Every SaaS business knows they have to care about Customer churn. In fact, churn is top-of-mind critical to most companies I speak with. Run a search for how to calculate churn, there are literally hundreds of articles from different talking-head professionals in the industry selling Customer Success management systems, Data Visualization tools, and Artificial Intelligence. The most common reasons listed to measure and prevent churn:
- Maintain growth rates (critical to scale)
- Improve CSAT or NPS
- Identify the health of your business
- Understand the needs of your customers
- Identify the strengths and weaknesses of your product
This doesn’t make it wrong, it’s just useful or unuseful in running your business
There are just as many formulas to calculate churn. You can find multiple articles titled “THE 4 ways to calculate churn,” but each is different. (see articles listed at the end) It’s important to understand, this doesn’t necessarily make them wrong; they are just useful or unuseful in helping you run your business. Below are the most common categories:
- User Churn
- Revenue Churn
- Account Churn
As a Customer Success leader and a member of the management team for your company, one of the main reasons you want a churn measure is to understand the most effective way to invest your capital. You need a REVENUE churn measure to identify an ROI for the investment in Customer Success. If you don’t believe me, try to get money for anything citing the above generic reasons to your CFO. If you don’t get cut short in the middle, then you might be working for the wrong company.
REVENUE churn identifies the ROI for Customer Success investment
An ROI is what will tell you if additional investment provides a better return with Customer Success, your current Sales and Marketing efforts, or the product team. They all have a “return” and the company should invest in the ones that maximize the return. I promise you, Sales and Marketing know the return for a dollar invested in their process. Without this information, many companies underinvest in Customer Success.
Documentation:
- Moment of churn definition
- Churn type definitions (in writing)
- At-risk type definitions (including recovery, also in writing)
Reporting:
- Revenue churn % applied to forecasted revenue (future cost of churn)
- Churn reasons (by account & Revenue)
- At-risk reasons (by account & Revenue)
- Recovered accounts
Without a revenue churn measure, most companies underinvest in Customer Success
If you are missing any of these or if they are outdated, you are doing a disservice to your company and customers. Would love to hear your feedback in the comments and am happy to answer any questions you might have.
