The Importance of Customer Churn Analysis How to Do It

The Importance of Customer Churn Analysis: How to Do It?

Analyzing the purchase behavior of customers is one of the most important metrics for a brand. Implementing constant improvements to ensure a product caters to all customer’s needs will make you their go-to brand.  

When evaluating your brand, calculating how many customers are leaving your brand for another is also a key aspect to look into with the term popularly known as customer churn or attrition rate.

So, to know the reason why people are leaving your brand a customer churn analysis is needed. Before that, you need to know why you are doing this, when to do it, and how it is to be done.

Here, we give you all of it explaining everything in detail helping you with churn analysis without any assistance.

First, let’s start with the basics of what customer churn analysis is

Basically, a customer churn analysis is done to calculate the rate of customers leaving your brand to make purchases from another brand.

A deeper analysis of customer churn rates will tell you the ratio of people not returning for purchase compared to the ones who have been constantly buying from your brand.

These numbers can also tell you if your product is in sync with current successful analytical trends or needs improvements.

You can calculate customer churn by evaluating KPIs in different time frames and report a common trend in that.

Best performing companies also calculate monetary outcomes of customers quitting them and scale those numbers with the KPIs that boost their revenue streams.

Customer Churn Analysis Examples:

To know why your extra products or services aren’t getting sold, a churn analysis can provide you with all the numbers you need for a better evaluation.

Say, you are selling magazine subscriptions for a year and there were about 1000 subscriptions last year.

But, this year on the same day there were only about 800 renewed subscriptions leaving nearly 200 behind. This would be about a 20% customer churn rate.


So, why exactly do you have to do Customer Churn Analysis

The Importance of Customer Churn Analysis How to Do It

(Source: What industries do have high churn rates?)

If your brand is losing customers, customer churn analysis for your business is essential because your brand loses a lot of money with the amount of workload piling up and no resources to allocate.

New clients need to be looked for in full swing if the customer churn is at a higher rate to keep the processes going in a company. 

The biggest problem is that even a slight increase in customer churn rate can affect your company’s progress..

To avoid this, an analysis using client churn analytics seems vital to predict the falls of the company and to roll back by fixing all the flaws for successfully retaining customers.


Types of Customer Churn

A Customer churn analysis can save the company from the crisis with the predictions and sort out customers on the verge of leaving you.

Deciding to leave your brand can happen for a lot of reasons and a plan needs to be in place for it to not continue.

Here, are some of the churn types to know about and avoid according to the Hevo:

1. Involuntary Churn

“In general, only about 15% of payment failures from credit cards are recovered every month which results in higher churn.” (Source)

This churn type is seen when there is a slump in revenue happening due to a decline in customer payments.

These payments are mainly not completed because of cards declined by banks, credit card maxing out issues, stolen card issues, and expired cards.

If the reasons are any of these mentioned, setting up a workflow around the customer payments can streamline and keep processes in check.

To track these, customer churn analytics also can help you predict and avoid involuntary churn in the future.

2. Voluntary Churn

Canceling your product or services voluntarily by customers is something that needs to be avoided the most the others.

The factors that lead to the voluntary customer churn would be:

  1. Poor Customer Service
  2. Poor onboarding
  3. Attractive features of the competitor

So, working towards customer retention strategies is ideal as a major amount of revenue is lost when customers voluntarily unsubscribe to your brand.

3. Downgrade Churn

The downgrade churn happens due to a customer choosing a starting plan from a premium plan leading to something called downgrade MRR. (Monthly Recurring Revenue)

This mainly happens due to the non-alignment of product features and value add metrics and pricing factors.

You can deal with downgrade churn by setting the right pricing and packaging products better.

Also, looking for ways to make the product features for the customer attractable with improved features will prevent the downgrade.

4. Good Customer Churn Rates

Filtering out the customers that aren’t perfect for your brand can also let you avoid the customer churn rates.

This list should also include customers who were with the brand for a short time just to use the product for a specified time period.

Good customer churn rates can be determined by the reactivation MRR as the remarketing activities can lead to activation of yearly subscriptions if your brand is into one.


Let’s discuss what more a Churn Analysis does for you

Customer churn analysis should always be an integral part of the company before the deployment of effective customer retention strategies. 

Here are some reasons that explain what churn analysis does for companies and why they are important. 

1. Shows the vulnerabilities of a product

Churn analysis will reveal trends that are most likely the intent of customers to leave your brand.

These trends can be anything from pricing strategies to new product feature launches that are not in sync with the customers.

Also, making a subsequent impact would be this analysis will reveal customer engagement with your brand in their journey.

This information is particularly useful to improve the product according to customer’s requirements.

2. New Customer Opportunities

Tailoring the customer journey by understanding the necessities of the customer at every buying stage is very important to enhance the customer service experience.

A churn analysis lets you analyze the repeated patterns and tracks the evolving buying behavior at every customer interaction point in the stage for improvements.

Strategies such as personalizing messages and offering customer-specific experiences make them feel privileged.

3. Prediction for lower future Churn rate

Analysis of old customer data is a big part of customer churn rate prediction. 

Understanding customers at every stage using metrics like customer lifetime value scores gives you a count of loyal and inactive customers. 

Doing this will give you the time to predict customer churn much earlier and start retention programs or strategies. 

4. A helping hand during a crisis 

One of the most effective techniques that can be of a huge advantage is to avoid downturn churns would be a proper churn analysis. 

So, as per Charge Bee, Customer acquisition costs are much higher than retention. This makes churn analysis even more important to save on company costs. 


Benefits of Churn Analysis

Conducting a churn analysis for a brand has a lot more reasons and is certainly very beneficial. So, here we see how they are valuable for your business.

1. Better Profits

Every business has an end goal of increasing revenue with its products or services and customer churn will help you achieve that.

Finding out ways to retain your customers by addressing their queries, complaints, and requests will eventually increase profits and bring in good revenue.

2. Enhanced customer experience

Customers are like lifelines for companies where the more the number, and better it is for the company. So, getting to know about their needs and where you lack is the best analysis for improvements.

A customer will always remember your brand for the experiences created and support created at pre and post-sales.

3. Customize products and services

If you need your brand to excel, then improving the products and services according to customer’s feedback and problems will be the best solution.

This will lead to lesser customer churn, improved services, and products, and lead to better future growth too.

4. Customer retention

In any business, customer retention is the key strategy in all the marketing plans and strategies.

Customer churn analysis helps in achieving better customer retention numbers by knowing all the likes and dislikes of a customer with your brand.


When should you do a customer churn Analysis?

“If I’m interested in keeping customers, I’m interested in understanding how many leave and the underlying reasons why they are ending their relationship with me,” says AveryJill Avery, a senior lecturer at Harvard Business School. (Forbes)

Doing a regular customer churn analysis can help with improving the retention and this has to be an ongoing process.

Normally, companies do the client churn analysis every month and every quarter. Also, some big enterprises bring in professionals for an in-depth churn analysis frequently.

On the other hand, detecting a good churn rate is something every business needs to consider.

Knowing all of the unsubscribes, product cancellations, or customers leaving for another brand is a great practice for all companies to follow.

By using a technique called Cohort analysis as mentioned by Elizabeth Yin, Co-founder of Hustle Fund, calculating customer retention rates can also give you churn numbers.

To do this, first, determine the cohorts or group of customers with similar behavior patterns such as the customer’s product subscribed times, location of shopping, and which product they are migrating to.

After that, using surveys and reaching out to them via messages to get information on why the customers are leaving gives you a chance to fix those errors.


And, now how to do Customer Churn Analysis

With all the what, why, and types of customer churn analysis explained, let’s see how to do customer churn analysis now. 

1. Use Churn Analytics Tools

Churn Analytic tools can give you a detailed analysis of how customers are engaging with your product with options that offer you an advanced analysis of customer churn.

From the features that are highly preferred by the customers to occasionally used ones, all can be seen with these tools allowing you to predict and analyze the user behavior.  

2. Analyse Customer Segmentation

Customer segmentation is a practice in which all the customers are grouped according to their same buying behaviors.

The grouping helps in determining customer churn and makes it work on improving those behaviors.

These groups can be further classified into business, demographic, and revenue-based customer churn analysis helping the businesses to concentrate on these needed categories.

3. Determining the reasons behind churn

Unveiling the reasons for customer churn is the need of the hour for companies as it determines the revenue and future growth of your brand

So, here are some of the reasons behind churn that will help with your analysis

1. Poor Customer Service

For any brand, customer service is the key to maintaining utmost customer satisfaction and ensuring loyalty. 

Deployment of churn analysis will give you the areas of customer support that effectively need to be improved. Also, improving customer support will get you the best reviews online. 

2. Offering low customer value  

55% of customers would pay extra to guarantee a better service” – Defaqto research. 

Keeping your customer satisfied at every point of the journey is what every company strives to achieve.  Providing value like personalized messages and experiences for each customer will get you appreciation. 

To know what experiences are liked, a Customer churn analysis does that perfectly with detailing the areas of improvement according to the regions, product categories, and many more to give you a complete answer for the analysis. 

3. Lack of Engagement

Customer engagement strategies are primary for any brand as they need to be informed about the advancements and improvements that can be made for better usage. 

Sending emails, messages, and invites for events are some of the popular forms of customer engagements channels companies use.

A customer churn analysis can give you an exact number and view of how successful these are with the audience giving you opportunities to improve or change strategies if they aren’t working. 

4. Product Issues 

One of the major reasons for customer churn is product issues and lacks the effectiveness of what is advertised.

So, make sure you improve your product through customer interactions, and conducting a churn rate analysis will help you better the product by retaining customers.

5. Brand Loyalty

A customer always stays loyal to a brand if it caters to all his needs and works efficiently every single day.

Companies are constantly working on offering products that are best suited for customers in their related fields. 

To achieve this, Customer churn analysis will help you bring out the best product that everyone will need eventually.   

6. Calculate Customer Churn

To effectively calculate customer churn on a monthly, quarterly, and yearly basis,

Churn Rate = Number of Lost or Cancelled Customers / Ending Total Customer Count


Need to Solve Excessive Customer churn? Here is an Answer to it 

Kapture’s AI (Artificial Intelligence) capabilities can help you with customer churn analysis and segmenting of customer data.

Also, the tool helps you follow customers at each stage of the customer journey to stop churn. With it, Kapture provides all the information you need to reduce excessive customer churns.


About the Author

Sunith Ramachandra
Sunith Ramachandra
Sunith Ramachandra says, “Content writing is all about using the right words for the right audience”. At Kapture he does exactly the same writing content to create conversations and conversions online.


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