Software Growth

Customer churn

Customer churn is when a paying customer cancels or stops renewing. It is voluntary when they choose to leave and involuntary when a payment fails.

Customer churn is the event of a customer leaving. Churn rate is the measurement of how often it happens. This page covers the why and the what to do about it, and leaves the arithmetic to churn rate.

Voluntary and involuntary churn

Voluntary churn is a decision: the customer cancels, or turns off auto-renew. Involuntary churn is an accident: the card expired, the bank declined, funds were short. Stripe says 25% of lapsed subscriptions come purely from payment failures, and Paddle puts failed payments at as much as 40% of some companies' churn. These are numbers from the payment providers, so treat them as a range, but the point holds: before you rewrite your product, check how many of your cancellations were never a choice. See involuntary churn and dunning.

Why customers leave

The reason a customer gives is rarely the whole story. "Too expensive" often means they never saw enough value to justify the price. Common underlying causes:

  • They never got set up or reached the first useful result, so they never formed a habit. Fix this with better onboarding.
  • The job they hired you for ended, such as a project finishing or a seasonal business going quiet.
  • A better alternative appeared, or they built a workaround.
  • The person who championed the product left the company.
  • Price, in the narrow case where your plan does not match their usage.

How to reduce it

Work in this order, because the early fixes are cheaper.

  1. Recover failed payments. Retries, card updater tools and a short email sequence recover revenue that was never really lost on purpose.
  2. Ask at the exit. A cancellation flow with one required reason question gives you a tagged list of why people leave.
  3. Fix early churn. Look at customers who left in their first 90 days. Their cause is almost always activation, not features.
  4. Watch for warning signs. A health score or simple usage alerts let you reach out before someone cancels.
  5. Win some back. A light win-back campaign at 30 to 90 days costs almost nothing.

Small team angle

If you have 200 customers, read every cancellation. One sentence per customer in a spreadsheet, tagged by cause, is more useful than any dashboard. After 20 or 30 rows the top two causes are usually obvious. Annual plans also help, since they move the cancellation decision from twelve chances a year to one, though they delay the signal about what is wrong.

Related terms

Sources

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