Churn Analysis: How To Understand Why You’re Losing Customers (+127 Examples)

What is churn analysis?

One of the things that Nathan Latka asks most often about in his interviews is churn: a metric for how many people stop using a product in a given amount of time.

That number is good to have, but to someone new to business, it might seem a little overstressed. Why do people pay so much attention to it?

In fact, reducing churn should be one of the top priorities for a SaaS company.

For that, a robust churn analysis is necessary to understand customer behavior and what exactly the weak points in your software are. Shore up those weak points, and even a small reduction in churn could mean a serious profit increase for your product and continuous customer retention.

Analyzing Customer Churn Comes in Many Forms

Since we’re talking about a fundamentally simple metric here (the number of customers who stop using your product compared with the total number of users), there are a couple of different ways to go about analyzing it.

The first thought on many people’s minds is probably Excel. As long as you’ve got someone on your team who’s comfortable in the Excel ecosystem, you can make your analysis as broad or as granular as you want.

Naturally, there are off-the-shelf solutions available instead. Why reinvent the wheel?

The benefit of premade software like Alteryx or Churnly is that they include a whole lot of analytics and predictive algorithms to guess at the number of existing customers likely to churn at any one point.

Of course, they don’t come cheap – they’re running a business just like you are, and you may not end up using their specialized features.

Finally, you can bring in the big guns and hire a firm like SaaSOptics or OpexEngine to do the work of budgeting, cost managing, and target analysis, which of course includes churn analysis as part of the deal.

As long as you’ve got the money to invest in it, a little help from expert consulting might be the right move to help a struggling company with a good product that just isn’t seeing the adoption it should.

Churn Prediction: Canceled Subscriptions and Why They Happen 

Your churn analysis ought to come up with some of the reasons why your existing customers are shifting away from your software. This can be trickier than it sounds, because it’s too easy to just look at the very last datapoints you have such as a support call. You need to figure out what made them call support to cancel in the first place.

One major reason is switching to a competitor who offers a product at a different price point or with a different feature set. If you go and search for any SaaS-type product, you’ll see half a dozen competitors pop up on the first page, and twice as many if you do the same search in a year’s time.

You’ve got to keep the market in mind and make sure you have a price point and feature set that perfectly fits the customers you’re trying to capture.

Top 3 Reasons to Do Customer Churn Analysis Every Month

1. Finding high churn customers helps you pay more attention to holes in your business.

For example, are you tending to lose a specific type of customer after exactly two months? Maybe your product is only good for their “crunch time period” and unnecessary for them afterward. It might be a good idea to consider what you can offer them the rest of the year!

2. Paying frequent attention to customer success is a good investment in the long run.

Trends change and people’s tastes evolve. You wouldn’t drive your car 100,000 miles without looking at the tires, would you? Regular maintenance on your business helps you notice little problems more often.

3. Developing a stronger future plan.

You’ve likely got your own ideas for how your company is going to evolve, but the market may have others.

With solid customer data every single month on who’s sticking with your product and who’s running away, you’ll be able to maximize your customer lifetime value and predict much more accurately what the state of your business will look like in a month, six months, or a year’s time.

Churn: A Menace in Disguise

Growth is the name of the game in SaaS companies – people talk about tripling every year for the first three years like it’s nothing.

But churn rate puts the brakes on that hard.

Think about it like this: if you lose $10k in revenue one month, you have to fill that hole with $10k in growth – and then you’ve only just broken even!

Churn also strongly limits how much you can pay for new customers. After all, spending a bunch of money to acquire customers that are going to leave before you get a return is wasteful loud and clear.

Your competitors, who might have just one or two percent lower churn, are able to pay more to attract more customers (getting the top spot on Google Ads, for instance), growing much faster than you can. All thanks to the flexibility of having higher acquisition costs.

Key Churn Metrics

There is no single number that’s going to tell you everything you need to know about customer attrition. Instead, you need to measure both customer churn (also called logo churn) and revenue churn.

There’s also no perfect way to measure subscription churn, because sometimes users cancel automatic billing but still use the software for the rest of the month – giving you an opportunity to win them back or even upsell them.

You’ve got to pay attention to the churn in the first thirty days of usage (as many customers don’t renew after the first month), but also over the course of the first year, and again from month 12 to month 13. (See why this might be hard to all manage in Excel?)

Talking of metrics, here is a full list with the most up-to-date numbers from 300 SaaS companies.

Examples of Churn Analysis from Private B2B SaaS Companies

Companies With Net Revenue Retention of 200%+

Companies With Net Revenue Retention of 130-200%

Companies With Net Revenue Retention of 110-125%

Companies With Net Revenue Retention of 100-110%

Companies With Net Revenue Retention of 90-100%

Companies With Net Revenue Retention of 75-90%

Companies With Net Revenue Retention of 50-75%

Companies With Net Revenue Retention of Less Than 50%

In a Nutshell

The most important takeaway is this: ignore customer and revenue churn, and you’re looking at your business through a dusty mirror.

Take steps today to put more measures in place for getting data on the customer experience, such as surveys, chat widgets, or follow-up emails. Those data points, in aggregate, are going to have a huge effect on your revenue over time.

Nip that churn in the bud, and your bottom line will thank you.