What causes churn and how businesses can minimise it

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  1. Introduction
  2. Types of churn
  3. What causes churn rates to increase?
  4. What can reduce churn?
  5. How Stripe can help

Churn refers to when customers stop doing business with a company or using a service. "Churn rate" measures how many customers do so over a given period of time, and it's usually expressed as a percentage. This metric is particularly useful for companies using a subscription model – such as SaaS (software-as-a-service) businesses and telecom services – where customer retention is necessary to sustain revenue.

Churn happens for a wide range of reasons, and it requires various strategies to minimise it. To address churn effectively, you must clearly understand who your customers are and why churn exists in your business. Below, we'll explain the main causes of churn and how you can reduce it.

What's in this article?

  • Types of churn
  • What causes churn rates to increase?
  • What can reduce churn?
  • How Stripe can help

Types of churn

"Customer churn" is a general term that encompasses several types of churn. Each type is caused by different factors and requires its own set of solutions. Here are more details of each type of churn:

  • Voluntary churn: Voluntary churn occurs when customers consciously decide to stop using a product or service. Reasons for this could include dissatisfaction with the product, better offers from competitors or a change in their needs.

  • Involuntary churn: Involuntary churn happens when customers leave for reasons outside of their control. Common causes include payment failures, accidental unsubscribes or service disruptions. This type of churn can often be prevented with proactive measures.

  • Passive churn: Passive churn occurs when customers lapse without actively cancelling their subscriptions. This might happen when a subscription expires without renewal or because of customer forgetfulness. Passive churn can indicate a lack of attachment to the product or service.

  • Revenue churn: Revenue churn focuses on the revenue lost when customers leave, downgrade their subscriptions or reduce their purchases. It's a key metric for understanding the financial impact of churn on a business.

  • Early churn: Early churn happens when new customers leave shortly after beginning their relationship with a company. This can often be due to mismatched expectations or poor onboarding experiences.

What causes churn rates to increase?

Churn is usually caused by a combination of several factors. Common causes of churn include:

  • Poor customer experience
    If the customer finds the experience with a product or service lacking in value or is otherwise unsatisfied with it, they're more likely to abandon it. This dissatisfaction could be due to unmet expectations, a complicated user interface or the product's failure to deliver promised results. Businesses should regularly solicit and act on customer feedback to continually improve the user experience.

  • Lack of engagement
    Customer engagement is about creating a sense of connection and value. If customers feel neglected or undervalued, they're more likely to seek alternatives. Engagement strategies must include personalised communication, regular updates about new features or offers, and active listening to customer feedback. Successful engagement often involves a mix of technology and human touch, creating a balanced and relatable interaction with the brand.

  • Competitive market dynamics
    In industries where customers can easily switch to competitors – especially those offering better value, features or pricing – churn is more common. This is particularly true in markets with low barriers to switching. Companies must continuously innovate and differentiate their products and services, providing unique value propositions that competitors can't easily replicate.

  • Pricing sensitivity
    Perceived value for money has a strong effect on customer retention. If prices are deemed too high, or if a sudden increase in pricing isn't accompanied by an apparent increase in value, customers might churn. During economic downturns, price sensitivity increases; businesses need to be mindful of their pricing strategies and should consider more flexible pricing models or discounts.

  • Inadequate customer support
    Customer support must be high quality, quick and accessible. Slow, unhelpful or hard-to-reach customer service can exacerbate customer issues and cause churn. Businesses need to invest in well-trained teams and support channels, such as chat, email and phone. In Adobe's 2022 report, 75% of company executives reported an increase in existing customers relying on digital channels.

  • Product or service quality issues
    Any deficiency in product performance – such as bugs, frequent downtime or outdated features – can push customers away. Continuous product improvement and prompt resolution of any issues can maintain customer satisfaction and prevent churn.

  • Poor onboarding experience
    A customer's first interaction with a product or service sets the tone for their relationship with the business, and a confusing or overwhelming onboarding process can result in early abandonment. Simplifying the onboarding process, providing clear instructions and offering support during onboarding can significantly reduce early-stage churn.

  • Evolving customer needs
    Over time, a customer's needs might change. If a business doesn't evolve to fit these needs, it risks losing customers. Regular market research can help businesses stay relevant and aligned with their customers.

  • Impact of reviews and reputation
    What people say about a company on social media and in online reviews can affect its image. Negative feedback, if not addressed, can deter potential and current customers. Monitoring online reputation and addressing customer concerns publicly and transparently can help avoid this situation.

  • Technical issues
    Technical issues, such as failed payments or expired credit cards, can cause involuntary churn. Implement systems to identify and rectify such issues promptly. Automated reminders for payment updates and accepting multiple payment options can reduce involuntary churn.

What can reduce churn?

Reducing churn requires addressing multiple aspects of the business, including brand awareness, customer acquisition, onboarding, communication, pricing strategy and billing practices. It also involves thinking about the company strategy at a high level as well as executing on tactical details.

This broad scope can make mitigating churn feel overwhelming. To help guide you through this process, here are some steps that you can take to reduce churn:

  • Analysing data
    Implement tools to track engagement metrics and understand how customers interact with your product or service. These insights help businesses make data-driven decisions.

  • Personalising customer experiences
    Personalisation can increase customer satisfaction and loyalty. Tailor your interactions and services to your customers' individual needs. Use customer data to build segmented marketing campaigns and customised product recommendations, which create a superior user experience.

  • Improving product or service quality
    Continuously improve your product or service. Address technical issues promptly and keep updating your product or service to meet evolving customer needs. Regularly conduct quality assurance tests and incorporate customer feedback into product development to maintain high standards.

  • Proactive customer support
    Offer proactive, efficient customer support. Anticipate potential issues and address them before they escalate, which helps customers feel valued and supported. Implement a comprehensive support system, including FAQs, live chat and responsive customer service teams, to address issues swiftly.

  • Engaging customers consistently
    Engage your customers with regular updates, informative content and meaningful interactions. Engagement can strengthen the connection with your brand. Use various channels, such as email, social media and blogs, to share relevant content and updates.

  • Enhancing customer onboarding
    A smooth, informative onboarding process can significantly increase customer satisfaction. Ensure that your customers have all the necessary resources and support to start using your product or service effectively. Create tutorial videos, detailed guides and an intuitive user interface to facilitate an easy onboarding process.

  • Understanding customer needs and expectations
    Gain a deep understanding of what your customers expect from your product or service. This involves analysing customer feedback to identify areas for improvement. Conduct surveys, focus groups or one-to-one interviews so that you can better understand their needs.

  • Developing a customer-centric culture
    Create a culture that prioritises customer satisfaction. Every team member, regardless of their role, should understand the importance of customer retention. Organise regular training sessions and workshops to embed these values and practices in the organisation.

  • Flexible pricing strategies
    Consider implementing pricing strategies that cater to different customer segments. Offering different pricing options can make your product or service more accessible and reduce the likelihood of customers leaving. Analyse market trends and competitor pricing to create tiered pricing models that appeal to a wide range of customers.

How Stripe can help

Stripe offers a range of solutions for subscription businesses that want to minimise churn. These include:

  • Automated billing and subscription flexibility
    Stripe allows businesses to customise their subscription models and cater to different customer preferences. This could include trial periods, discounts or multiple subscription tiers. For instance, businesses can set up weekly, monthly or annual billing cycles, each with their own pricing structure.

  • Smart payment retries and dunning management
    Stripe employs sophisticated machine-learning algorithms in its smart payment retry system. This system analyses the best times to retry failed subscription charges, improving the success rate. Stripe also manages dunning processes by sending automated notifications to customers about payment failures or expiring cards, to prevent involuntary churn. Stripe allows customisation of these notices to maintain brand consistency.

  • Customisable checkout experiences
    Businesses can customise Stripe Checkout to match their branding, and Checkout is optimised for high conversion rates.

  • Advanced analytics and reporting
    Stripe provides detailed analytics and reporting tools. Businesses can track key subscription metrics, payment trends and customer behaviours. This reporting helps businesses develop targeted retention strategies by identifying customers who may be at risk of churning.

  • Integration with third-party tools
    The Stripe platform offers extensive integration options for CRM systems, customer support platforms, marketing automation tools and more. This broad integration capacity gives businesses a holistic view of their customer interactions and the ability to manage relationships more effectively.

  • Security and compliance
    Stripe is PCI DSS Level 1 certified – the highest level of certification in the payment industry. This reassures customers that Stripe handles their payment data with the utmost security, and it can influence the decision to maintain their subscriptions.

  • Global reach
    Stripe's support for more than 135 currencies and various localised payment methods helps reduce churn caused by payment-related issues. This international reach means that customers anywhere in the world can easily subscribe and maintain subscriptions.

The content in this article is for general information and education purposes only and should not be construed as legal or tax advice. Stripe does not warrant or guarantee the accurateness, completeness, adequacy, or currency of the information in the article. You should seek the advice of a competent attorney or accountant licensed to practice in your jurisdiction for advice on your particular situation.

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