It’s a rough market out there. In 2023 alone, 3,200 startups shut down operations because they weren’t able to generate enough revenue to stay afloat. That’s why so many teams focus on minimizing their revenue churn as much as possible.
But what if I told you there’s a silver lining to churn?
Before I tell you what I mean, let’s first talk a little bit about what exactly revenue churn is.
It’s the percentage of your monthly recurring revenue (MRR) that you lose due to customer cancellations, customers choosing not to renew, or downgrades to accounts over a certain period of time. Because of SaaS’s heavy reliance on recurring subscription models, this is something that software companies have to really be on the lookout for.
When we talk about churn, you may have also heard customer churn. Even though both of these metrics are measuring lost business, they’re measuring it in different ways. As the name implies, customer churn is the percentage of customers who stop working with you, while revenue churn is the percentage of money you lost during a certain time. Looking at revenue can help you pinpoint the impact of the loss better in some scenarios and give you better insight into how you should prioritize future actions.
The impact of revenue churn
There’s a clear direct financial impact of loss. It’s estimated that companies in the United States lose $35.3 billion each year because of churn.
This impact can compound over time, too, if not kept in check.
Let’s say a company has an annual churn rate of 15%. That means just to maintain their revenue, they’d need to grow 15% each year. If they want to actually grow, they’d have to first surpass that 15% increase in revenue.
There are other less direct impacts that can be caused by the domino effect of revenue churn. It can decrease your average lifetime value and, if it gets out of hand, even negatively impact the market’s perception of you, risking relationships with partners, potential customers and investors.
And that’s not even to mention the impact on team morale. It doesn’t feel good to lose customers.
So like we said in the title, revenue churn sucks. But as promised, there is some opportunity for good here.
From churning to learning
You know how they say that failure isn’t always bad and that learning that something doesn’t work is a win in itself? Revenue churn is similar to that.
If you take the time to understand what’s at the root of your revenue churn, you can use that insight to continuously improve and hopefully shrink your revenue churn in the long run. You may lose a few customers now, but as you scale the improvement you make now should compound over time.
To get analytical about what’s driving your churn, you need to dig into all of the data you have on the customers who churned. At a high level, this includes parsing out churned customers by demographics, behavior, or usage patterns.
There are a few ways to get to this data.
Methods to identify root causes
One of the easiest ways to understand what’s causing users to churn is by implementing exit surveys. This self-reported data helps you hear, in their own words, what went wrong. You can bake this into your system so that as soon as they cancel, they’re automatically prompted with a few questions.
And often, if someone is going out of their way to cancel, they’re likely willing to share their opinions, especially if it’s negative. For example, you may find that someone decides not to renew because of their negative experiences with customer support. Or perhaps it’s because you don’t have a feature that’s essential to them.
Self-reported data can have its limitations, though, so we’d always recommend pulling engagement data, too.
There are several ways to do this. You can use a customer insights platform like Amplitude to segment churned customers and understand their behavior across the entire journey. Or you can use tools like Hotjar to identify points of friction or confusion by seeing where the people who churned typically drop off.
Thanks to conversational AI, you don’t have to wait until an exit survey to collect anecdotal information from your users. If you’ve implemented AI support agents, like Copilot, you can analyze the full chat history to trends among churned users.
You can also use this behavioral data to look at segments of your customers that lead to very low revenue churn. When you’re able to identify both your strong points and your weak points, you have a really clear road map to success.
Taking action
Once you pull all of this data on the driving forces behind your revenue churn, you should hopefully notice some clear trends. Perhaps it’s service-driven, or maybe it’s product-driven. In some cases, it’s a mismatch between the product and the audience.
Let’s look at some common course corrections that SaaS teams make after analyzing their revenue churn.
Adding a new feature
You may find that you’re not able to effectively compete with other competitors because they have a feature that you don’t have, and this feature is stealing a lot of your users.
Or maybe no one else is doing this yet, and your customers are frustrated that they can’t find a solution anywhere. This is a great chance to add this new feature to your roadmap.
Enhancing a current product/feature
Once you dig into the details, maybe you find out that many people who originally signed up to primarily use one feature as the ones who churn most often. From there, you can use support tickets, chat history from your conversational AI tools, or engagement metrics to figure out what went wrong and make a plan to deliver a better experience with this product or feature.
Expanding your integrations
94% of SaaS leaders stress the importance of integrating with other systems in closing a new with a new customer. Issues with integrations can continue to be a problem post-sale, too.
If you find that many people who churn express the need for an integration with another software tool, it may be time to look into getting the integration active.
There are thousands of tools out there, so it can be difficult to know which integrations to invest time into, but revenue churn can make that decision a lot easier.
Working across the organization
Let’s say that you find out that no matter what their level of engagement is or how positive their interactions with the support team are, there are certain segments of customers that just seem to churn way more than others. And maybe there are other segments that have extremely low churn across all levels of engagement. This points to the extent to which your product naturally fits the needs and priorities of these segments.
This could be an opportunity to get other teams, like your sales and marketing departments, involved to talk about the markets you’re targeting. Bringing this to your go-to-market team can help them continue to fine-tune their targeting and reach-out strategy.
Get proactive
No matter how great your product is, it’s often at the mercy of the operations you have in place to support it. So sometimes the best action to take in response to the insights you got from your revenue churn is to provide more proactive support.
You know what’s going wrong, which means you can prevent it from happening in the future.
There are a few approaches you can take:
- Improve your onboarding experience to help get users up to speed in your platform quicker and more effectively.
- Train your customer support team to anticipate and prevent common issues that lead to churn
- Automate your support by implementing AI assistance tools, product tours, and helpful pop-up hints to get your users more engaged in key points of the process.
Turn the negative into a positive
Does revenue churn suck? Yes. But if you lean into the data that’s backing it up, you can use it as a strategic tool to continuously build a product that generates satisfaction and long term loyalty.
