Customer churn—the rate at which a business loses clients over a given time—is a top concern for businesses, especially those that operate on a subscription model. Defining an ideal churn rate is difficult because churn involves many factors. According to a large-scale analysis from Cobloom, a software-as-a-service (SaaS) consultancy, the common target churn rate of 5% is unrealistic for most businesses—especially for SaaS businesses and early-stage businesses.
No single tactic can prevent churn. Businesses must understand their customers with as much clarity and detail as possible, assess how well products, services, and experiences meet customers’ needs, and strike a balance that satisfies clients realistically.
Below, we’ll cover what businesses must know about customer churn: what it is, how it affects your bottom line, the causes of customer churn, and what you can do to minimize it.
What’s in this article?
- What is churn?
- How does customer churn affect businesses?
- Causes of customer churn
- How to find out why your customers churn
- Seven ways to reduce churn
- How Stripe can help
What is churn?
Churn refers to the loss of customers over time. It’s often expressed as a percentage and is a key metric for businesses, especially those with subscription-based models. Churn happens when customers cancel their subscriptions or stop buying products—effectively ending their relationship with a business—leading to reduced revenue.
How does customer churn affect businesses?
Customer churn affects almost every part of a subscription business, directly or indirectly. These include:
Revenue impact: Regular loss of customers means a steady decline in revenue, which can be particularly challenging for businesses that rely heavily on subscription models. This impact can become more pronounced after considering the long-term value of lost customers.
Cost of acquisition: Acquiring new customers is usually much more expensive than retaining existing ones. A high churn rate increases pressure on the business to find new customers, which often involves significant marketing and sales costs.
Brand reputation: Frequent customer turnover can harm a business’s reputation. If many people are leaving, it can signal dissatisfaction with the product or service and deter potential customers. Customers who feel frustrated with the business may also share their negative experiences online or by word of mouth.
Impact on customer insights and data: Regular churn disrupts the flow of consistent customer data, making it harder to analyze trends, understand customer needs, and tailor products and services accordingly.
Employee morale and productivity: High churn rates can affect employee morale because it forces teams to grapple with losing customers they’ve worked hard to acquire and serve. This can lead to reduced productivity and challenges in maintaining a motivated workforce.
Investor confidence: Typically, investors see a high churn rate as a red flag for a business that relies on—or is seeking—outside funding.
Operational strain: High churn can lead to operational inefficiency. As customer numbers fluctuate, your business may face challenges in scaling operations appropriately, leading to over- or underutilization of resources.
Market position and competitive edge: In highly competitive markets, a high churn rate can weaken your business’s position by allowing competitors to target your churned clients and strengthen their market position.
Causes of customer churn
Here are some common reasons for customer churn:
Poor customer experience: One of the primary reasons for customer churn is a subpar customer experience. This can range from issues with the product or service to inadequate customer support. If customers feel neglected, misunderstood, or frustrated, they are more likely to end their relationship with the business.
Lack of quality engagement: Ineffective communication can make customers feel disconnected from your brand. Whether it comes in the form of too many unhelpful messages or not enough communication when customers need it, a communication mismatch can make customers feel indifferent about your products or services, which may push them to leave.
Pricing issues: Price sensitivity is a significant factor. If customers believe they are not receiving value for their money or if a competitor offers a more attractive price point, they may decide to leave. Sudden price increases can also contribute to churn.
Product or service quality: If the quality of the product or service deteriorates or if it doesn’t meet changing expectations, customers can turn to your competitors. Quality issues can range from functionality and reliability to user experience.
Inadequate customer support: Timely and effective customer support is key. If customers consistently face long wait times, unhelpful responses, or unresolved issues, their trust in the brand will diminish, and they may leave.
Lack of personalization: Customers expect businesses to tailor experiences to their preferences and needs. A one-size-fits-all approach can lead to dissatisfaction and loss of customers.
Market competition: Businesses that face intense competition and do not adapt to changing market trends risk losing their customers. If competitors offer more innovative, cost-effective, or appealing products and services, customers might be tempted to switch.
Unexpected changes or instability: Changing policies, removing features, and inconsistent product or service delivery can frustrate customers enough to leave.
How to find out why your customers churn
Customer churn is a major concern that many businesses consider a key macro metric for decision-making. Whether your churn rate is strong or weak, many contributing factors must be examined. Your churn rate itself won’t tell you what causes your customers to leave—for that, you must dig deeper. Here’s how to measure churn and understand what it can tell you about your business’s situation:
Customer feedback and surveys: Reach out to current and former customers through surveys and feedback forms to gain insights into why customers are leaving. Tailor these surveys to pinpoint specific issues such as satisfaction with your product or service, pricing concerns, and customer support experiences.
Analyze customer data: Look for patterns or trends in your customer data such as usage frequency, engagement levels, support ticket history, and purchase patterns.
Monitor customer support interactions: Review interactions between customers and your support team. This can reveal common challenges, issues, or queries that may contribute to customer dissatisfaction and eventual churn.
Engagement metrics: Analyze how your customers use your product or service. Low or irregular usage patterns can indicate customers are likely to churn.
Competitive analysis: Understand your market position by analyzing your competitors. Are they offering something you’re not? Is there a feature or service that is drawing your customers away and contributing to churn?
Customer journey analysis: Map out the customer journey to identify at what point customers are churning. Have your clients left after a trial period, a specific update, or a change in pricing?
Follow up with churned customers: Reach out to customers who have left, if possible. A personal conversation can sometimes reveal more than a survey. Customers who have chosen to leave might provide honest feedback about their reasons for doing so.
Segmentation analysis: Break down your customer base into segments based on demographics, behavior, or other criteria. This can help you determine whether certain groups are more prone to churn than others.
Financial impact analysis: Dig down on the true financial impact of churn. When customers leave, which of them have the biggest impact on your revenue? This can help prioritize your retention efforts for high-value customers.
Experimentation and A/B testing: Experiment with different strategies to see what works best in retaining customers. A/B testing on elements such as pricing, features, or customer service approaches can provide practical insights.
Seven ways to reduce churn
These churn-mitigating strategies can help you protect annual recurring revenue (ARR) before and after clients leave.
Personalizing customer engagement
Tailored communication: Tailor your communications by using customer data. In emails, address customers by name, and segment your audience to make your content relevant to their interests based on past interactions. This creates a more intimate and engaging experience for customers.
Personalized recommendations: Use customer purchase history and browsing behavior to provide personalized product and service recommendations. This enhances the user’s experience while demonstrating you cater to their individual needs.
Personalized offers and incentives: Create special offers or incentives tailored to individual customer preferences. This can include exclusive deals, early access to new products, and personalized discounts, which increase loyalty and reduce the likelihood of churn.
Engagement across channels: Build a stronger connection by interacting with your customers where they are most active, whether that’s through email, on social media, or on your platform.
Interactive user experience: Allow customers to have a voice in how they experience your service or product. Features such as customizable dashboards, preference-based notifications, and interactive tools can help them take advantage of your offering.
Predictive personalization: Use artificial intelligence (AI) and machine-learning tools to predict customer needs and preferences before they articulate them. This proactive approach can create a sense of delight and surprise and foster deeper loyalty.
Consistent follow-up and check-ins: Use personalized emails and surveys to check in with your customers regularly and make sure their needs are met.
Customer journey mapping: Understand and map the individual customer journey. This will help you identify specific touch points where personalized engagement can be most effective, whether it’s during onboarding, after the purchase, or at renewal.
Providing exceptional customer support
Fast and responsive service: Empower your customer support team to respond to all queries as quickly as possible. Implementing efficient response systems such as chatbots for immediate assistance—coupled with a dedicated team for more complex questions—can significantly enhance the customer experience.
Trained and knowledgeable staff: Invest in training your customer support team so each member is knowledgeable about your products and services and skilled in handling inquiries and complaints with empathy and efficiency.
Multiple support channels: Offer support across channels, including phone, email, live chat, and social media. This omnichannel approach lets customers reach out through their preferred medium, making support more accessible and convenient.
Personalized support experience: Train your team to give personal attention to each customer, acknowledge past interactions, and understand individual customer histories to make the customer’s experience more satisfying.
Proactive support: Don’t wait for customers to reach out with problems. Proactively monitor for potential issues and reach out to offer help. This could involve checking in after a purchase, offering assistance during onboarding, or providing tips and best practices.
Empowering customers with self-service options: Provide comprehensive FAQs, tutorials, and forums where customers can find answers to common questions and issues. Empowering customers to solve their problems can improve satisfaction while reducing the burden on your support team.
Follow up after resolution: Once your team has resolved a customer’s issue, follow up to make sure they are satisfied and offer further assistance if needed. This post-resolution check-in can leave a lasting positive impression.
Escalation protocol: Devise a clear protocol for when it is necessary to escalate issues. Move complex problems to the appropriate level of support for timely resolution.
Consistent quality: Provide reliable, quality support in all customer interactions.
Encouraging a customer-centric workplace culture
Leadership commitment: Executives should set the tone for the rest of the organization by demonstrating a genuine commitment to customer service. This means leading by example and consistently reinforcing the importance of prioritizing the customer in every business decision.
Empowered employees: Empower employees at all levels to make decisions that improve customer experience. Your team members will serve customers better when they feel they have the responsibility and authority to solve issues on their own.
Cross-departmental collaboration: Encourage collaboration between departments with the common goal of improving the customer experience. Sales, marketing, product development, and customer service teams should share insights and strategies so your organization can provide a cohesive experience.
Reward and recognition programs: Implement recognition programs that reward employees for exceptional customer service. This will motivate your team while reinforcing the value of customer-focused behavior.
Customer-centric metrics and key performance indicators (KPIs): Establish KPIs that focus on customer satisfaction, loyalty, and retention. Measuring and evaluating performance against these metrics will keep your team focused on the customer’s perspective.
Regular customer interaction for all employees: Encourage employees throughout the organization to have regular interactions with customers. This can include participating in customer support calls, attending customer meetings, and engaging in customer feedback sessions. Direct interaction with customers can provide employees with unique insights and strengthen the customer-centric mindset.
Creating a feedback-friendly environment: Foster an internal culture where feedback is encouraged and valued—from customers and employees. An environment that embraces constructive feedback is more adaptable and responsive to customer needs.
Share customer stories regularly: Share customer success stories and testimonials throughout the organization. This helps you celebrate achievements and focus on the tangible impact of a customer-centric approach.
Making the most of technology
Advanced analytics tools: Use analytics tools to gain deeper insights into customer behavior, preferences, and patterns. This data-driven approach allows for more informed decision-making and targeted strategies to reduce churn.
Customer relationship management (CRM) systems: Use a comprehensive CRM system to maintain organized records of all customer interactions. This will help you provide personalized service and identify potential churn risks early.
Automated customer service: Invest in automated solutions such as chatbots and AI-driven support tools. These can provide customers with quick and efficient service for basic inquiries, freeing up human agents for more complex issues.
Mobile optimization: Optimize your services and communications for mobile devices. A mobile-friendly approach is important for engaging and retaining customers.
Social media monitoring: Use social media monitoring tools to track what customers are saying about your brand. This provides real-time insights into customer sentiment and can help you address issues before they lead to churn.
Easy integration of systems: Your products and services should easily integrate with all your offerings as well as complementary external products.
Cloud-based solutions: Adopt cloud-based solutions for flexibility and scalability.
Ecommerce and self-service platforms: Develop intuitive ecommerce platforms and self-service portals that allow customers to easily browse, purchase, and manage their accounts. A user-friendly online experience is important for customer retention.
Creating an actionable feedback loop
Easy feedback channels: Provide convenient ways for customers to give feedback. This can include surveys, feedback forms on your website, social media interactions, and direct email channels.
Regular customer surveys: Conduct regular surveys to gauge customer satisfaction and gather insights. These surveys can be transactional (post-purchase or post-interaction) or relationship surveys that assess the overall customer experience.
Pay attention to social media and online reviews: Monitor social media platforms and online review sites for customer feedback and sentiments. These platforms provide unfiltered opinions that, when taken in context, can help businesses understand customer satisfaction and areas for improvement.
Incorporate feedback in decision-making: Establish a culture where customer feedback is regularly reviewed and considered in business decisions. This will demonstrate to customers their opinions are valued and have the power to influence the product or service.
Close the loop with respondents: Follow up with customers who have provided feedback, especially those who have reported issues or dissatisfaction. Address their concerns and communicate the steps you have taken to resolve their issues or implement their suggestions.
Data analysis and trend-spotting: Identify trends and patterns in customer feedback through data analysis tools. This can help you pinpoint systemic issues or opportunities for improvement.
Transparent communication: Be transparent with customers about how you are using their feedback. Updating customers regularly about changes made in response to their feedback can reinforce the value of customer opinions.
Iterative process: View the feedback loop as an ongoing, iterative process. Refine how you collect, analyze, and respond to feedback to keep improving the customer experience.
Continually improving products and services
Using advanced analytics for insight-driven improvements: Study advanced analytics to understand how customers are using your products and services. Go beyond surface-level metrics by looking at user behavior, preferences, and challenges. Consider using predictive analytics to anticipate customer needs and trends, which can allow you to make improvements proactively.
Collaborative development with customers: Foster a development process that includes customer input, often referred to as co-creation. Reach out to a group of customers during the development phase of products or features to confirm improvements you want to make will meet customer needs and expectations. This strategy improves the product and strengthens customer relationships and loyalty.
Adopting agile methodologies for rapid iteration: Implement agile methodologies in product development and service delivery. Customer feedback, emerging market trends, and new insights can help your team quickly adapt and refine your offerings.
Strategic partnerships to bolster offerings: Collaborate with other businesses or technology providers to integrate additional features, capabilities, or content that can add significant value to your customers. This can provide a competitive edge and address customer needs in ways internal development cannot.
Being strategic and transparent about payment
Value-based pricing strategy: Develop a pricing strategy that reflects the value your product or service provides to customers. Choose pricing that customers regard as fair and that also lets you stay competitive.
Transparent and simple billing: Your billing process should be as transparent and straightforward as possible. Customers should be able to understand what they are being charged for and why. Explain the billing structure clearly and provide detailed invoices while avoiding hidden fees. Transparency builds trust and can significantly reduce confusion and dissatisfaction that might lead to churn.
Regular market and competitor analysis: Closely watch market trends and competitor pricing. Regular analysis lets you adjust your pricing strategy in response to market changes and maintain a strong value proposition.
Flexible pricing options: Offer a range of pricing options—such as tiered pricing, volume discounts, and bundles—to cater to different customer needs and preferences. Providing flexibility lets customers choose the option that best suits their needs and budget, which will lead to greater satisfaction and reduce the likelihood of churn.
Effectively communicated price changes: If you must adjust prices, communicate that information to your customers with as much advance notice as possible. Explain the reasons for the price change and emphasize any improvements or additional value they will receive.
Regular review and adjustment of pricing strategy: Treat your pricing strategy as a dynamic component of your business. Regularly adjust your pricing to meet your business goals, customer expectations, and market conditions. This process demonstrates a commitment to fair and strategic pricing.
How Stripe can help
Stripe works with businesses to prevent churn by taking on issues around payments, customer experience, and internal operations. Stripe offers a suite of solutions to help businesses improve their churn rate, which includes:
Smooth payment processing: Stripe’s user-friendly platform simplifies payment processing. By automating the entire payment process—from billing to collections—Stripe reduces manual effort and human error, which can improve customer satisfaction.
Subscription and billing management: Stripe’s billing product is a standout feature for businesses with a subscription model. With Stripe, you can automate recurring invoices, manage subscriptions, and handle complex billing scenarios such as prorated charges and tiered pricing. This flexibility is particularly beneficial for SaaS businesses, online publishers, and all businesses that rely on recurring revenue streams.
Automated failed payment handling: Stripe’s platform automatically retries failed transactions, which can significantly reduce involuntary churn because of payment issues. This feature is important for subscription-based businesses, for which failed payments can lead to unintentional service interruptions.
Customizable payment flows: With Stripe, your customers can choose the payment flow that works for them. Whether you want to offer a straightforward one-time payment or a multitier subscription model, Stripe provides the tools to create a tailored payment experience.
Global payment support: With support for multiple currencies and payment methods, Stripe caters to businesses that operate internationally. This global reach lets you offer new and existing customers the same quality of products and services anywhere.
Real-time analytics and reporting: Stripe’s dashboard and analytical tools provide real-time insights into payment trends, letting you quickly identify and address issues such as high rates of declined payments, which are often precursors to customer churn.
Integration with CRM and customer support tools: Stripe’s ability to integrate with a variety of CRM systems and customer support tools can improve your customers’ experience. By keeping customer payment information and history close at hand, Stripe helps you solve problems quickly and efficiently while maintaining relationships.
Security and compliance: Stripe emphasizes security and compliance to reduce your team’s compliance burden. This is key for maintaining customer trust, especially in industries such as finance and healthcare where data security is fundamental.
Developer-friendly platform: Stripe uses application programming interfaces (APIs) to ensure the platform is highly customizable, developer-friendly, and ready to plug in to your systems.