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How to Reduce Churn Rate of Your Startup

How to Reduce Churn Rate of Your Startup

How to Reduce Churn Rate of Your Startup

Like your life, the health of any company cannot be measured just by profitability. There are many other metrics that you need to look at. One of the most important commercial metrics on your growth rate is the “churn rate”. This metric is more important for SaaS (Software as a Service) and other subscription-based businesses.

In order to retain long-term and loyal customers, you need to do everything in your power to reduce the churn rate. If you have a scalable business model with a low churn rate, you are in for long and profitable innings at the crease.

Explaining Churn Rate

In business terms, “churn” means attrition or turnover of customers. Churn rate can be defined as the rate at which the customers drop your service at any given period of time. Some customers will be loyal and will stick with you for years, while others may leave and run as soon as the free service period or the trial period ends. Essentially, attracting new customers is an expensive business and is more expensive than retaining existing ones. Churn occurs when a customer closes their account by:

  • Not purchasing the service post the free trial.
  • Not renewing the subscription on expiry.
  • Cancels the subscription while still in effect.

Calculating Churn Rate

You don’t have to be a math genius to calculate the churn rate of your startup or business. You just need the value of three main variables, namely:

  • Period of time ( could be a month, quarter or year).
  • Number of customers at the beginning of the said period.
  • The number of customers lost by the end of the period.

Churn Rate = (Number of customers lost / Number of customers at the beginning of the period) *100

Although a simple calculation. it makes more sense to calculate the churn rate in terms of the revenue that it generates because it will give you an idea of how much you are losing in terms of dollar value. For that, you need:

  • The dollar value of the business lost.
  • The number of customers lost.
  • Total earnings in the said period.

Churn Rate = (Dollar value of business lost / Total earnings in the period) * 100

What you might think of as just a loss of a few customers may turn out to be an even bigger loss in terms of money. Therefore, before sidelining the issue, study it from all aspects.

“Customers are the biggest asset of any business.”

How To Reduce Churn Rate

For startups, it is especially important to keep their churn rate low. This way they will have steady business and will not feel financial pressure. Now, let’s see how you can reduce churn rate for your business.

1. Have Exceptional Customer Experience – Getting a customer to sign up is not sufficient to make them stick. With your service, you have to make it difficult for them to leave you. Deliver exceptional customer experience at every step of the onboarding process and even after. Make them feel important and valued. Help them in whatever capacity you can. A happy customer is bound to stick to you and only a disgruntled one will think of leaving. You have to deliver a positive impact both through your service and interaction.

2. True To Customer Expectations – When you provide a service to the customer, be upfront about all that it entails. Do not paint a rosy picture to make them fall in line with your plans. When reality hits the only thing to fall will be your business. Stand true to customer expectations from the very beginning. Understand their need fully before recommending the service. Even then, give them an option for a trial period in which you will answer all their questions and concerns. Contact them in-between to know what more you could do to improve their experience, or if they have identified any additional needs which they would want to address before finalising the sale.         

3. Educate Customers – Quite often the customer is not aware that there is a need which can be fulfilled through the service.. Reach out to prospective as well as existing customers equally and educate them about the service you deliver. If required send out invites for podcasts, webinars, on-site training sessions and awareness raising meetings. You could also post informative blogs on your website or send out educational emails. The whole idea of this exercise is to inform the customer how your service can help them. Make them feel your need.

4. Automatic Renewal – The easier it is for the customer to do business with you the more they would want to stick with you. In a bid to achieve just that you should make the renewal process easy and automatic. Give your customers the option to renew and pay for the service subscription automatically. At your end what you can do is send them a gentle reminder or two before the subscription is about to expire.   

5. Customer Feedback – Only those businesses who succeed listen to their customers. Taking customer feedback is important, mainly because you will know outright what things you are doing that please them and those that don’t. Feedback might also throw a different light on things and give you another perspective and scope for innovation. If nothing else, feedback will point out your areas of improvement. Listening to what your customers have to say will help you serve them better.

6. Improve Onboarding Process – New users are extremely nervous about trying something new, even if it is for free. You can help them by keeping your onboarding process as simple as possible. Do not bombard them with forms to fill, data to upload and provide too much information about your services. Keep your onboarding process solid yet simple. Let them become comfortable with the intended platform. Keep them engaged and informed through automated emails. When the customer is comfortable, you can gather information from them and provide in-depth data.

In Closing

Customers are the biggest asset of any business. To retain them you have to work hard. It’s the small gestures that make the customers feel privileged, like sending personalised emails, having regular communication and valuing their opinion. Sometimes even a small “thank you” at the end of the conversation or communication also can mean a lot. To reduce churn rate you have to make the customer the boss, provide them with special incentives and mostly just deliver on all that you promise.

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