What is customer churn analysis?

Establishing and maintaining a loyal customer base is essential to the success of any business.

While the daily operation of an organization falls under the remit of multiple teams and not exclusively with product marketing, the PMMs play a significant role in enhancing customer satisfaction and boosting retention rates. The implementation of customer churn analysis plays an unequivocal role in preventing valuable customers from seeking a solution elsewhere and prolonging the relationship.

In this article, we’ll cover many important topics around this concept. These are:

What is churn analysis?

This is the process of calculating the rate at which customers leave a business, and is critical for saving your customer retention rates. This data can be used to identify why your customers are leaving, and to develop strategies to reactivate customers, or to reduce it altogether.

Aggelos Mouzakitis, CEO & Growth Product Manager at Growth Sandwich joined us as a guest on the Product Marketing Insider podcast about his experience and expertise with customer churn. Here’s what he had to say.

What drives customer churn?

“In my view, there’s only one driver of attrition rates. I know it might sound very theoretical but I wish people would deeply empathize with this one reason.

“It’s a very, very nasty thing. And the one reason that causes it’s that expectations aren’t met the way that our users want them. Or, another way or solution meets their expectations more, or better.

“As product marketers, we tend to focus a lot on fancy metrics, buzzwords and complicated concepts. But, at the end of the day, when a customer cancels his or her subscription, there’s only one reason: there’s an expectation that’s not being met.”

How to spot signs of upcoming churn

In an ideal world, your customers’ loyalty will remain intact, but customer attrition is part and parcel of working life - it’s impossible to please everyone.

However, that doesn’t mean you can’t remain vigilant and keep your eyes open for potential signs that a customer could be set to leave. You also need to do your utmost to understand your customer base and earmark what influences their buying habits, as explained by Aggelos:

“When it comes to the customer’s expectations, it might seem like an obvious thing to discuss. Expectations aren’t met, so people leave. But it's not always an obvious thing.

“When customers knock on my door and tell me, ‘We have a retention problem’, what they don't realize is that churn, low marketing performance, or other fundamental problems, aren’t really the problems. They're the symptoms. It’s the reflection of the real problem.

“When you see people canceling, this isn’t the actual problem. This is the way that the problem is actually reflected towards your numbers. So, you need to deeply understand why people do what they do, fix the thing that causes the problems, and then go back and check churn.”

Customer churn signals

These signals are indicators that your customer is going to leave your business. This could be seen through a drop in overall user activity, a decrease in feature or service subscriptions, or low customer satisfaction.

Negative feedback

“There are a couple of things that you can monitor in order to understand that there’ll be churn.

“Negative feedback is a vanity metric. A customer that gives you negative feedback doesn't necessarily plan to leave. For example, Ryanair has been voted the worst airline in the last seven consecutive years but everybody's still using it. This highlights that negative feedback doesn't always correlate with customers leaving.”

While Aggelos makes a valid point, it’s still good practice to develop a customer feedback strategy to address and resolve problems faced by customers that are on the cusp of leaving your business. Here’s a simple strategy that you can follow to avoid customer attrition:

Identify which customers would have the most effect on your business if they left.
Use personalization tactics to reassure your customers that you care about their service to prevent them from leaving.
Ask your customers questions through surveys, polls, or interviews focusing on what issues they have with your product, what they would like changed, and what would persuade them to stay.
Listen to the complaint properly and acknowledge it as a serious problem for your product or service.
Where appropriate, change, refine, and improve your product based on this feedback.

Lawrence Chapman, Product Marketing Alliance’s copywriter, dives deeper into how to use customer feedback and win-loss interviews to improve your product in his article👇

Customer support tickets

Customer support tickets are a term used to describe the interaction between the customer and service representative. They are typically used to resolve problems with the service or product to improve the user experience.

However, as Aggelos explained, customer support tickets shouldn’t necessarily be viewed as an indicator that your customers are preparing to seek pastures new:

“Customer support tickets don't necessarily mean your customer is going to leave. But churning the activity definitely means that something’s wrong, and you need to do something. The reason I'm saying that is because it's quite easy for us to be swamped among all these metrics and numbers.”

Develop a support ticket system that allows you to maintain a list of all common problems your customers may be experiencing with your service. You can then use this to implement a plan to improve the product and business. And, importantly, contact potential ex-customers about remaining a part of your company.

You can create a system by using support ticketing tools to manage, organize and easily locate the conversations you have with your customers.

Here are some of the most popular tools to use:

HubSpot Ticketing Software
HappyFox
AzureDesk
Zoho Helpdesk Ticketing System

While Aggelos explains that both feedback and customer support tickets are helpful signs to identify and work on in order to avoid customer attrition, he argues that they aren’t the most effective.

In the podcast, he goes into further detail regarding activity churn, how this is the most important sign that a customer may leave your company, and how to avoid this.

Activity churn

This is when a customer stops using a product but forgets to unsubscribe from the content. They couldn’t use the product for months and then notice that money’s still being taken from their account, so then they decide to unsubscribe.

Aggelos goes on to explain things you can do to avoid customer attrition, especially in terms of activity churn.

Monitor your product analytics

“The time that the customer decided to leave can actually be spotted within our product analytics because this customer started declining activity, increasing tickets, and showing signals that something is going wrong. This is, in my opinion, the best thing that we can monitor to prevent this from happening.

“When churn happens, a signal should be implemented that’ll reach out to our customer success team to proactively to see if something’s wrong, get the feedback, perhaps pass the feedback to the product team. This is one of the easiest and fastest things that we can do.

“And in my experience, prevention can actually save almost 30 to 40% of the churn that you actually have. So we have one first layer which is prevention that can work if you just monitor activity churn.”

How to reactivate a churned customer

“I'm going to share with you two things that you can do to reactivate a churned customer. One’s quantitative, and the other’s qualitative. The reason I’ll pair the quantitative with the qualitative is that one goes hand in hand with the other, your qualitative data needs to validate and be validated by your quantitative data.

“When it comes to customer attrition, these are the data that you get from your cancellation service. And then the qualitative part is the data that you get from your user interviews.

“So, there are two things that you can do to collect the data that’ll help you improve the situation when it comes to churn, and even perhaps, re-engage some of these customers.”

Have a good cancellation survey

“The first thing that you can do is have a very good cancellation survey.

“Of course, you might think this is obvious, but what's not obvious is how this needs to be done. Let me give you a very quick example of a cancellation survey that I was working on with a client, that seems to be right, but in reality, was wrong:

“We were asking customers: ‘what’s the solution that they’re going to switch after us?’ And we’d give them a couple of options. We’d give them this tool, another tool, some other tools, and they’d pick. After 5000 cancellations, we had some data of where our customers were going.

“The problem is we already knew where our customers were going. We knew our biggest competitors. What we didn't know is what each of these competitors represented in the mind of our customers who have left every time.

“That was the critical thing, the reason behind the switch. That's a little small tip on how you need to build a ‘job to be done’ driven cancellation survey to actually give you an insight. Now, first thing, as I said, we have a cancellation experience. Part of that definitely needs to be a cancellation survey.”

Carry out user interviews

“After the cancellation survey, though, we need to recruit a sample of these people for user interviews. Now, there’s a specific process that you need to follow for that.

“First, let's agree on something - you need to pay for it. It's not free. These people aren’t happy with you. They just decided to stop giving you their money so you need to give them something and that something is money. I definitely promote giving them money, not kind gestures, it’ll slow you down, just give them money, do your interviews, and move forward.

“In my opinion, the best incentive that you can give is Amazon vouchers because it's easy. You don't have geographic barriers, you don't have any other costs, you just put the money into Amazon and give a gift card- and everybody has Amazon. So, you recruit these people for interviews, you do a very good interview, you ask the right things.

“But most importantly, you are trying to understand:

What are the expectations that aren’t met?
What were they planning to do with your solution?
What was the outcome that they were expecting to have?
What were the expectations that weren’t met?
What dissatisfied them?
What are they going to switch to now? And why?

“All of these questions that we're discussing at the moment need to be paired with ‘why’. The interviews will give you the depth of understanding and the analysis and the cancellation surveys will give you scale. You need both.

“These are the two tactics that I can share with you as a product researcher, I'm sure there are more. But I'm speaking from the perspective of the researcher.”

How to apply customer churn strategies to your own business

Within product marketing, it’s critical to develop strategies that’ll help to improve customer retention. Aggelos delves deeper into some strategies you can use to do this:

“This is actually a very interesting story, one of the most exciting cases that I’ve worked on in my career. It's a video conferencing solution, one of the very popular ones but not the most popular one that everybody can imagine at the moment, as we speak.

“The solution that I worked with (which I obviously cannot name) is advocating for simplicity. That's their differentiation point. During the pandemic, they asked me for help because their attrition rate was high.

“But it’s important to mention that, first, it was the pandemic, everybody was in lockdown. And it wasn't only their churn that was high but it was also their growth rate. It seemed like lots of people were coming in and lots of people were coming out. We had to figure out: what is causing this phenomenon?”

Implement customer research

“I started working with this team and I realized by doing interviews and by tweaking their cancellation survey, and by tweaking their whole cancellation experience, that their churn was plasmatic. It seemed that a lot of people were leaving but the people that were leaving weren’t the people that we wanted in.

“In fact, it was the exact opposite. We had a lot of plasmatic growth, lots of people were coming in because they were looking for a solution. But, they weren’t happy with a solution because they didn't have the right expectations, and they were leaving.

“Some of them were looking for a simple solution to start familiarising themselves and when they were sophisticated enough, they were leaving. Some other people thought that they’ll find a very good solution, an easy solution but then they realized that the biggest video conferencing tool at the moment was widely accepted by all parties.

“So when it comes to external calls with senior people or with clients, it's actually better to use a solution that everybody accepts as the dominant. So we had a lot of users that were coming with superficial incentives to use the solution or with the wrong incentives to use the solution.”

Improve and refine your research results

“So here's the exciting part. The problem was actually a product positioning problem. As soon as the company started tweaking and making their positioning more specific, more surgically accurate towards what they are, who they want to be, and how they want to differentiate themselves within the market, the churn rates started declining.

“That's the beauty of research. And that's what I meant at the beginning when I told you that churn at the end of the day is the expectations not being met. I know it sounded kinda obvious but it’s actually a symptom of a bigger problem. It means that we’re driving people in, and then they don't find what they want, and they leave. Is the problem always our product?

“It might be the expectations that we create, it might be the promises that we give through our ads, through our positioning, it might be the value and the way that we are delivering it through our features. In the long term, it might be a lot of things, it might be the timing.”

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Drive in the right target audience

“Some users might use us for a little bit, just because they want to do something and then they just switch us off. It’s our responsibility to drive the right people that have the right expectations so that we don’t give an extra reason to people to leave after a few months.

“This case was actually one of the most interesting ones because we figured out as well that the customers that wanted to have external calls with clients and important people wouldn't use us.

“They’d use other solutions that were more stable, performance-wise, but also more accepted as I said. Our solution, being the simplest one, was widely used by teams to have internal calls. We also discovered some very cool use cases such as pair coding which gave us new ideal customer profiles to focus on.”

Improve your competitive intelligence research

“The most important thing, we realized, was that the biggest competitor was the most vulnerable one. Before the competitive intelligence research, we thought that it was the one for us to fear, but it was exactly the opposite, it was the most vulnerable one, everybody was complaining.

“So that incentivized the most expensive and biggest evidence-driven marketing campaign for that tool, attacking- almost directly- its biggest competitor. Research has really helped the company to increase retention by creating the right expectations and trying to drive the right people.

“Finally, research helped this team question itself, ‘Where’s it going in the future? What’s their future in the next five years? What do they want to be? Do they want to be a mass solution that goes head to head with the biggest ones? Or do they want to be a differentiated solution?’.

“These are very strategic questions that if a founder or a founding team don’t answer, they might die. If we decide that we’re a must solution, we need to build more. If we’re a differentiated solution, we need to build differently. So it might sound, again, like a big question, but it comes down to who we are, what we build, what we say about ourselves, and what expectations we should create.

“It's all about go-to-market. So see, we started this conversation about churn, why did they have it and how did I help them reduce it? It wasn’t churn, that was just a symptom.”

How to improve customer retention

“If you really want to boost customer retention, in my view, you need to have waves of customer churn deflection and customer saving. The waves need to go from the simplest and most automatic to the hardest and most manual.”

Activity churn signals

A decrease in user activity is one of the largest telltale signs that a customer will churn. But, once they notice account activity (i.e. money coming out of their account) it could go one of two ways. A) They’ll remember your product exists and continue using it or B) They’ll realize they forgot to unsubscribe from your content and do it as soon as you remind them.

So, “you need to set signals whenever something happens so that your customer success will actually proactively do stuff. That’ll save some amount of churn”.

Deflection and offers

Introduce deflection and offers into your customer retention model in order to save the relationship. For example, discounts to new features and services can deflect from something a customer might find dissatisfying about your product, and make them feel like they are getting a very good deal for your product and continue using it.

Aggelos agrees, explaining,

“You need to have a very nice cancellation experience that tries to deflect another part of the churn, deflecting it by giving offers, by reminding our value, by making users remember why they loved us in the first place.”

Surveys

Using surveys is a good tactic for identifying where you can improve your product or service for current and future customers. This could easily improve customer satisfaction and retention because you’re then getting ahead of any other similar complaints from other people.

“If we haven't managed to save them so far, we need to ask them why? Based on this feedback, we can go back and improve ourselves.”

Interviews

This is similar to using surveys as a customer retention method because you’re then using current customer feedback to improve future user experience and make the overall product experience a lot better. But interviews also have the added advantage of personally communicating with the customer who is threatening to leave. You can then use this opportunity to persuade them to stay, perhaps with deflection or offers to show them you are actively trying to improve their customer experience.

“We need to go in-depth towards our problem, and do some interviews and inform our product roadmap with the insight that these interviews have given us. But if we want to go to a very high level on what product marketers need to do, I'm a researcher, so I cannot advocate for something else.”

“Do your research, eat your veggies, understand your users, deeply empathize with their problems.

“And one last thing, don't ask them what you have to build, just focus on what their problems are. You are the people that’ll decide what needs to be built, you and the product managers.

“Users aren’t the right people to tell us what we need to build. They’re great at telling us what their problems are. So we need to hear them. We need to speak with them, and dedicate at least X amount of time per week to do that job, to do research.”

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