What Is Customer Churn Analysis?

Did you know, an increase in customer retention of just 5% can boost profits by up to 75%? That’s pretty staggering.

With that in mind, you can see the game of business isn’t all about attracting new customers. It’s about keeping hold of the ones you already have.That’s where customer churn analysis comes in. But what is churn analysis, and what can you do with the information once you’ve obtained it?

Read on for the answers and to find out more about customer churn analysis.

For even more information, you can click here for a deeper look at what customer churn is, here for information about customer churn rates for SaaS companies, and here for some top tips on how to reduce customer churn.

What is customer churn analysis?

Customer churn analysis is the process of evaluating your rates of customer churn to uncover trends and triggers that influence your customers’ decision to stop using your product or service.

Customer churn analysis can help to reveal exactly why customers have ceased interaction with your business, from technical product issues to pricing and customer service.

Why should you analyze customer churn?

As a key driver behind the performance of your business, analyzing customer churn can help to reduce customer turnover, increase repeat purchases, and reduce spend on new customer acquisition.

Regular analysis of your customer churn not only helps you to fix current issues within your business model, but it can also make it easier for you to proactively identify changes and optimizations that will safeguard your customer base for the future.

In short, no one likes to lose customers, but if they’re leaving, you need to know why. Here are some of the ways analyzing customer churn can benefit your business.

Shows you product weaknesses

By studying how your customers interact with your products, you can identify pain points and the moment at which customers stop using the product or service.

If your analysis shows customers are regularly experiencing bugs or technical issues, or perhaps struggling with using your interface, you can highlight features that may need reworking.

Your product could be great in theory but if it’s a pain to use, your customers won’t stick around.

Helps you predict and prevent churn

Time-sensitive factors, such as the time of year or a new feature launch can also influence customer churn.

By analyzing your customer churn rates around these periods, for example during the height of summer or after releasing a new product update, you can identify trends and potentially predict upcoming periods of churn.

Armed with this information, you can then put measures in place to help negate the impact of these periods of churn. For example, you might offer discounted rates during your highest churn periods or offer other user incentives around the time of a new feature drop.

Hope for the best, prepare for the worst.

Helps you boost customer retention and revenue

If you know why and when your customers are leaving, you can put a plan in action to retain your existing customers and prevent new ones from becoming disillusioned with your brand.

As we mentioned at the start of the blog, just a 5% increase in customer retention can lead to a potential 75% increase in revenue, so reducing customer churn could be a significant driver of success for your business.

By analyzing your customer churn, you can significantly boost your customer retention levels and keep them spending with you consistently throughout the year.

Helps you foster better customer relationships and communication

Similar to the point above, if you intimately understand the drivers and obstacles that impact your customers, you can use this information to begin building stronger relationships with them.

Customers stick around when they feel respected, heard, and valued, so analyzing their pain points is a great way to show them your business cares about their user experience.

With stronger relationships and enhanced communication comes stronger brand loyalty, which in turn promotes repeat business and reduces customer churn.

Indicators of churn

So, analyzing your customer churn is important – we’ve established that much. But how can you spot churn in action?

Here are some key things to look out for as indicators of growing customer churn.

Declining customer engagement

Reductions in customer engagement can be a sure sign of customer churn.

If you’re seeing a significant drop in incoming customer support tickets, it could either be that you’ve mastered your product to a point of no failure, or it could be that your customers are just giving up on your product.

Whilst the former is a nice thought, the latter is, unfortunately, a little more likely.

Another explicit way of tracking customer engagement is through MAU (Monthly Active Users) and WAU (Weekly Active Users). If you see these numbers drop drastically, or gradually but consistently over time, chances are your customers are losing faith in your product.

Keep an eye on what your customers are telling you – even if they’re not telling you directly.

Competitor pricing

Keeping abreast of your competition’s activity should always be a priority for any savvy business, especially when it comes to pricing.

In a competitive marketplace with many similar products or services, it is common knowledge that customers will gravitate toward the most cost-effective option. By monitoring your competition’s pricing, you can gauge whether or not you are likely to lose customers in the short to medium term if you haven’t already.

If you notice a competitor undercutting you, consider lowering your prices in response or working to demonstrate why your product or service is worth the extra spend.

Fewer upgrades, cross-sells and up-sells

In a similar vein to lowered customer engagement, identifying a reduction in customers choosing to upgrade or engage in up-sells can be a key indicator of customer churn.

Committed, loyal, enthused customers will regularly explore your wider product line as they look for more positive experiences with your brand. On the other side of the coin, disillusioned, unsatisfied customers will stop purchasing add-ons or optional extras before dropping the product entirely.

If you notice your cross and up-sell numbers dropping off, it’s time to act and win disengaged customers back over before they leave you for good.

How to analyze churn

Knowing how to effectively analyze customer churn is a key weapon in the arsenal of any business.

Here are some top tips for analyzing customer churn for your business.

Invest in churn analysis software

Churn analysis software is, as you might have guessed, software that assists with the churn analysis process, often automating the task for you. From data analysis to customer support software, there is a wide spectrum of software that can benefit your organization when it comes to customer churn.

One service that offers multiple prongs for tackling customer churn is Fullview. Fullview provides cobrowsing software which allows customers and customer service agents to remotely access the same machine to collaboratively solve problems. This enables your agents to practically showcase troubleshooting methods or to walk a customer through the services you offer, which can cut down on customer frustration and show them exactly how to get value out of your product, which are two big factors that influence customer churn.

The impact of this service is increased tenfold by Fullview’s other offering – session replays. Session replays are automatic recordings of user activities that highlight the exact actions a user took in your app or service. This includes where they clicked and scrolled, which pages they visited, whether they encountered any bugs, and when they may have ‘rage clicked’ or quit the platform. Rewatching these recordings can help you spot product issues in context.

By utilizing these two features in tandem, Fullview can automatically flag when users are experiencing problems with your service and prompt your agents to proactively set up a support call with the customer.

With a free plan, free trials on paid plans, and zero downloads necessary, this enhanced level of service can easily help you improve customer satisfaction and prevent customer churn in one fell swoop.

Segment churn/customers

Not all churn is created equal. With many different motivations behind customers leaving your brand, and many different types of customers themselves, segmenting your customer churn analysis can be a valuable link in the chain.

By segmenting your churn into the type of churn and the type of customer, you can easily identify ‘problem sections’ within your audience and take action where necessary.

For example, if as a B2B company, you notice a proportionately higher rate of churn for customers in a certain industry, you could begin to implement support measures or additional features to give them what they’re looking for.

By segmenting by type of churn, you can also identify the major issues your service is currently experiencing. Whether it be churn due to customers leaving for a cheaper competitor, or as a result of technical issues and bugs, you can take note of the most pressing issues facing your business and its customers.

Run churn analytics

It might sound obvious, but in order to analyze your churn, you need to run churn analytics.

There are a range of programs that can assist with running churn analytics, Excel or Google Sheets, for example. We’ll briefly explain the process below:

To run customer churn analysis in Excel, you must identify and prepare the data, create appropriate churn flags, insert a pivot table, and create a Churn Rate calculation, then segment the types of churn and create visualizations for your analysis teams.

What to do once you’ve run your churn analysis

Now you’ve got the data, what do you do with it? The next step is to take concrete measures to mitigate churn and solidify your business for the long term.

Here are some of the most common types of customer churn you might identify during your analysis, and what you can do to tackle these head on.

Early-stage churn

Early-stage churn is where customers leave your product or service behind after minimal time using it.

This can be caused by poor onboarding or negative customer service experiences early on in the product’s use cycle. Other contributing factors can include poor usability of the product or significant bugs and errors.

To negate this, consider investing in your onboarding process to give your customers the warm welcome they deserve. First impressions count, so make sure the one you’re making is good.

Late-stage churn

Late-stage churn occurs after at least 12 months of using your product or service.

This type of churn is often driven by customers finding a preferable alternative, outgrowing the service, or having experienced ongoing bugs or difficulties with the product.

It’s easy to get complacent with your long-term customers as you focus on the highly volatile early-stage churn, but by investing in ongoing customer service and enhanced customer experiences for your loyal consumers, you can keep them on board for years to come.

Voluntary churn

Covering a wide range of motivations, voluntary churn covers any customer who has actively decided to end their subscription or membership with you.

This could be driven by any of the reasons above, from poor customer service to more attractive competitor offerings.

By gathering and implementing customer feedback on a regular basis, you can champion a culture of continuous improvement and keep your customers happy for the long term.

Involuntary churn

The opposite to voluntary churn, involuntary churn occurs when a customer’s membership or subscription ends at the end of its pre-agreed duration and is not actively renewed.

This could be caused by changes in payment methods, meaning automatic payments aren’t able to be taken, or cards being incorrectly declined by the bank or teller.

To tackle this issue, you could consider sending regular emails to customers who have lost their subscriptions due to invalid payment methods. This would help to remind them of the service and motivate them to enter their new payment details.

Good churn

You might find this surprising, but not all churn is bad. Whilst the prospect of losing customers isn’t an attractive one, not all customers are the perfect fit for your company.

Causes of good churn include customers who have unrealistic expectations about what your service can offer them, or what they should receive in terms of customer support and value for money.

Whilst good churn might be ‘good’, it’s still something you would like to avoid if possible. By ensuring you are targeting the right customers through your marketing and sales efforts, you can minimize the risk of attracting inappropriate customers and keep bringing the right people on board.

Downgrade churn

Slightly different to the others in this list, downgrade churn doesn’t necessarily refer to lost customers, but instead lost revenue. When customers decide to opt for a lower membership tier or downgrade their service, your business loses out on revenue without losing the customer entirely.

The main driver for this type of churn is price, as evidenced by the fact your customers aren’t cutting ties with you completely. They still have an active interest in your product or service, but simply can’t justify paying the premium they have been.

To tackle this, consider offering your longer-term customers discounts if and when they request a downgrade of their subscription. An alternative method could be to offer additional benefits with the premium membership, such as extra users or early access to new features.

Conclusion

Customer churn analysis is one of the most important tools for business managers everywhere. Bringing new customers on board is, of course, something to be celebrated, but if you can’t keep hold of them for the long term, you will find yourself stuck in a perpetual cycle of new customer acquisition.

Consider the points we’ve shared above to start your customer churn analysis journey and watch as your customers stay with you for the long run.

Sources used:

1. Annex Cloud – 21 surprising customer retention statistics for 2023
2. Paddle - Customer churn analysis: One of SaaS’ most important processes

Sources last checked 17th November 2023.