Churn Prevention Master Guide

You don’t stop churn, you prevent it

free ebook

Table of Contents

Learn a strategic way to plan, execute and track your progress in order to  increase conversions along your unique customer journey in order to double your SaaS revenue. 

In this resource we will break down the strategy as follows:

Foreword by Aaron Krall

Aron Krall

Aaron Krall
Aaron is a Trial to Paid Coach helping SaaS all over
the world increase their trial to paid conversions. He
also runs SaaS Growth Hacks , the most active
community of SaaS founders in the world.

"The title of this book isn’t completely accurate. It’s so much more than a guide on how to stop and prevent churn - it’s an instruction manual for how to build and scale a profitable SaaS company.

Successful SaaS companies understand that to scale profitably they need to
1) know their customers better than anyone else (even better than their customers know themselves)
2) guide them to see the value of their product, and
3) help them achieve their desired outcome (i.e. the real reason they started using their product in the first place).

But when founders put the product first (NOT the customer), churn increases, conversions drop and revenue suffers. It’s easy to forget that you sell a solution to a problem , not a product or software. So the challenge for most isn’t why , but how to focus on the customer. For some the customer’s head is like a black box that can never be opened. Finding out what really makes them "tick" and convert to paying customers remains a mystery. And some SaaS limp along for years, never truly understanding the moment where trial users turn to paying customers. The key to faster and predictable growth is to open that black box once and for all.

The power behind this book (and Claudiu’s product InnerTrends) is that it shows Founders what data to collect and how to interpret it. Some companies have so much data they don’t know what to do with it all, and can’t possibly draw any definitive solutions from it. Without proper interpretation, all the data just sits on a hard drive, collecting dust.

But, with the right data and the right set of tools to collect and interpret meaningful data, predictable and massive growth is not only possible, it’s inevitable.

There isn’t a one-size-fits all hack, trick or strategy that will fix churn, but there is most likely an area in your business that is weaker than the rest. By implementing the strategies relevant to you and your current situation, you’ll see positive change.

Using Claudiu’s advice, I’ve seen conversions double and triple in the first few months for my clients. It’s helped struggling SaaS break through revenue ceilings and it’s helped veteran SaaS founders add triple digits to their ARR.

This is not just theory. This stuff works, and it works REALLY well.

You hold in your hands the roadmap every startup, new and old, needs to reduce churn, increase revenue, and build a thriving, profitable and scalable SaaS product.

Learn.
Take action.
Enjoy the ride."

 

Foreword by Sam Hurley

Sam Hurley

Sam Hurley

The Guy Who Went From 'Nobody' to #1 Marketing
Influencer in 15 Months (Without a Website)

"In a world in which many of us barely manage to find time to read (let alone write!) about in-depth topics like SaaS, I am happy that Claudiu compiled his vast knowledge and experience of churn prevention in such a concise way.

As a bonus, there are also additional perspectives offered by other skilled SaaS founders.

What I appreciated right from the very beginning, is what this eBook is not...

It’s not yet another reproduction of generic advice such as: "To decrease churn you need to provide a quality-first experience to your users".

It doesn’t include one-size-fits-all formulas on how to calculate churn. It’s not about theoretical, idealistic approaches...

This actionable eBook is all about getting your hands dirty and grabbing the bull by its horns - right now.

You will find numerous examples of strategies you can apply right away in order to prevent churn. Some of the data analysis that Claudiu suggests forchurn prevention are super easy and accessible (even for the least data-savvy SaaS companies out there).

I especially loved the example about segmenting all the customers that paid in the last 30 days, but did not finish the onboarding process; this is a key indicator that users of this nature may churn in the near future.

It’s so (relatively) simple to address this problem, no SaaS company in the world should experience this problem ever again!

After reading this eBook, you will be enthused to get started on your churn prevention program - straight away."

 

 

 

Why should you read this ebook?

I often say that churn is very much like divorce. You don’t stop it by fixing the fight that triggered it.

You prevent it by making things right along the way. That’s why most churn prevention campaigns have nothing or very little to do with convincing people not to leave your business.

You prevent churn by:

● Making the right promises during the acquisition stage and making sure you are targeting the right customers.
● Offering a great onboarding experience. For many companies, simply fixing the onboarding also reduces churn to very low values.
● Helping people get to the WoW moment.
● Knowing when people start losing interest in your product and touching base with them right away.

You prevent churn by using all the insights you can get from data to make sure your product provides the value your customers are expecting.

To put it in a nutshell:

Set the right expectations, build a product that delivers and listen to your customers evolving needs.

That’s how you prevent churn.

Chapter 1:

What is churn and what are its major causes?

Let me kick things off with a short definition, just to make sure we are on the same page:

Churn refers to the number of people who abandon your app and never come back.

This ebook is about how to prevent that from happening for as many users as possible.

Now, there are various reasons for which churn happens, some of which may be intrinsic to the product, while others are extrinsic to the product.

When it comes to reasons intrinsic to the product, the number one issue that drives users away is a low customer satisfaction level.

The users satisfaction level is influenced by a user-friendly onboarding process, the price of the product, the value people see in it compared to what you initially promised them etc. If you miss this mark, there are high chances users will look for solutions elsewhere.

Another reason people may opt for a more high-end product might be that they’ve outgrown your solution.

The reasons that are extrinsic to the product are related to your competition or context; they are not related to your product. For instance: companies that go out of business, changes in customer’s behavior or needs or simply they might not need the product any longer.

Many times you can’t fight it, but depending on the nature of your product, there are cases when you can still earn some money from those who don’t need your product for a while.

We’ve seen this example with a great company called Woodpecker who uses a metric called soft churn. This metric refers to the people that don’t need the product anymore but have the option to pay a small fee to keep their data in case they need to return to it in the future.

Still, there is little you can do about the external causes of churn, so in this ebook I will focus mostly on what’s manageable: the internal sources of churn.

Your chance to reduce churn is to change what you can control.

In what follows, I will go through the main issues that cause churn, one at a time, and come up with real-life examples, strategies and data-driven approaches on how to prevent them.

Chapter 2:

Activity churn is more important than revenue churn

I know you can’t wait for the solutions, but let me make a quick note first: this ebook focuses on activity churn, rather than revenue churn.
Why? Because activity churn precedes the revenue churn and is a good indicator as to what is to happen.

For those of you who are not familiar with these concepts, here’s the difference between them:

Activity churn refers to the situation when your active users stop using your product, but they might still be paying for it for a while, until they make up their mind or remember to cancel their subscription.

Revenue churn is simply when people stop paying for your product altogether.

Sometimes activity churn happens at the same time with revenue churn. This means that users stop paying as soon as they stop using the product.

But most of the times they leave their subscription active for a couple of weeks or even months before deciding to cancel it.

This is where your opportunity for improvement lies: if you are paying attention to the activity churn, it is easier to bring back some of the users who are about to churn than if you are chasing after someone who has already given up your product.

Ideally you should gather as much info as possible about why customers stop using your product in order to know what you need to improve and have more chances to get them back.

Chapter 3:

The impact of activity churn on your business

When you think of churn think about it as a brake on your business.

To figure out how much it is slowing you down, you have to compare it with the acceleration (the acquisitions in your company). And Net Active Users is a metric that does just that. It shows you the growth of your company.

Net active users is defined as follows:

Net Active Users = New Users + Returning Users - Churned Users

Now, your business can grow only in 2 ways:
- either by accelerating ( boosting your acquisitions )
- or by taking your foot off the brake ( reducing churn )

And for a large percentage of companies it is very unlikely to be able to keep accelerating. I’m talking about the ones that have reached and passed the product market fit stage. Their best bet is to reduce churn.

Here is an example of a company with a good growth of net active users.

growth of net active users

Out of these numbers, the returning users and churned users are directly linked to retention.

If you gain a certain number of users per month and you lose the same amount of users, your business obviously stagnates.

But if you manage to optimize retention by 10%, the net active users report will tell you what impact this optimization will have for the future.

Chapter 4:

The main intrinsic reasons for churn

Optimizing retention and thus reducing churn is a step-by-step procedure. Any stage of the process can present its own problems and might drive customers away, starting from the promise you make to the potential users and the onboarding all the way to payment.

Here are the key issues that, in our experience, have a huge impact on churn:

Issue 1: Not targeting the right customers

In their effort to bring in more customers many marketing departments fall into a trap: eagerly promising more than the product can deliver (a.k.a. over-promising ). This may result in people not finding the value they are looking for in your product and churning.

Issue 2: A cumbersome onboarding process

The onboarding process is the process that people go through from signing up to getting the promise of your app. Any action that hinders or slows down this process will most likely drive people away.

Issue 3: First week retention and the moment retention stabilizes

It doesn’t matter how many signups you have for your business if you have only a few users that still benefit from your product one week later or if retention doesn’t stabilize.

Issue 4: Payment and business goals

The people who pay but don’t get to finish the onboarding process or don’t get to the wow moment of your product are the low hanging fruit you can start with in preventing churn.

Issue 5: User engagement

Prevent churn by analysing which categories of users are the most vulnerable, having very little engagement with your product.

It is far more difficult to take the bull by the horns and improve retention if you don’t know what caused the churn problem in the first place.

It all boils down to data analysis. You have to dig deeper and see if you are experiencing an onboarding problem, or if users have a hard time reaching the wow moment or the different goals etc.

Find the issue, fix it, and you will immediately notice a rise in retention.

So let’s get started with the main issues that cause churn and our suggestions for improvement. I’ll go through them one by one.

Chapter 5:

Problem: Not the right customers

While I've encountered many companies with very little churn, most of them are at a stage before product-market fit.

I’ve never encountered a company that has thousands of customers and doesn't have a churn problem.

Well, not until recently when I met Ivo Oltmans from Quaderno . If we can describe Quaderno's strategy to prevent churn in a single word, that would be: "Honesty!".

Solution: Don’t over-promise. Target the right customers for your product.

I fell in love, data-wise, with Ivo the very first minute of our chat. Here is what he shared with us:

"For us, at Quaderno, everything starts with making sure we bring the right customers to our product.

If our product does A, B and C and our competitor does X and Y, and if X and Y is important for a customer and we don't have any plans to offer that, we will refer the customer to the competitor.

You first need to define who your ideal customer is. Who is the right decision maker, who should be involved and especially what pain points they have that we address.

We are honest about everything and we don't over-promise just to get people starting to use our product. We try our best to set the right expectations to our customers and I believe this is the reason why we have so such a small churn.

In fact most of our churn is from customers that go out of business. It is not related to product usage.

By targeting only the right customers, you might miss out on a little bit of money on the short term but if you look at the bigger picture, the churn stays low. A customer that we told that our product is not the right option for them will be happy even if we didn't work with them. After all, we were honest with him and cared about his problem.

I always say that after you identify the ideal customer and you make sure you only onboard customers with that profile, if you still have churn, then you have an onboarding or product problem.

At Quaderno, 60% of our customers never interact with sales, they are on self service. We set the right expectations, they go and onboard themselves and set everything up. They know what they want and the product delivers."

Ivo Oltmans is responsible for business development at Quaderno

 

Companies like Quaderno get it right.

quanderno png

We like making things easier for businesses. That’s why we created Quaderno in the first place.
Quaderno manages your sales taxes for you, automatically. We handle thousands of receipts every month for businesses of all sizes, all around the world. We'll even send receipts in your customer’s own language. The point is to save you time and spare you trouble, but also to delight your customers.

Just think of it: for most companies sales and customer success are put in place to bring a higher quality of customers, those that stay longer and generate more revenue.

What if you could change that, and the most valuable customers that need your product the most onboard themselves without spending any of your human resources. Now that's profitable.

Here is what I learned from Quaderno:
● target the right customers and focus on long term relationships
● make sure the onboarding process is exactly what people with the biggest pain need and expect
● be valuable
● But most of all, I was reminded that being honest really pays of.

Do that, and churn prevention is not just a goal, but rather a way of doing business.

Chapter 6:

Problem: Churn is often an onboarding issue

You’d never think that the beginning of a user’s love story with your product might be the very cause for the break-up, but, believe it or not, the onboarding process is one major cause of churn.

churn page img plane entry

A part of the problem is that companies include all sign-ups in their churn reports, which leads to a catastrophic image with respect to their business, which is not realistic at all.

The second part of the problem is that sometimes the onboarding process is not clear enough and it really does drive customers away
instead of making it easy to go smoothly through it.

Here’s our solution for each of these problems:
1. Measure churn correctly: report churn only to onboarded users!
2. Optimize the onboarding process to better suit your users needs

So let’s get our feet wet.

1st solution: Measure churn correctly: report churn to onboarded users only!

Did you know that up to 60% of your new users interact with your app only once? Sometimes this percentage is even higher. These are all the users who create an account but never finish the on-boarding process.

60% new users

Losing many sign-ups right after creating an account is unfortunate. It is also inevitable.

However, including all the sign-ups in your churn reports is irrelevant to your business. Not only that, but if you include them in your reports, you will also have a fake perspective on your business growth.

Sign-ups just ruin your churn stats and give a false image of what’s happening.

If you insist on using the number of sign-ups in your churn reports, let me prove you wrong!

What we witnessed in most cases is that the onboarded users growth trend is stable even when the sign-ups trend fluctuates a lot. These stats can greatly influence your perception on the current status of your business.

Here’s a real-life example:

I’ve recently had the chance to work on retention campaigns for two very different companies:

● a medium-sized company with clients ranging from consumers to small companies, and

● a small B2B company whose clients were big companies.

Obviously, the number of sign-ups ranged from hundreds to tens of thousands per month.

The common denominator was this:

retention based on signups

Basically, they both registered a huge drop in retention after only a few weeks of product usage. Their analytics tools showed a retention of around 10%. This equals a staggering 90% churn rate!

Not surprisingly, both companies jumped to the conclusion that they were experiencing a huge churn problem which they had to address a.s.a.p.

Their first impulse was to set up campaigns to bring back the lost users.

When we came in to help them, we decided to change the angle at which we looked at things, and take into account only the onboarded users, as retention could be actually high for the onboarded users.

And here’s how their retention report for the onboarded users looked like:

retention based on onboarded users

As you can notice, the retention is 50% after one week and around 25% after a few weeks when taking into account the onboarded users, as opposed to the 10% when using the sign-ups in the formula.

For them, the conclusion became clear: to optimize retention they had to optimize the onboarding process , and get as many people as possible to finish the onboarding and experience the advantages of their products.

The optimization project revolves around finding out which are the steps at which users are getting stuck. You then have to identify which elements help users go past those blockers.

In the case of the companies I was talking about, all the efforts of the support team, live chat, email marketing and product focused on increasing the number of people who finished onboarding, and in the end it all paid off.

So remember, if you base your churn reports on the number of onboarded users rather than on sign-ups, your retention optimization campaigns will be clearer and easier to implement.

However, excluding the sign-ups from the churn reports does not mean that you’ve solved all your onboarding issues.

2nd solution: Optimize the onboarding process to better suit your users needs

If you want to prevent churn, the first major milestone you want to achieve is to make sure your onboarding process is explicit and well-defined , and you deliver on the promise you make to the clients with respect to the product.

On the contrary, if the onboarding process is cumbersome, many sign-ups will abandon the product way before finishing the onboarding and reaching the wow moment.

This shows the impact of onboarding on retention.

That’s why, most often, you fix churn by fixing onboarding.

I’ve recently interviewed Daniel Ndukwu from KyLeadswho knows this very well and managed to get amazing results in terms of reducing churn by optimizing the onboarding problem.

Daniel Ndukwu

Daniel Ndukwu is the founder and CEO of KyLeads, a Conversion rate optimization app that allows you to create pop ups and quizzes to capture more leads, segment your contacts, and increase your revenue. When he’s not working on KyLeads, you can find him travelling through
Africa and drinking a cold glass of Sancerre.

I asked him to share his setup with us. Here it is, in his own words:

"People usually churn because they don’t see the value you promised them upfront or because they’ve outgrown your solution.

What works great for us to keep a customer happy and reduce his churn risk is to optimize the onboarding process and to always keep a human touch.

When we talked to our first customers we realized that they were confused and overwhelmed as there were so many options to choose from in the app. We would often get emails asking us what the next steps
should be.

It got us thinking how we could simplify the onboarding process.

We focused on 2 directions:

● Helping customers reach certain milestones.
● Contacting customers when they lose interest

We set up 2 marketing automation campaigns focused on these
directions:

A. The first automation triggered notifications through Intercom ,
sending users emails every time they reached certain milestones,
congratulating them and encouraging them to log back into the app. For
instance:

 

mail 100

In our case, the result was that 60% of people logged back into the account right after or within 24 hours after receiving that message, checking and clicking around, setting up their first A/B tests etc.

Useless to say what a huge difference this made in their engagement level!

B. The second automation triggered notifications through Zapier , sending users personalised emails directly from my email address when they hadn’t logged in for a long time or when they weren’t achieving the results we believed they should have achieved by that time.

Here is a screenshot of one of the emails that went out:

 

email screenshot

The result was that 30% of users signed up for a call.

This method helped users with their questions, creating at the same time a bond with them through direct interaction. Remember - always keep the human touch!

Not only that, but it also gave us a lot of valuable insights into what clients were looking for."

The reasons for optimizing the onboarding process are clear. But how can you actually optimize the onboarding process?

Here at InnerTrends we use the following framework:

Step 1: How are people converting during the onboarding process?

Analyze the onboarding funnel and identify the step where you lose most users. Sounds simple, right? The tricky part is to make sure you have the funnel set right.

The onboarding funnel:

The first step: Created account

The middle steps: Mandatory actions that people need to take to get to the last step

The last step: The action that is most representative for the promise of your business

A lot of companies get this wrong and consider the onboarding process as the walk throughs or visual wizards that they use to help guide users.

A user finishing a guide is no guarantee that he will benefit from your business.

onboarding conversion rate step by step

Step 2: What are the actions that influence people to drop off?

This analysis is a bit more complex. It tells you what are the actions that are specific to people who finish the onboarding process compared to the ones that are specific to those who churn.

You’ll need to create an inventory of all the actions during the onboarding process for each user, sort users into 2 categories (finished onboarding and churned) and then look for differences.

Here is how the report looks like in InnerTrends:

users actions
users actions between steps

Step 3: How long does it take to Finish the onboarding process?

Two different numbers will answer this question:
● What is the average time for finishing the onboarding process?
   and
● What is the tipping point after which it’s very unlikely the user will finish this process?

We have an algorithm for this. If you are interested in it please send me an email.

This analysis should dictate the entire communication with the user during the onboarding process.

If the onboarding process only takes a few minutes, don’t design a campaign for optimizing the onboarding process that lasts for days or weeks.

If you are a B2B company with a complex onboarding process that lasts for a few weeks, don’t send all the emails that are part of your onboarding campaign in the first few days.

Step 4: How are emails and live chat influencing users to finish the onboarding process?

Companies can now easily find out how many users interact with them using certain channels (email, live chat or support) and how many users convert after this interaction.

But the true question is: how do these channels influence the user’s decision to onboard or not? In other words, how many users wouldn’t have converted if they hadn’t been approached through one of these channels?

Only by comparing these numbers can you figure out if these channels have a positive impact and to what extend. This way you can calculate much more accurately your investment in these channels.

For instance, a successful email is one for which the people that opened it converted much better than those that received it but didn’t open it. Here is an example:

opened mails conversion

So, what is there to do?

● First, identify every interaction that doesn’t have a positive impact.
● Second, optimize it till it does.

Chapter 7:

Problem: Plummeting retention curve

When analyzing the retention of your users you have to take into account two aspects:

● What is the retention after the first week ?
 Basically you need to know how many people finish the onboarding and come back to your app after one week.

● Which is the moment when retention stabilizes?
 Many times retention has high values after one week, but it gradually decreases as the time passes. It can drop dramatically in a matter of weeks until it stabilizes.

To improve retention you need to tackle each of these 2 periods accordingly. So then you will have two optimization projects to put in place: optimizing retention during the first week, and optimizing the moment of stabilization. Here’s how.

1st solution: Make sure you have a high retention during the first week

Aiming for a high retention rate during the first week is essential. The users’ experience with your product in the first few days after onboarding will have the highest impact on their future usage of it.

Also, it’s a no brainer that if you start up high you can afford to fall for a while, but if your retention is low from the beginning it will hardly pick up afterwards.

Think of the onboarding as a first date and of the first week retention as a possible second date. A good first date doesn’t always guarantee a second one. You don’t know who else is after your date, so playing the hard to get is not a good strategy.

Now is the time to brag about your product. Let customers know how much they could win by using your product. It’s the perfect time to send them success stories from your other customers and let them know how much others have benefited from your product.

The easiest thing you can do about this is to set a drip campaign for all the people who finished the onboarding process and tell them what others have succeeded when they were in their first week.

However, do keep in mind that if the first date didn’t go well, the second one has little chances of success. So, first focus on having an excellent onboarding process, and then turn your attention to improving the first week retention - or else there might be nothing to improve.

2nd solution: Stabilize retention as soon as possible after the first week

Ideally, you want the stabilization to happen immediately after the first week. This is what you should be aiming for and it is no impossible feat. In fact, we do have a client who’s retention stabilizes at around 45% after the first week.

In real life, we’ve seen that most SaaS products have a stable retention after 3-4 weeks. The moment of getting stable highly correlates with the moment of payment.

That’s why, it’s very easy to predict how many new customers a company gets only by looking at the retention curve and identifying the moment when it becomes stable.

We often use the following table to sketch a plan for making retention stable faster and at a higher level:

Activity profile of a successful customer in the first 2 weeks Activity profile of a customer that churned in less than 2 weeks
Key actions:
● Key action 1: X times
● Key action 2: X times
Key actions:
● Key action 1: X times
● Key action 2: X times
difference between users

Basically, it shows you that if users perform actions X, Y and / or Z, they have much more chances of coming back to your product than if they don’t. It pinpoints to the precise features and actions that are important for your users.

Take the case of one of our customers, a marketplace whose difference in activity between those who were coming back and those who weren’t was the number of messages sent between its members.

This was a feature which that platform never optimized since the launch of the product. And it was a shock for them to learn how this aspect impacted users.

Once you determine which are the differences in actions between the users who keep coming back to your app and those who churn you will be able to pinpoint with precision to the WOW moment of your product - the moment users realize how valuable your product is.

Align the goals of all your departments and make sure as many customers as possible reach the WOW moment, and have a smooth ride up to it.

Chapter 8:

Problem: People pay before getting value

If you are looking for a tactic that will help you get a quick but very valuable win in preventing users from churning look for the users who paid for your services but haven’t finished the onboarding process.

Why? Because they are the first to churn. Stats clearly show that these users don’t last more than 2 months, at best, on your site unless you intervene and onboard them.

The good thing is that they are your easiest target – simply because they are actively using your site, not to mention that they are paying customers. Paying I say! So no excuses if you lose them!

Solution: Target the people who paid but haven’t finished the onboarding

To make my point, here’s an example of a company who’s losing more than a third of its paying customers because they never make it through the onboarding process.

new aquisitions goal

That’s huge! And it’s not an uncommon situation!

These people represent a massive opportunity for your business, not only due to their sheer number, but also because they are genuinely interested in your app.

Most probably they got stuck somewhere on they way, so make sure you are targeting them first! Help them out with whatever questions they might have and show them the real value of your app.

By identifying their profile and context, you will know exactly how to approach them and thus prevent churn.

Chapter 9:

Problem: No-engagement and low-engagement users are very likely to churn.

Let’s tackle another major reason for churn, one that affects users that have been with your product for a while: people losing interest in your product.

Did you know that up to 80% of the people that churn are customers with low or no engagement?

Customer retention is closely linked to the engagement levels of your users, which, in turn, can be used to predict the churn risk.

Once you’ve determined your high-risk categories of users, you can set up automation campaigns to increase their engagement by making the most of your product.

In fact, what we suggest for the no- and low-engagement users is:

● Predict churn risk of users based on their engagement level
● Target users when the churn risk increases

Solution: Predict churn risk and target the vulnerable users

First, let me just say that there is a misconception among many companies I worked with, who believe that churn prediction and engagement scoring work only for large companies. In our experience, all companies, whatever the size, can benefit from these figures.

Understand how user engagement works and you will significantly reduce churn, and thus improve retention and increase revenue.

Basically, the rule is: When engagement goes UP churn goes DOWN.

So, if you learn how to increase engagement, your users’ churn risk will decrease.


How can you improve retention by using engagement scoring?

To make things easy, I’ve split this process into 4 steps, and I’ve taken into consideration a period of 30 days.

Step 1. First, you need to score your customers’ engagement.

The customer engagement score is used to rank all users and is calculated taking into account the following 3 ingredients:
● Frequency
● Recency
● Engagement Points

After you finish the ranking of your customers, you will have a clear perspective on the engagement level of your users which will look something like this:

ranking cutomers by engagement

Step 2.Now that you have this statistic, you have to define the 4 user engagement categories (high, medium, low and no-engagement users) .

Basically, you need to determine where one category starts and where it finishes. Your graph will look more or less like this:

defineing categories

To calculate the boundaries of these categories, the secret lies in starting from the engagement scores of customers who churned in a specific period of time. You have to determine the highest score of a person who churned.

user engagement overview

● No engagement users are those active users who had no engagement actions during the last 30 days, though they used your app.

● To find out who your low engagement users are, eliminate outliers from the churned users (the atypical users). Basically, all the people who have a similar score to those who churned in the past will be part of your low engagement users.

● After eliminating your low and no engagement users you are left with your high and medium engagement users.

● Repeat the same process. Eliminate the atypical users, and you will have your high engagement ones.

● And then you are left with the medium engagement users.

Step 3.Then, calculate the churn risk for each category.

To calculate the risk for each category, you need to:

● Select a period previous to 30 days ago
● Identify all the active customers from that period and the ones that churned.
● Identify the engagement category of each customer
● Calculate churn risk per category

For instance, to calculate the churn risk for high engagement customers use the following formula:

! Churn Risk = Active High Engagement Users
                      Churned high Engagement Users

Step 4. Decrease churn by targeting customers based on their engagement level changes.

The next step is to determine when users move from one category to another. And, believe me, they move a lot!

For instance for a company with 300 active users / month, about 10 of them will change category every day. For companies with thousands or tens of thousands of users, you can expect tens or even hundreds of users to change their engagement level every single day.

You definitely want to monitor the decreasing engagement scores, because someone who goes from high to medium and then to low engagement will have a very high churn risk. But, because they are still active, you can still interact with them, you don’t need to recover them after they left. The best thing to do is to find out the problem and fix it, and thus prevent them from leaving.

You can also watch a webinar I recently held on the topic. For the full webinar click here . Our thanks go to 2checkout for kindly hosting it.

So what can you do about your most vulnerable categories of users?

In our experience, there are 3 main categories of users who are very likely to churn. And here’s a quick recipe on how to keep each category interested in your product.

A. The customers who never reach Medium or High Engagement Levels on their own

Who are these customers?

These customers are very likely to churn in the near future.

They have finished the on-boarding process but never got to the WOW moment from your app.

In other words, they haven’t seen the full potential of your product and how it can help them.

How can you prevent them from churning?

You can set up educational automations to engage them.

For instance, send them 5 success stories from your existing customers, or some tips on how to set up their account.

Why? Because these people don’t find your tool critical to their business, so you need to show to them why your tool makes all the difference.

B. The customers who once had Medium or High Engagement levels, and have now dropped to Low or No Engagement levels

Who are these customers?

This segment is the most valuable one because these customers are the most likely to re-engage.

These are users that are slipping away little by little and probably even expect you to reach out to them.

How can you prevent them from churning?

Have your customer success team get in touch with them and re-engage them for the long term.

You can prioritize them according to the speed at which they are decreasing their engagement level.

C. The Medium or High Engagement customers who churn abruptly

Who are these customers?

 

This is the most painful segment of customers to lose.

These are users that one day are happy customers and the next day they leave your product, so it is very difficult to predict when they will leave.

A churn risk of over 1% from your high engagement customers can point to product or business issues.

This should be an alarm signal for your business.

 

How can you prevent them from churning?

Frequency is one feature that signals their decreasing interest in your app.

For instance, when a high engagement user decreases his frequency from 30 out of 30 days to 25 out of 30 days, he will enter the medium engagement category.

You should get an alert when this happens as soon as possible.

Many automation tools will notify you about the risk of losing a customer about 25-30 days after their last action, which might be too late. So 5 days is much better than 25.

Monitor your customers’ engagement levels on a daily basis.


If you find out that a user hasn’t used your product in a month, it often is way too late to do anything about it. So, the faster you notice customers changing behavior for the worse, the more chances you have of getting them back.

changes in customer behaviour

So, what is there to do?

● First, identify the minimum set of engagement actions that customers need to perform in order to increase their engagement level, and their frequency.

● Then, analyze customers’ behavior with the minimum score from each engagement category.

● What you need to do is get as many people as possible above that low threshold.

For instance, if users need to do 1 engagement action per day or per week, you will know how to set up your automation campaigns to decrease their churn risk.

Let me give you an example: one company we worked with discovered that it was enough for their customers to check their in-app inbox at least once every 2 weeks and when that happened their churn risk decreased considerably.

Take action when a customer changes engagement level for the worse.

To notice users’ changes in engagement levels it is essential to closely track their in-app activity.

Sync every update of a change in the customer’s engagement level with your automation service or CRM tool.

Target the people who decrease their engagement levels as soon as this happens. You can automate this process by creating rules and sending them personalized messages when necessary, like in the following example:

users mesage rules

Conclusion

When you manage to decrease churn even a little bit, you are triggering a big increase in customer lifetime value and profitability.

You can spend more on customer acquisition and your business growth will accelerate even more.

A decrease in churn means you have more satisfied customers, more organic growth through the word of mouth and higher customer engagement.

You decrease churn by avoiding it, not by changing the minds of people who have already decided to churn.

That’s why the tagline: You don’t stop churn, you prevent it.

Trying to change the mind of churning customers will only get you that far. It often means decreasing the price for them and, at best, you only get a small delay until they churn.

Preventing customers from even thinking of churning, making sure they understand how much they will lose if they stop using your product, making them truly satisfied - all these will have ripple effects on your growth.

I wish you zero churn!

“With InnerTrends, we have been able to quickly identify the steps in the onboarding flow with the highest optimization potential and we increased the onboarding rate to 65% in just two weeks.”

Bogdan Aron

Bogdan Aron,
Chief Product Officer @2performant

About the author

Claudiu Murariu

My name is Claudiu Murariu and I am the CEO of InnerTrends. It is my pleasure to share our framework for decreasing churn. If you have any questions, feedback or stories you’d like to share, let’s get in touch .

This eBook shares the knowledge and experience I’ve had at InnerTrends with tens of SaaS companies and subscription businesses in increasing customer engagement and decreasing churn. We've helped:

  • Companies with thousands of customers grow LTV by more than 60%.
  • Enterprises identify vulnerable customer groups.
  • Businesses automate churn prevention and identify product features that, once improved, made a huge difference in terms of retaining more customers.

On my quest to decreasing churn, I’ve also encountered other companies that do an amazing work when it comes to preventing churn. We invited them to share their strategies and stories in this eBook, so that you don't have to struggle with churn. Hope you found it useful!

Time to tame churn!

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