more accurate picture of what you need to address.


Additionally, disruptions common to any business—new hires or departing employees, contract changes, and so on—can impact rates, so factor those into your evaluations.

 

  • What does “good” look like? Tracking multiple metrics to gain a comprehensive view of churn rate; defining what aspect of churn each one addresses; relevant metrics include Net promoter score (NPS), customer satisfaction (CSAT); customers’ lifetime value (LTV); net retention rate (NRR); average revenue per customer (ARPC); usage statistics (monthly active users [MAU], volume of support calls or support tickets per customer, engagement metrics, survey entries after subscription cancellation)
  • What do you need to achieve that? A systematic means of surfacing and synthesizing all data points, nuances, and variables relevant to churn.

 

Dive deeper: Because churn rate is in many ways simply an indicator of how happy your customers are, NPS and CSAT scores can tell you a lot—that’s entirely why they exist. LTV is key because new customer acquisition is expensive, and the value of retaining existing customers is enormous. Further, SaaS subscription models increasingly focus on recurring business; customers don’t want high initial costs, so renewed subscriptions are critical to revenue. Metrics like ARPC are tied to LTV as well as to NRR. NRR (also sometimes referred to as “Net dollar retention”) is a powerful metric because it looks at churn, expansion, and contraction. Any usage statistics will help tell everyone on the RevOps team how customers are–or aren’t–interacting with your product.

3. Communicate and share data across multiple teams

Effective RevOps requires strong communication and data-sharing across multiple teams, including sales, marketing, finance, customer success, customer support, and product R&D. Churn rates are affected by any number of factors that touch on one or more of those domains, depending on the specific situation or customer.  


  • What does “good” look like? 100% access to data resources; 100% clarity and buy-in across sales organization around a shared set of goals; 100% clarity around key metrics and definitions, including customer onboarding (sales handoff, account provisioning, training, and reporting); customer health (usage monitoring, support and engagement tracking, and issue escalation); and customer service (case intake, triage, customer self-service, escalations and process monitoring, support queue hygiene, and support agent resourcing). 
  • What do you need to achieve that? Un-siloed data sharing and communication; all teams using the same tech stack; defined (and optimally, automated) processes across teams for specific tasks that affect churn rates

Dive deeper: Data does nobody any good unless it’s accessible. You should ensure that you have a robust data warehouse and analytics solution. Additionally, when all teams involved in RevOps are using the same platforms and tools, data-sharing becomes far easier and therefore more powerful. For example, a churned customer will leave feedback, and sales reps will learn more after an exit interview, and all of that information will end up in Salesforce. There may be extremely salient information captured in that process that the product team needs to know about. Your organization needs to create a climate in which, for example, the sales team can communicate their findings to the product team.  

4. Take proactive steps to curb churn before it happens.

If you’re tracking multiple metrics and have seamless communication between teams, you’ll be able to see potential churn coming before it significantly impacts your bottom line. Even better, as you learn better practices, you can prevent some churn from happening in the first place. Capitalizing on that groundwork requires RevOps teams to take proactive or preventive steps.


  • What does “good” look like? Proactively checking in with customers at least 120 days before the end of a subscription to ensure they have no issues or complaints; performing regular quarterly business reviews (QBRs) with customers; identifying potential churn-related issues before they have significant impact; identifying which department(s) or individuals should investigate problems; determining a course of corrective action(s); assign individual(s) to the actions.
  • What do you need to achieve that? A system to flag whenever a customer’s subscription renewal is drawing near and assign check-in tasks to the right personnel in your organization; defined (and optimally, automated) processes across teams to flag, triage, investigate, assign, and course-correct churn-related issues as they begin to appear.

Dive deeper: Though numerous metrics provide a great deal of information, the tip of your proverbial spear is the people who are constantly in touch with customers. They gather crucial qualitative information that doesn’t always fit neatly into a spreadsheet; a common metaphor is “taking their temperature.” Smart RevOps teams will map qualitative and quantitative data onto their own common sense to triangulate better insights. 


For example, a lost customer may tell a rep in an exit interview that they didn’t get sufficient value out of the product. But a look at their usage statistics reveals they hardly ever logged in. That tells you the issue was likely more to do with the onboarding process, not the product itself. 

Fortunately, a changing churn rate and its causes are typically not complex. For the most part, it boils down to how happy your customers are with your company and whether or not your product is working for them. If you have a modicum of usage data available and strong communication across teams, common sense and action-oriented responses to problems will ensure low churn rates. 


Want to read more handbooks like this one? Check out the Ops Academy. And if you’re ready to learn more about how no-code automation can help Ops level up, sign up for a Tonkean trial.

Glossary of terms

  • NPS – Net promoter score
  • CSAT – Customer satisfaction
  • NRR – Net retention rate, aka Net dollar retention
  • ARPC – Average Revenue Per Customer
  • LTV – Lifetime value
  • ARR – Annual recurring revenue
  • MRR – Monthly recurring revenue
  • MAU – Monthly active users

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