GB Ep 32: What Churn Rate is Acceptable and How to Reduce Churn

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Welcome to another episode of Growth Bites. Today we’ll talk about how you can reduce customer churn rate, and I’ll point you to a helpful resource to help you do so.

• Churn is the percentage of customers you’re losing on a monthly or yearly basis. [01:24]
• Keeping your churn rate below a certain percentage is critical, because if it’s above 10% or 15%, a lot of VCs will look the other way because if you’re losing too many customers, it will be difficult to grow no matter how good your marketing is. [01:48]
• There’s a misconception surrounding churn: if you think you have less than 5% monthly churn, it’s okay. [02:15]
• In Lincoln Murphy’s blog post, he talks about 5% churn. He has a formula that tells you to take your churn percentage (5%) and subtract it from 1. (1-0.05) But when you take that number to the power of 12 (for one year), you actually get 0.54. 1-0.54 is like taking 100 customers and subtracting 54 of them. 100-54=46 [02:49]
• In essence, if you have a 5% churn, this formula shows that you need to make up for 46 of your clients in one year to break even. This is a lot of work. [03:48]
• Some software companies have 1% to 2%, sometimes 3%. Having a high churn rate is a momentum killer. [04:35]
• If your churn rate is too high, there’s a fundamental problem with your product, and you need to figure out why customers are leaving. [04:51]
• Another resource from Lincoln Murphy’s website is a post called 22 Ways to Reduce Churn with Growth Hacking. [05:16]
• You can try exit surveys and follow-up emails. [05:29]
• Using something like Intercom.io can help you track pre-churn behavior to find out what’s really going on. [05:46]

Selected Links from this Episode:

• SaaS Churn Rate: What’s Acceptable? by Lincoln Murphy
• 22 Ways to Reduce Churn with Growth Hacking by Lincoln Murphy

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