Reduce churn rate and estimate revenue impact using behavioral analytics solutions

We know all companies are looking for that magic bullet, a single change they can make that will crush churn and make all their new customers stay connected and happy with their service. But is there a trick, a certain tactic we can use? Unfortunately, from our experience, we can tell you that it does not exist! Instead, everything requires a lot of work and a lot of data to find the right solution.

Specialists say that reducing the churn rate of customers must be a priority if we want to benefit from stable and positive revenues. Research from Bain & Company found that a 5% increase in retention can increase your profits by 25 to 95%. A good place to start? Knowing that different churn reduction tactics work best at different stages of the customer journey. But to find out this, we will need to know the behavior of our customers as well as possible, and also, we have to conduct actionable research.

Data has always been a SaaS superpower. By conducting behavioral analysis, companies will have access to valuable information about what the users like and don’t like on your site, service or app if there is a blockage somewhere, and how they can make the appropriate adjustments to make their products more valuable. Throughout our experience, we have noticed that many teams make the mistake of waiting until the actual moment of attrition to deal with their churn problem instead of recognizing that the most effective churn reduction strategies are proactive. Retention efforts should begin at the moment of customer acquisition, not when customer satisfaction begins to wane. 

In this article, we’ll walk through a few strategies for reducing churn rate, and we will learn how we can use customer behavioral analysis to estimate better revenue.

Start by understanding the stages of retention

In his 2015 presentation at SaaSFest, Dan Wolchonok, Head of Product and Analytics at Reforge, spoke about the three different stages of retention:

Early-stage retention: week 1 is the first retention test that your business needs to pass. The benchmark here is: “Can you get your users to use your product more than once?”

Mid-term retention: in weeks 2 – 4, the next benchmark is: “Can you establish any pattern of usage?” This is the area where you want to create habits with your users. If they have a problem or need, your product should be the solution that serves as their “go-to.”

Long-term retention: in week 5, you need to realize: “How does your product become an indispensable tool?” In other words, how do you get users to become so hooked on your offering that it’s a part of their daily routine?

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Most companies put more effort into improving long-term retention, so Dan explained that the more you can engage users on their first visit or through the first week, the more likely they’ll stick around on a long-term basis. However, he also described how improvements in the later stages tend to slow down the retention curve. So, this is our advice: if you have many recently acquired customers, it might be worth starting with a good strategy from the top of the funnel first before improving longer-term retention.

How to identify churn rate?

First, it is essential to know the difference between user churn and revenue churn. Therefore, user churn is the number of customers you’re losing in a given timeframe (typically per month or year).  But there’s also revenue churn, which is arguably even more important. Revenue churn is the amount of revenue you’re losing in a given time frame due to downgrades or cancellations. So, as you can see, these two concepts are similar, but they aren’t the same.

The first step in identifying customer churn is determining what churn means for your company. Depending on your business model, churn might mean that customers cancel a subscription, uninstall your app, or don’t return to purchase your product after a certain time.  ​​For example, Geoff, one of our customers, measures the churn rate based on a  subscription/membership length.  Below we will present the steps you should follow in identifying and optimizing customer churn rate.

Collect user information – you have to pull users’ data from in-house touchpoints like websites, applications, forums, chats, and customer support calls. Whatever indications you consider, you need to amass customer’s behavioral data to train a Machine Learning model, which could predict potential Churn Rate based on the historical patterns.

Calculate your churn rate = #of customers lost in a period/#of customers at the beginning. More plainly put, say you’re calculating user churn for May at Algotech. We had 200 customers at the beginning of May and 6 canceled during the month. You’d say: [(6 customers / 200 customers) * 100 = 3% user churn].

Build an analytics team – after obtaining users’ data, you need to build a data analytics team to leverage the information and gain insights. Such monitoring empowers the customer support team to serve unhappy customers by resolving issues in real-time.

Ways to reduce early-stage churn:

Know why customers cancel. As the saying goes, it is necessary to identify the root cause before treating an illness. So what exactly do you need to do? Simply asking customers why they have given up your services should provide some good insights. From our clients’ experience, we can tell you that they generally resort to the following five simple ways to find out: they send customers an exit survey, contact customers on the phone, send personalized emails, and create feedback bars on social media platforms. So, find out as much information as you can about why they’re unhappy, and be prepared to counter their objections with a tailored offer.

Know your strengths and weaknesses. You need to know what customers perceive as your strengths and weaknesses to work on the weaknesses and emphasize your strengths. So, listen to your customers’ complaints and feedback. In this way, your relationship with them will become more personal. Also, this will help to unmask the more significant imperfections your team and services might have. However, if you don’t work on these deficiencies or fix new ones that suddenly emerge, you might run into big problems

Let’s take an example in which a company did not remedy its weaknesses and cost it. Remember the days when Windows computers dominated the market? However, there were many problems, such as Blue Screens of Death, spyware, malware, viruses, freezing, and general instability. Today things are completely different. The Mac came with a much better version, which resolved many of users’ grievances. So, if Microsoft could have been more proactive in fixing Windows problems, it would have been more to gain.

Create a user engagement plan. Analyze and discuss what they like or dislike doing your customers first, and then start working on an easy-to-follow engagement plan that shows them how to achieve their goals quickly with the help of your services. But if that’s not enough, you can re-evaluate your onboarding process.

It would be best to keep in mind that customer interest may decrease during their journey, so it’s crucial to provide an optimal user experience from the first visit. You can learn more here about how to create a personalized journey for clients, but the following best practices will help you get started:

• Keep product tours simple—don’t overwhelm users with unnecessary details before they’re ready
• Use tooltips and a chat live to guide users towards key actions within your app
• Use WOW and AHA effects in your user onboarding experience
• Optimize your customer journey using A / B testing. Based on it, you can make relevant UX decisions to improve conversion and customer integration rates.

Ways to reduce mid-term churn:

Test different strategies and decide whether or not it adds value to your services or whether your customers like them. For example, create blog posts, social media content, marketing campaigns, and make new changes on your website. But, finding the suitable types of content to use takes some experimentation. We know many of our clients ‘teams who have performed many growth experiments before reducing their customer churn rate.

Also, your goal in this step should be to educate your customers to navigate through your services with the most incredible ease and have hassle-free access to customer support. So, from the day of sign-up, focus on continuously educating and interacting with your customers. Here are a few things you should do: help your customers understand each benefit and feature of your product easily; provide educational materials such as FAQs, videos, tutorials, tours and make sure that your customer support links are easily accessible to users.

People like to be a part of something. So creating a community around your products and services will help customers feel that they are part of your brand and decrease the risk of occurrence. For example, invite them to participate in surveys, contribute to social media posts, or invite them to meetings to share their thoughts and experiences. At Algotech, we usually create weekly quizzes on Instagram / Facebook stories. We ask our followers various things from the programming field and learn new things about them.

But wait, that’s not all, zoom on all the issues that are coming up, and offer to resolve these problems as quickly as you can. The best way to identify high-risk customers is to look for those complaining about something and didn’t receive a satisfactory resolution, or those whom you have not reached out to in a long time. Our advice here is to pay attention to the degree of user involvement, such as less frequent website visits than before. For example, they may use the service daily to weekly, and then monthly. One solution would be to create a database with those who express their intention to give up your benefits. Then send them an email to identify the problem and offer your help.

Show customers that you are present and haven’t forgotten about them. The quality of the interactions with your customer base is also crucial for establishing a serious relationship built on trust that keeps the churn rate low. Increase communication with users! In addition to sending classic automated marketing emails to users, companies should be encouraged to send more user-friendly content. For example, it would be lovely to share “professional advice” or a story/event from within the team.

Just think a little! When someone does something above and beyond our expectations, we leave delighted and excited about telling others. This can be as simple to apply in companies as remembering a customer’s name or conveying good thoughts on their birthday. But, that’s not all…make sure you have qualified people on your team. Friendly, efficient, and personalized service should be a standard.

Ways to reduce long-term customer churn:

Evaluate how your competitors work. If your competitors perform better than you in many aspects, there’s a danger of your customers leaving. Start with founding date, revenue, funding, employee count, account growth, etc. This information is available on LinkedIn, Website, Facebook, and Instagram. Also, to attract and retain customers, evaluate what makes you unique and expand on that attribute.

You can perform a SWOT analysis to make the most of your organization’s advantage. It won’t take much time, and doing it forces you to think about your business in a whole new way. Furthermore, you can reduce your chances of failure by understanding what you are missing and eliminating hazards that would otherwise catch you unawares.

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Thank your customers and maintain personal relationships with them. Building customer relationships is something every company must do to succeed. After all, without customer relationships, there are no sales; without sales, there is no business. Start thanking customers for their continued trust and support. For example, you can post on your social media pages to show your gratitude. Maybe you could publish valuable feedback that they provided on your blog or reviews left on the Clutch.co.

You can take it a step further by sending a thank you note, or a special reward for every nice word they said about your product or services. And when the marketplace is so crowded, this is the part that truly makes that difference. Thanking customers can make them feel seen, heard, and valued. So, when you appreciate these people from the first day, you build positive momentum to carry you and them forward.

But there’s a catch; many companies thank their customers as a group! So don’t miss this chance and write a personal and friendly message to win that person’s loyalty for the future.

Drive business impact with customer behavior data & analytics

A customer behavior analysis thoroughly investigates how customers engage with your company. Building a data-driven culture is critical since working with data and pulling real insight from marketing and product analytics is now table stakes for success in most industries. The best part? The analytical results can reveal new patterns and insights you never knew existed. There’s a lot of data that goes into a customer’s journey to your business and their interactions with you over time. Therefore, it is essential to understand how we can delimit them and what we need to consider. Here are just a few metrics and data sources that can make up customer behavior analytics:

• Information like name, gender, age, and geographic location
• Email and advertising campaigns they’ve seen and interacted with
• The campaign and channel that originally brought them in
• Order information, including purchased products and order dates
• Costs, revenue, and profit associated with the customer
• Customer status – are they active, at-risk or lost?
• The lifetime value of the customer over time
• Total amount spent with your store 
• Discount information – how many discounts have they used, and at what value?
• Sales channels – do they shop online or in-store, or both?
• Social media accounts supply customer analytics software with customer sentiment on product/service/brand/etc.

Now, the customer lifecycle typically consists of 3 phases:

Acquire – your team is focused heavily on attracting traffic. In this phase, the first thing you need to consider is your website-to-sign-up conversion ratio. Here we look at which ad campaigns and channels they respond to, which products they prefer, what offers or products initially encouraged them to buy the first time.

Engage – potential leads are coming, your acquisition strategy is working, and trial users seem to have high potential to become paid customers. This is why you need to invest in your user onboarding experience. Product analytics will necessarily play a large role at this stage. The basic idea is that the more data you have about how, when, and why customers use your product, the easier it becomes to keep them using it. For example, imagine you have a software product, and you’ve learned that a particular segment of users often churns after attempting to use one of its features. Once you know that, you can reduce churn by preemptively emailing those users with instructions to help them use the feature.

Retain – ultimately, that’s what customer behavior analysis is all about: making your operations more efficient by helping you target, captivate, and retain the right customers without wasting money on other audiences. In addition, customer behavior analytics will help identify patterns of churn and retention and take action to draw buyers back before they step away for good.

Customer analytics benefits:

Better, informed, relevant, and timely decision-making is one of the most incredible benefits of customer analytics. However, here are some of the business benefits of knowing the customer and analyzing their behavior.

Short-term benefits of customer analytics include: deliberate customer segmentation to better target customer needs and launch personalized promotional campaigns; getting insights into the customer journeys and behavior (what products and when customers buy, what channels they prefer, etc.)

Customer analytics system has mid-term benefits too: offer better services and products based on feedback from customers; deliver the right message at the right time on the right channel; implements policies and procedures to ensure that short-term problems don’t recur.

Long-term benefits of the process integration include: increased customer retention and loyalty; optimized product and services portfolio to better satisfy consumer needs.