Customers churn in every business, but that doesn’t make it any easier when it happens to you. You’re in business to win customers and keep them. And if you lose too many of your customers, the future of your business is in danger. This is why you need to know your customer attrition rate.
When you know how many customers your business is losing (and at what rate), you’ll be able to make informed decisions for the future of your business. You can’t just stick your head in the sand. Instead, you must analyze why your customers leave (i.e. churn) and when they’re most likely to do so. Calculating your customer attrition rate is the first step to improve the health of your SaaS.
In this post, we’ll help you discover your customer attrition rate and what you can do to reduce it.
What Is the Customer Attrition Rate?
Customer attrition, also known as customer churn, is customer loss. It occurs when a customer leaves your business.
Customer churn is an inevitable part of the customer life cycle. Eventually, every customer will end their relationship with your business, even your most ardent supporters (unless they’re vampires that are immune to physical death.)
To effectively grow your SaaS, you must do two things at the same time: Add new customers while maintaining a consistently low customer attrition rate. Some customer attrition is expected.
For SaaS companies, the annual customer attrition rate is approximately 6%. Keep in mind that this rate is annual and not monthly. It means that 6% of all the customers you’ve earned leave each year. But if 6% of your customers left every month, that would be devastating to your bottom line.
It’s also important to note that your customer attrition rate will fluctuate over time. A first-year SaaS may experience more customer churn as they’re figuring out their positioning, marketing, and customer base. However, a company that’s been in the game for a while shouldn’t have a high level of churn. They should have worked out the kinks and know exactly how to attract and keep the right customers.
To calculate your customer attrition rate, you must divide the number of customers you’ve lost at the end of a specific period of time by the number of customers you had at the start of that same period.
Customer Attrition Rate = Number of customers lost at the end of the period ÷ Number of customers at the start of the period
Let’s say you started with 100 customers at the beginning of the year but then ended the year with 90. You’d calculate your annual customer attrition rate as follows:
100 – 90 = 10 (the number of customers who’ve left)
10 ÷ 100 = .10 (or 10%)
Is that an acceptable customer attrition rate? The answer depends on several factors, including the age of your SaaS, what’s normal for your industry, and your churn rate.
Customer Attrition Rate Vs. Customer Churn Rate
While customer attrition and customer churn are often used interchangeably, there is a subtle, but important, difference between the two. Customer attrition doesn’t differentiate between customers gained and customers lost. In the above example, perhaps you actually lost 50 customers but gained 40 new ones. Your churn rate focuses specifically on the number of customers who’ve left your business. So it would hone in on the 40 people who left.
However, calculating customer churn can get complicated. It’s easier to chart your customer attrition rate.
What Is Active and Passive Customer Attrition?
There are two types of customer attrition: Active and passive.
Active customer attrition occurs when a customer decides to cancel their subscription to your service. They intentionally start the cancellation process.
However, not all customers cancel directly. Some customers churn by fading into the background. They stop interacting with your app. Their payment fails and they don’t update their payment information. It’s like they’ve gone invisible.
It is possible to win back customers who’ve actively or passively churned, but it requires different tactics. For more tips on this topic, check out this post:
Winning back customers is more difficult than retaining them. Let’s discuss how to increase your customer retention rate.
How to Increase Customer Loyalty
On one end of the spectrum is customer attrition. On the other end is customer retention. Customer retention is your ability to keep the customers that you’ve converted. Here’s how to increase your retention rate:
Figure Out Why Churn Is Happening
The easiest way to find out what’s driving customer churn is to ask those customers who are actively cancelling. Interview customers when they leave to find out what went wrong. Who knows—you may even be able to win them back by your sincere concern.
Deliver Amazing Customer Service
Customer service is one of the most important factors in your customer retention strategy. If your customers don’t feel like they matter to you, they’ll simply take their business elsewhere. Customers want a smooth experience with your company. They want resources available, questions answered, and problems solved quickly. If you can provide that, you’ll be able to lock in your customers for a long time.
Identify Your Best Customers
Figure out who is best served by your product. This can take a while to pinpoint because it may not be who you originally thought it was. However, once you’re able to identify your ideal customer, you can then customize their experience so they’re able to achieve their goals with your service.
Keep Your Customers Actively Engaged
The goal is to create a sticky product that becomes part of your customer’s regular, daily routine. If your customers are engaged with your product, they’re less likely to leave. You can keep customers engaged by sending emails, texts, and app notifications that keep your service at the top of their minds. These messages can also gently nudge customers back to using your service.
Ask for Your Customers’ Input
Use surveys to find out what your customers truly feel about your service and the value you provide. Then incorporate their feedback to make your service even stronger for the future. Send out surveys every month. Keep your surveys short and sweet (five questions or less).
Consider targeting a different section of your customer base each month so you’re not bombarding the same group with the same questions. Also switch up your questions to learn more about your customers.
Celebrate Your Customers
Reward customers for making positive actions within your app. For example, acknowledge when they add a second method of payment or when they meet a specific engagement milestone, like their one-year anniversary. By celebrating your customers’ small moments, you’ll give them a reason to feel excited about their progress with your company.
Eliminate Passive Churn
Do you have passive churn as a result of failed payments? You can do something about it. With Stunning, you can recover failed payments and retain more of your customers.
Stunning has helped recover over $6 billion dollars of would-be lost revenue. Stunning reaches out to your customers automatically when a payment fails to help you recover that revenue. Stunning can also notify customers to update their information ahead of time and before it’s too late. This prevents customers from passively churning.
Monitoring your customer attrition rate will give you insight into your company’s health. The goal is to keep your customer attrition rate low, and get it even lower over time. It will never be zero, but it can be close.
Before you go, check out these related resources:
- 7 Ways to Identify Churn-Risk SaaS Customers
- The SaaS Guide to Creating Sticky Customers