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Revenue churn is the process of calculating revenue churn occurred due to customer churn within a given time. Here are tips to avoid negative revenue churn.
As a growing SaaS business, acquiring new customers is no doubt your first priority. Only on the basis of that can you grow your revenue. But it all goes to vain if you are not able to seal revenue churn in your organization.
Revenue churn is the amount of revenue lost in a given time. Your organization might be growing rapidly in acquiring new customers and gaining revenue. But if your product is not serving its purpose to the customers, or there can be any other reason, then the customers might discontinue their subscription to your service. And when they discontinue to pay their regular premiums, you suffer a loss in revenue.
There could be multiple reasons for revenue churn to occur. Some of them could be:
This could happen when your customer bought the product, tried using it for some time, and was not able to derive value from it. In this case, they simply stop buying your service because it doesn’t make sense for them to pay for something that is not adding value to their business.
There might be chances that your customer purchased a higher package than what they needed. This package can include more users than they actually have. Or it can be with a more advanced feature of the product which they don’t need in the initial phase. In these cases, they decide to switch to a basic plan from an advanced one which is cheaper than the latter one. If many customers choose to do the same then this results in a substantial loss of revenue.
Your product might be outstanding but there are high chances that you are not the only provider in your niche. There might be other competitors who are always on the spree of luring your existing customers. If they hit the right spot and convince the customer that they can gain more from their product then the customer is gone within no time. This keeps happening in a highly competitive market.
Everything might be going great with your product but there could still be chances that your customer has to cut their expenses on various ends. If your product falls in a category they choose to cut down from their regular expenses to meet their annual budget, then this could also lead to discontinuation of their usage.
Except for the last one, all other reasons are there in your control to avoid churn. You must drill down to the core of each reason to find the root cause of these events.
If you will notice each of the above causes, you will find one solution that fits them all to avoid churn. That solution is nothing more than engaging with your customer effectively. This sounds simple but if you will get into the details of this, you will discover many aspects to implement in your customer success function. So let’s examine this best way to avoid churn.
Any subscription business cannot run successfully without an effective customer engagement model. You need to engage with your customer in multiple ways. That varies from adding value to their business to identifying cues to retain them for the long term.
Only through regular engagement would you be able to travel with the customer in their journey of your product usage. So, what are the benefits of engaging regularly with the customer and how to do it the right way? Let’s dig into them point by point.
You must not be dependent on just phone calls or physical meetings that you can plan regularly with customers. For a holistic engagement with your customer, you must harness all the channels. This type of engagement will eventually help you in avoiding revenue churn. Those channels include:
When you want to take your engagement with customers to the next level then customer success platforms are must. This is the best way to get into their core usage pattern of your product. Through this software, you can monitor all the activities a customer is performing on your product.
What features are they using, how they are solving a particular problem, it all becomes visible through this platform. And when you have that information, you can identify the best approach to reach your customer. You can directly correct them on how they can use your product in a better way. What have they been doing wrong? What more features they must use? All these tips and recommendations would help them in product adoption. And that is one of the best ways of avoiding revenue churn.
Revenue churn is quite related to customer churn, though they are not the same. When churn is calculated in terms of revenue, it gives a more realistic picture of your business performance. If you are able to save churn from revenue’s point of view then the benefits keep on compounding over the years. 15
Companies usually mistake by taking revenue churn as a one time event. But when you club this with customer churn and account for the total gain you can have by preventing this situation over a long term, then the benefits are immeasurable. How so? Because when you are able to retain customers for longer duration, they help you expand your business in various ways. Discussing those ways is a topic of another article but for now, remember that an effective engagement strategy is the best way to avoid revenue churn.
Rohan has over 11 years of experience in client services, marketing and hospitality field. Previously, he was head of digital marketing for a hi-tech mobile application. Rohan is driven by new challenges and the possibility of making an impact on individuals and businesses.
Published July 09, 2020, Updated March 01, 2023
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