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October 19, 2022

Mythbusters: Top 4 misconceptions surrounding churn rate

Maya Caspi
Head Of Product Marketing

There are many exciting elements when it comes to the usual routines for growth teams, but I’d say that any task that revolves around reducing churn rates would have to rank as being among least exciting.

I mean, as growth experts that focus on ✨growth✨ and ✨profitability,✨ having to deal with 🌪️churn🌪️ can feel like quite the buzzkill. Especially if you have to answer to anyone who might be breathing down your neck, stressing to keep any and every customer on board, as if churn weren’t inevitable!

But have you ever thought about why there is so much friction when it comes to churn reduction? It’s because of all these negative connotations! 

Every dark cloud does have its silver lining, and the task of lowering churn rates comes with its own misconceptions. So let’s clear the air on those! But first, let’s run through how to identify churn early on.


Early churn identification

It is indeed possible to identify churn early on, so preventative measures can be taken before it’s too late. Here are some of the many ways churn can be identified early on:

  • Determine what churn uniquely means for your company
    Churn obviously means different things for different companies. What does it mean for yours? Canceled subscriptions? Uninstalls? Disappearing after a certain time period? Determine what it is for your brand, and create metrics accordingly.

  • Take a close look at customer feedback
    Have a look at things such as survey results, and customer service tickets. You’ll find that users don’t shy away from letting you know if they’re not happy. Look into the cause of them feeling that way.

  • Use predictive measurement
    This is the way to go for data-driven brands. With predictive AI, data models (based on internal zero- and first-party data), statistics, and machine learning to predict future events. And if you sprinkle in a little LTV-optimization, you can go straight to targeting the most profitable users for your brand that are least likely to churn.

And now, the churn-myths that need busting!

There’s only one way to calculate churn. FALSE!

It’s easy to figure that calculating churn would be as simple as dividing the number of customers lost at the start of a given period by the total number of customers in place at the beginning of this period. And that’s true, but that is only one of many ways.

There are additional perspectives of churn that growth teams, especially those behind subscription brands, must be aware of. So yes, customer churn refers to how many of your customers cancel their subscriptions in a certain time period. It's a useful metric, because you can use it to calculate the average lifetime value of a subscriber. That ties in with revenue churn, which looks at the percentage of revenue you have lost from existing customers in a given time period. Then there is also voluntary and involuntary churn. The former is obviously when a customer actively makes the decision to cancel subscriptions. Involuntary churn happens when customers unintentionally lose access to services. 

There are many different types of churn to be aware of, in order to take steps to reduce it, and quickly lift ROI.

Your churn rate can, and should be zero. FALSE!

We all know this isn’t possible, so let’s cut to the chase. Instead of freaking out over the data surrounding your churn rate, use the data you are able to generate to identify issues that can be resolved. 

Spin that negative into a series of positives, by using it as an opportunity to target, and retain the right people. Your team needs to know how to distinguish between healthy and profitable customers, versus churned customers. Every test you carry out afterwards should give you insight to drive your churn rate as low as it can possibly go, especially if you add predictive marketing components into the mix for some added optimization.

You can undo churn by bringing back lost customers. FALSE!

Okay, so when is a churned customer truly lost? Unfortunately, there isn’t a one-size-fits-all answer I can give you here, as it depends on what you know about your customers behavior. Just be sure to understand the ramifications of selecting this end point, as setting your requirements in a manner that is too stringent, because it may cause you to count churns for customers who might actually reactivate themselves down the road when the timing is right for them.

While it is possible to remarket, it probably won’t be wise to try to resurrect people who churned due to unmet needs, if you know darn well that you still won’t meet their needs. You’re far better off by using that same time and energy towards customer retention efforts, and revamping your user acquisition efforts with AI-powered LTV-optimized campaigns. If anything, by NOT doing so, you would be ignoring the most crucial part of customer retention.

Simple onboarding is key to churn reduction. FALSE!

Okay, let me clarify something. We are firm believers in the fact that superior onboarding experiences can work wonders for your retention rate, LTV, and more. It shouldn’t be too simple to the point of barely commuting the value of your service. How you onboard new customers sets the tone for your relationship with them. Memorable customer onboarding reduces churn and increases loyalty.

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There you have it! We really recommend you take these insights to heart, and while at it, also look into predictive marketing to help measure customer loyalty and retention, making it that much easier to identify the most valuable customer sector, and attract more customers like them.

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