Churn occurs when customers stop doing business with a company or service. It's an important metric for businesses operating in highly competitive, subscription-based industries, such as telecommunications, streaming services and other online services.
There are two main categories of churn:
Customer churn: Customer churn happens when existing customers stop using a company's products or services. For instance, when a subscriber cancels a subscription to a streaming service, they have churned.
Revenue churn: Revenue churn occurs when businesses lose revenue as a result of customers leaving or downgrading their services.
Churn is a key indicator of customer satisfaction and loyalty, and businesses often use it to assess the health of their customer relationships. A high churn rate can indicate problems with the product or service, pricing, customer service or competition in the market. Reducing churn can increase the profitability of a business, as retaining existing customers is often less expensive than acquiring new ones.
However, negative churn is a good thing for businesses. Below, we'll discuss what negative churn is, why businesses want it and how to create it in your business.
What's in this article?
- What is negative churn?
- How does negative churn happen?
- Benefits of negative churn for businesses
- Ways to create negative churn
What is negative churn?
Negative churn occurs when the revenue from existing customers increases enough to offset the revenue lost from customers who cancel or downgrade their subscriptions. It means that you're retaining customers who are so satisfied with your product or service that they want to do more business with you.
Investing in this strategy is especially relevant for software-as-a-service (SaaS) businesses. According to a SaaS benchmarks report from ChartMogul, a subscription analytics platform, the proportion of revenue driven by expansion (that is, negative churn) increased from 28.8% in 2020 to 32.3% in 2023.
How does negative churn happen?
Here are some of the common reasons for negative churn to occur:
Excellent customer service: If customers feel valued and supported, they're more likely to upgrade their services or buy more products. Good customer service creates a positive experience that encourages customers to invest more in their relationship with your business.
Value-added features or services: Introducing new features or services that add value can lead customers to opt for higher-tier plans or additional services, increasing their spending.
Customer engagement and feedback: Taking an active approach to talking to customers and incorporating their feedback can lead to improvements that customers are willing to pay for.
Personalisation: Offering personalised experiences or products that cater to the specific needs of your customers can entice them to spend more.
Marketing supplemental services or add-ons: Skilled marketing of additional features or higher-tier plans can persuade existing customers to upgrade their subscriptions or purchase additional services.
Quality and reliability: If your product or service meets or exceeds customer expectations consistently, they're more likely to consider additional purchases or upgrades.
Pricing strategies: Implementing pricing strategies that incentivise upgrades, such as discounts on higher plans or bundled offers, can encourage customers to increase their spend.
Understanding customer needs: A deep understanding of what your customers need and how that evolves over time can help you to develop additional services or features that are a good fit.
Benefits of negative churn for businesses
Negative churn affects nearly every part of a business. Here is where you can see its impact most strongly:
Increased revenue: The most direct impact of negative churn is on revenue. When existing customers upgrade their services or purchase more, it increases revenue without investing time and resources to bring in new customers.
Improved customer loyalty: Negative churn is often the product of satisfied customers who see value in what your business offers. This satisfaction correlates with customer loyalty, as customers are more likely to stay with a business that continues to meet their evolving needs.
Deeper customer insights: To achieve negative churn, a business must have a deep understanding of its customers. A firm grasp on customer preferences and behaviours can inform future product development and marketing strategies.
Reduced marketing and acquisition costs: Acquiring new customers is typically more expensive than retaining existing ones. Strategies to achieve negative churn focus on getting more value out of current customers, which can reduce marketing and customer acquisition costs.
Positive brand reputation: A business that upgrades its products on a regular basis – and keeps customers satisfied enough to pay more – is likely to enjoy a positive reputation. Satisfied customers often become advocates for the brand, generating word-of-mouth referrals.
Stable revenue streams: By increasing the value of existing customers, businesses can achieve more stable and predictable revenue streams, which is especially valuable in fluctuating markets.
Competitive advantage: Negative churn can give a business a competitive edge. It reflects a company's ability to retain customers and grow revenue from them, which can be a substantial differentiator in competitive markets.
Resource optimisation: Expanding revenue from current customers allows businesses to optimise their resources. Instead of spreading themselves thinly to acquire new customers, employees can concentrate on deepening relationships with existing ones.
Ways to create negative churn
The best ways to generate negative churn are also strategies to reduce customer churn: giving customers exactly what they need, making it easy for them to engage with you as a business, and being decent and transparent in your business practices. Here are several ways to encourage negative churn and strategies to implement them:
Personalising interactions to each customer
Customer insights: Collect and analyse data on customer preferences, past purchases and interactions. Use this data to understand what each customer likes, needs and expects.
Personalised communication: Send personalised emails, messages or recommendations, based on the customer's history and preferences. For instance, if a customer buys a certain type of product frequently, tell them about similar new products or upcoming sales on those items.
Segmentation: Group customers based on similar characteristics or behaviours. This allows for more targeted and relevant communication. For example, you may create different messaging for long-term customers versus newer ones.
Customised offers: Create special offers or discounts that are tailored to individual customers and their behaviours. For instance, if a customer has been looking at a product but hasn't purchased it, a small discount may encourage them to buy.
Interactive and responsive service: Implement chatbots or, ideally, recruit enough customer service representatives so that you can respond to customer queries in real time, providing a more personalised interaction.
Delivering outstanding support to customers
Multiple support channels: Offer support through various channels, such as by phone, email, live chat and social media. This makes it easy for customers to get in touch in the way that's most convenient for them.
Quick response times: Address customer queries promptly, no matter which channel they come through. Quick responses demonstrate to customers that their concerns are a priority.
Trained support staff: Invest in training for your customer support team. Staff should be knowledgeable about your products and services, and skilled in communication and problem-solving.
Proactive support: Don't wait for customers to come to you with problems. Use customer data to anticipate issues and take a proactive approach to getting in touch with solutions or advice. For example, if data insights demonstrate that customers are struggling with a feature of your product, offer guidance before they have to ask for it.
Personal touch: Add a personal touch to customer interactions. Address customers by name and reference previous interactions, if relevant, to create a more personalised experience.
Follow-up after resolution: After a customer's issue has been resolved, follow up to confirm that they're satisfied with the solution. This can be done through a simple email or call.
Developing a customer-focused culture
Regular training for empathy and skills: Conduct training sessions focused on understanding and anticipating customer needs. These should go beyond the standard protocols and look deeper into real-life scenarios, encouraging team members to think from the customer's perspective.
Leaders as role models: Ask company leaders to actively demonstrate their commitment to customer satisfaction. They can do this by occasionally participating in customer service interactions, sharing their own experiences with the team or weighing in specific cases to provide guidance.
Systematic feedback analysis: Gather customer feedback regularly, using tools such as surveys, focus groups and direct customer interviews. Analyse this data to identify trends and areas for improvement.
Employee recognition programmes: Create recognition programmes for employees who achieve outstanding customer service. This can be through awards, public acknowledgment or tangible incentives.
Cross-departmental customer focus groups: Organise meetings where teams from different departments discuss how their work affects the customer experience, which helps to build a holistic service strategy.
Decision-making autonomy for frontline staff: Give your customer-facing staff the authority to make occasional decisions in favour of the customer. This could include issuing refunds, providing discounts or customising services without needing managerial approval.
Maximising technology use
Customer relationship management (CRM) tools: Implement a strong CRM system to track customer interactions, preferences and history. This will help you to create a more personalised customer service. For example, integrating Stripe with your CRM can simplify payment processes and provide valuable customer transaction data.
Automated customer support: Use chatbots and AI-driven support systems to provide instant assistance to customers. These tools can handle routine enquiries, freeing up human agents for more complex issues. Stripe's integration can facilitate seamless transactions within these support channels.
Data analytics for insights: Employ data analytics tools to analyse customer behaviour and preferences. Use this data to anticipate needs and personalise offers. Stripe's extensive analytics can help to identify spending patterns and customer preferences in the payment process.
Personalised marketing automation: Use marketing automation tools to send tailored messages and offers to customers based on their behaviour and history. With Stripe data, you can customise offers even more based on customers' purchasing habits.
Mobile optimisation: Optimise your digital platforms for mobile use. This includes building a mobile-responsive website and easy mobile payment options. Stripe's mobile payment solutions can improve the customer experience in this area.
Analysing feedback: Implement tools to collect and analyse customer feedback. Integrating these tools with your payment system can help you determine how customer satisfaction affects spending behaviour.
Subscription management software: For businesses with subscription models, it's important to use software that manages subscriptions efficiently. Stripe offers subscription management tools which automate billing cycles, handle failed payments and provide customers with easy options to upgrade or modify their subscriptions.
Establishing a feedback system that leads to action
Providing easy and accessible feedback channels: Make it simple for customers to provide feedback. This could be through simple online forms, direct emails, social media platforms or even a feature within your app. The key is to make it as effortless as possible to provide feedback.
Taking an active approach to soliciting regular feedback: Don't just wait for customers to provide feedback – conduct regular surveys or polls to gather it proactively. These can be sent following interactions with customer service, either after a purchase or at regular intervals.
Incorporating feedback in meetings: Schedule meetings on a regular basis to review and discuss customer feedback. Involve teams from various departments – not just customer service – to develop a holistic view of the customer experience.
Setting up a closed feedback loop: Inform customers about the actions that you have taken based on their feedback. This could be through follow-up emails, updates on your website or personalised messages. It demonstrates to customers that their opinions are valued and have a real impact.
Quantifying feedback for analysis: Use tools that can quantify feedback, turning it into actionable data. This helps with identifying trends, common issues and areas for improvement.
Training teams to handle feedback effectively: Make sure that your team members across all departments know how to interpret and act on customer feedback.
Improving products and services constantly
Staying abreast of customer demands: Monitor emerging trends and evolving customer needs with market research and competitor analysis, while staying up to date with industry news. Understanding what's happening outside your individual business helps you to take advantage of opportunities.
Leveraging customer feedback: Use customer feedback to identify areas for improvement or innovation. Customers often provide insights into what they wish to see changed or added, which can be invaluable for product development.
Providing regular product updates: Schedule regular updates to your products or services. This demonstrates to customers that you're committed to improvement and that you value their experience. These updates can range from minor tweaks to major overhauls, depending on customer needs and industry standards.
Investing in research and development (R&D): Allocate resources to R&D to explore new ideas and innovations. This could improve your existing products or help to develop new ones that can further retain – or attract – customers.
Setting up employee innovation programmes: Encourage your employees to come up with innovative ideas. The best improvements often come from those who work with your products or services on a daily basis.
Collaborating with customers through co-creation: Involve customers in the development process through beta testing groups, customer panels or feedback sessions on potential new features. You'll receive direct input and make customers feel invested in your products.
Monitoring usage data: Analyse how customers are using your products or services. Usage patterns can reveal a lot about what works well and what doesn't. This data can guide you in making targeted improvements.
Conducting quality assurance: Maintain high standards of quality, testing your products or services regularly to make sure that they meet both your standards and customer expectations. Quality assurance should be an ongoing process – not just something that happens before a product launch.
Being responsive to market changes: Be quick to adapt to changes in the market. Agility can be a major advantage, especially in fast-paced industries.
Approaching pricing strategically and maintaining transparency in billing
Competitive and flexible pricing: Your pricing should be competitive, but flexible. Offer a range of pricing options to support different customer needs and budgets.
Clear value proposition: Each price point should have a clear value proposition. Customers should be able to easily understand what they're getting for their money.
Transparency is key: Make all aspects of your pricing clear. No hidden fees, no surprises. This transparency builds trust.
Easy-to-understand billing: Your bills should be straightforward and easy to understand.
Regular reviews and adjustments: Review and adjust your pricing regularly in response to market changes, cost fluctuations and customer feedback. This demonstrates to customers that you're attentive and responsive.
Proactive communication on changes: If there's a change in pricing, communicate it proactively and clearly, and explain the reasons behind the change.
Discounts and loyalty programmes: Consider creating discounts, loyalty programmes or other incentives for long-term commitments. This provides value to the customer and encourages them to continue their relationship with your business.
Feedback loops on pricing: Establish feedback loops to gauge customer reactions to your pricing strategy. Do they think your pricing is fair? Is it affecting their perception of your brand? This feedback is a great resource for continuous improvement.