How Churn Destroys Businesses, and How to Stop It at Yours

Without knowing why your customers are churning, you'll have no way to create a strategy around retention

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By Thomas Smale

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If your business revolves around a subscription program or membership, then it's impossible to avoid churn. Customers will come and go, especially if you don't put effort into engaging them or adding value.

Related: 5 Tips for Quickly Reducing Customer Churn

Although this is a normal part of software as a service (SaaS) and online communities, if your churn rates continue to soar, you won't be able to sustain your business long term. So, what can you do to reduce churn rate?

How high is too high?

Referral SaaSquatch indicates that the ideal churn rate is 5 percent a year or less. If it's higher than 10 percent, you need to get to work on your customer experience to improve it.

Many marketers work hard to bring in new customers. While customer acquisition is a key part of the equation, if you're not putting effort into keeping your customers, you're leaving a lot of money on the table.

Customer retention should be a greater focus in your business, as it's generally easier, more affordable and profitable to keep existing users happy than it is to be constantly putting more time and resources into acquisition.

It's also important to take a close look at your acquisition channels. Channels aren't all created equal, so you must examine each to determine if customers coming from a specific channel have a higher churn rate than others. This will tell you whether it's worth reducing spend on that channel.

Is it worth reducing churn?

According to InsightSquared, reducing churn by 5 percent can increase profits by 25 to 125 percent. The company's research has also shown that 80 percent of an organization's future revenue will come from just 20 percent of your existing customers.

Churn isn't just a metric you should keep your eye on. The future of your business depends on understanding why your customers are thinking about leaving and knowing what you can do to better engage those who are ready to jump ship.

Related: How to Use Data to Stem the Tide of High Churn

Why do customers leave?

InsightSquared also found that 70 percent of customers it polled leave not because of the product but because of the poor quality of service they received. Further, 91 percent of unhappy customers will not do business with your company again.

Other common issues to address include lack of engagement or support, poor product-market fit or user experience and a "buggy" product. So, take a moment to identify what your weaknesses are. What's going wrong?

With these common problems in mind, you may need to collect and analyze your data to get a better sense of where you need to upgrade your product. Take advantage of a solution like Churnly to track engagement and identify any revenue that may be at risk.

Reducing churn by increasing engagement

Increasing engagement with your customers and educating them on how to make the most of their subscription is a great way to decrease churn. Give your users a reason to keep coming back to add your software to their daily routine.

One way you can achieve this is by creating helpful content such as how-to articles. Show your customers how they could be using your app. Highlight advanced features, out of-the-box ways some customers are using your software, ways to make the most of their subscription and so on.

Video tutorials are also growing in popularity and are quite effective to boot. The content you create can be shared on your blog or even via email. Regardless of how you distribute it, ensure that your customers know where they can find it.

In-app chat is also a great way to ensure your customers are getting the best customer experience possible. Give them the option of asking questions so they can receive answers tailored to their specific needs or problems. In general, offering great support can make a considerable difference to your churn rate.

Engagement is instrumental in influencing churn rates. Be sure to take advantage of as many channels as possible -- phone, email, website, social media and more.

Reducing churn by offering incentives

You've probably spent a lot of time getting to know your target customer. So, you should also have a good idea of the type of incentive they would find attractive. By rewarding certain behaviors, you can engage your users and retain them for longer.

Gusto, for instance, offers online payroll and HR services. It has a referral program that allows users to refer a friend to its app, and if that person signs up, the referrer receives 30 days for free.

There are other ideas you can experiment with, whether they be offering access to an exclusive online community, asking customers to become beta testers so they can test your latest product features or inviting customers to a closed Facebook group. Again, match the offer to the customer.

Incentives don't just help you keep your existing customers. They can be a great way to attract new customers at a reduced cost. After all, customer acquisition can be costly.

Reducing churn by helping your customer achieve their desired outcome.

You already know that 70 percent of customers leave because of poor customer experience. So, it's clear that most of your effort and resources should go toward ensuring that your customers get the most out of their membership.

Engagement is a great place to start. Offering incentives can help. But what has the potential to make the biggest difference is knowing what your customers are trying to achieve and helping them reach their desired outcome.

Related: How to Improve Your Subscription Business Churn Rate

So, survey and talk to your customers. Find out what they're trying to do. Create targeted content around how your app can help them get the outcome they're interested in getting.

Final thoughts

Without knowing why your customers are churning, you'll have no way to create a strategy around retention. Before you do anything else, identify the cause of churn. Once you're clear on that, take measured actions to improve their experience, whether that means creating content, fixing bugs or introducing a product that's a better market fit than what your customers already have.

Thomas Smale

Entrepreneur Leadership Network Contributor

Founder of FE International

Thomas Smale co-founded FE International in 2010. He has been interviewed on podcasts, blogs and also spoken at a number of industry events on online businesses, exit strategy and selling businesses.

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