Customer churn is one of the biggest threats to business growth because increasing customer retention rates by just 5% can boost profits from 25% to 95%. Imagine running a business where every customer never returns.

If you're not proactively managing churn, you're losing a substantial revenue source. That’s why in this guide, we’ll break down what customer churn means, why it happens, how to measure it, and the best strategies to prevent it for your business.

What is Customer Churn?

Customer churn refers to the percentage of customers who stop using your product or service within a given period. For SaaS businesses, this means cancelled subscriptions, while for eCommerce, it could be buyers who never return.

Customer churn is an important metric because it directly impacts revenue, growth, and profitability. For example, if you have a 10% churn rate, it means 10% of your existing customers are abandoning your product/service. Losing customers means losing future recurring revenue and increasing acquisition costs to replace them. It also affects your brand reputation in the long run. 

This is why improving your churn rates is important because, it will help improve your customer lifetime value, boost profitability and strengthen your brand’s loyalty over time.

What Causes Customer Churn?

Understanding the root causes of churn is the first step in reducing it. So some of the most common reasons why customers churn include:

• Poor Onboarding: If customers don’t see value in your offering quickly, they leave.
• Lack of Engagement: Users who don’t engage with key features especially when your product is a SAAS offering, are more likely to churn than those who do
• Weak Customer Support: Slow response times, lack of proactive support or generally ineffective solutions drive customers away.
• Pricing Concerns: Customers may find the product too expensive or not worth the cost. This can lead them to switch to a competitor
• Multiple Alternatives: Oftentimes, the reason is because they got a better pitch. So they switch to a competitor with better features, pricing or integration

How to Know When a Customer is About to Churn

A lot of the time, you can tell when a customer account is about to churn. When you look out for these early signs, it can help you devise a strategy or a plan to intervene before your customers leave. Here are some of the telltale signs a customer is about to churn;

• A drop in product usage - this could be reduced log-in attempts or when they stop using a feature
• Increased support tickets - if they are leaving a lot of complaints, it might mean they are becoming frustrated
• Lower customer satisfaction scores - A low CSAT score means they are dissatisfied with your offerings
• Drop in renewal rates - so this could be delayed renewals, refusing to renew a subscription or when they choose to downgrade their plan or membership.

How to Calculate and Analyse Customer Churn

The formula for calculating churn rate is - (Customers Lost ÷ Total Customers at Start of Period) × 100

For example, if you started the month with 1,000 customers and lost 50, your churn rate is 5%. Of course, the higher the churn rate, the more impact it has on your revenue and business.

When analysing your churn rate, we recommend segmenting users based on activity to get deeper insights. So are new customers churning at a higher rate compared to existing users? This will provide more details for an action plan.

The 4Ws of Customer Churn Analysis

A more structured approach towards churn analysis is using the 4W framework. This framework answers the most important questions; Who, What, Why and When?

• Who is churning: Here, identify patterns among lost customers by analysing demographics, company size, industry, and usage behaviour. Are new users churning at a higher rate than long-term customers? Are enterprise clients more likely to leave than SMBs? Is there a particular region churning more than the other?
  
  
• Why are they churning: Categorise common exit reasons based on customer feedback, support tickets, and behavioural data. Conduct exit interviews or surveys to find out why. Do customers leave due to a missing feature, pricing concerns, or poor customer service?
  
  

• When does churn typically happen? Look for patterns in churn timing, such as after free trials, during renewal periods, or within the first three months of onboarding. If churn spikes early, your onboarding process may need improvement. If customers leave after 12 months, it could indicate a lack of long-term engagement strategies. Use this data to refine customer success efforts and proactively reach out at critical touchpoints.
  
  
• Where does this happen? Identify touchpoints in the customer journey where drop-offs occur. Are users disengaging after the onboarding phase? Are they cancelling after interacting with customer support? Use product analytics and heatmaps to track user behaviour within your platform and optimise these high-risk areas.

Top Seven Ways to Reduce Customer Churn

Once you have identified these key reasons and analysed what your current churn rate is, here are some top strategies to help you reduce customer churn.

1. Collect and Act on Customer Feedback

Continuous improvement is the most important step in reducing churn. So once you identify the accounts churning, ask them why. You can conduct NPS surveys or even interviews. Analyse survey responses, NPS scores, and support interactions to help you understand what these dissatisfaction drivers are. 

If customers mention poor usability, prioritise UX enhancements. If pricing is a recurring issue, explore flexible pricing plans or loyalty incentives. By addressing the core reasons behind churn, you can create targeted solutions that drive long-term retention.

Pro Tip

• Always follow up with dissatisfied customers to address concerns even after fixing them
• Implement frequent usability testing and product iterations

2. Improve Onboarding to Drive Early Success

Customers who experience immediate value are less likely to leave because they become locked in with the product. A poor onboarding experience on the other hand leads to early churn. 55% of customers have returned a product or cancelled a service because they didn’t understand how to use it.

So if your customers are disengaged during the onboarding, they won’t see value from your offering. Over time, this would impact their satisfaction and experience with your product/service. 

Pro Tip

• Offer interactive product walkthroughs tailored to different user personas 
• Assign customer success managers for high-value account
• Provide video tutorials and knowledge base resources for self-service onboarding

3. Align Sales and Customer Success

If your sales team and customer success are not aligned on who the customer is, what messaging to use or what they need, your customers will have a poor experience. This is because customer success won’t be able to meet their expectations. Over time, that’ll lead to churn due to dissatisfaction. 

You want to ensure that there’s a smooth transition between both teams. For starters, train your sales team to accurately represent product capabilities to avoid future disappointment. 

Next, have regular meetings with both teams to discuss shared goals and ways to reduce churn by refining strategies. We recommend using the Stellafai platform to track these OKRs around churn so everyone is aligned and accountable.

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Pro Tip

• Incentivise retention by tying sales bonuses to customer retention not just new deals

4. Monitor Engagement and Act on Early Warning Signs

Customer inactivity is a major churn indicator so we recommend addressing it proactively. When monitoring your analytics, if you stumble on an account that is disengaging, set up re-engagement strategies. 

For example, if a customer uses a particular feature a lot and stops using it after a while, ask questions or offer support. You might just find out why they are disengaging with that feature and reduce the risk of churn.

A great way to do this is by implementing a customer health scoring system. So when you assign health scores based on engagement and satisfaction, you can proactively reach out to the right people.

Pro Tip

• Use tools like churn zero for predictive analytics to track usage trends
• Set up automated alerts for the at-risk accounts or those with a low health score
• Automate re-engagement emails for inactive users

5. Incentivise Long-Term Commitments

Longer contracts help stabilise revenue and retention. So rather than renewing a contract every month and putting your customer success team through the convincing pitch each time, get longer contracts. 

With this, you can ‘lock in’ customers for a longer period where they can really see value in your offering. But to lock in users, we recommend offering some sort of discount or incentive to make them choose that particular pricing or plan.

Pro Tip:

• Offer discounts on annual subscriptions.
• Provide bonus features for long-term customers.
• Encourage commitment by bundling complementary services.

6. Make Subscription Renewals Easy

An unspoken type of churn is an accidental churn. Here, the customer actually wants to renew but because the process is so complicated and complex, they find an alternative. So you want to simplify your renewal process as much as possible. 

Start by sending targeted renewal reminders. Depending on the client's account, this could be a notification, email, or even call.

Pro Tip: 

• Offer flexible billing and upgrade options.
• Reduce friction in the cancellation process when gathering feedback so they actually fill out your form

7.  Build a Sense of Belonging 

A strong sense of belonging fosters loyalty. Your customers want to feel special, heard and prioritised. 70% of customers said they’d stick to a business if it offered great customer service. So provide tailored experiences to keep them engaged. 

This could be exclusive user forums, groups, networking events or even webinars. You’ll offer value outside your core product or service they wouldn’t want to lose access to. 

Another tip is to offer highly personalised assistance. For example, you want to personalise support responses based on any previous interactions. This way, when you upsell you can offer custom recommendations that align with their needs. 

Wrapping Up

Reducing customer churn requires a strategic and proactive approach which begins from the point of initial sale. Once you bridge the gap between sales and customer success, you can reduce churn by ensuring your customers get long-term value and utmost satisfaction. 

Need some help with getting started on this, book a free call with our lead coach here and we’d be happy to help.