Regardless of what vertical you’re in, customers purchase your software because they feel it will solve their problems. When someone cancels their subscription to your software, however, something has changed. Somewhere, somehow your product has failed to provide the value that customer was looking for.
This disconnect resulting in the loss of customers and revenue is churn, public enemy number one in the eyes of product managers everywhere.
Churn can make or break a business’ growth and revenue, and ignoring its importance only adds fuel to the fire. However, measuring and understanding your churn rate can help you identify critical problems with your product early on, create opportunities for sustainable growth, and ultimately improve your customer’s experience.
“Measuring churn rate helps identify critical problems early on.”
Although we wish we could extinguish churn with just one bucket of water, it’s not a one-step process. Let’s talk about how to diagnose problems causing churn—and how to apply effective UX techniques to decrease your churn rate and increase customer satisfaction.
Before we jump in, it’s important to understand churn and what it means for your busines—its precise definition differs based on the metrics you’re paying attention to, and your business model or payment structure.
At its most basic, your churn rate is the number of customers who stop using your product during a given period of time. To calculate this, you look at the number of customers you’ve lost versus the number of customers you started with, to give you a percentage. For example, if you started the month with 100 customers last quarter and you lost 3 customers by the end of it, your monthly churn rate is 3%.
Here are some additional resources that can bring you up to speed on calculating churn and some industry benchmarks you can use to compare your rate:
- Learn how to calculate churn
- Discover the difference between user churn vs revenue churn
- Read industry survey results about churn in SaaS
- SaaS Metrics: Benchmarking Your Churn Rates
Okay, enough with the basics—here’s how to tackle churn and start holding onto more of the customers you worked so hard to acquire in the first place.
Combat churn with UX basics
Now that you understand how to calculate churn, let’s talk about ways to combat it.
A business’s churn rate may signify that the company isn’t serving its existing customers, and is instead solely focusing its attention and resources on getting new customers. The users notice a disintegrating level of support from the SaaS provider and become disengaged. This is a dangerous path that dooms both the business and its users, ultimately resulting in lost revenue.
Building or enhancing your product with these UX design principles in mind greatly improves the likelihood of customer retention and a low churn rate:
Step one of making any UX decision: Ask your customers, “Why?”—why did they stop using your product?
“Step one of making any UX decision: Ask your customers, ‘Why?'”
By asking this critical question, you might find that your customer support was slow or that there’s a new competitor luring customers away. You may even find that your customer’s needs have changed and your product has lost its value. These are all insights that you can act on to improve your churn rate. Asking this simple, yet critical question also gives you the opportunity to offer incentives for churning customers to stay.
Find those “aha” moments
One of the best ways to reduce churn is by increasing your product’s value for your customer, early and often. Find ways to give your customers ‘aha’ moments – which occur when they get to experience and understand your service’s core functionality, your core value. Through user testing and user interviews, identify the most compelling features of your product and work to decrease the number of steps between signup and using the most awesome features. By helping customers experience the main value of your product as quickly as possible, you’re increasing the likelihood they’ll stick around, and may even see what else you have to offer.
Encourage efficient behavior
Gather both qualitative and quantitative data to look at typical user task flows, their challenges and triggers (a cue that results in a reward). With user interviews, you can gather better insights directly from users on how they are completing tasks, what they find most useful, where they are having difficulties, or what tools or features they’d like to see instead. With this information you can make iterations that will help the user get the most use and value from your product.
Minimize difficulties that users face when they try to accomplish tasks and test on repeat users to monitor whether they perform repetitive tasks easier and quicker. Associate triggers with actions and rewards to help point users in the right direction.
Get ‘em hooked
Much of the time, your customers stop using your product because they failed to form a habit of using it regularly. You can create a habit-forming product by utilizing the Hook Model, a recurring process of evoking a positive emotional response in the user, which will psychologically persuade him or her to use the software more frequently. There are four phases of the Hook Model:
[Trigger] An external stimulus that activates a user’s internal need…
[Action] …which motivates an action that will lead to anticipation of a reward…
[Variable Reward] …the size of that award is variable, so the user doesn’t know what exactly they will get…
[Investment] …but there is an opportunity for the user to receive more benefits or rewards from repeating the trigger action.
This process gets users “hooked” to your product and is therefore more likely to continue using your product rather than churn. You can learn more about the Hook Model in a UX teardown we did of one of the most popular video games in history: Destiny.
“A business’s churn rate may signify that the company isn’t serving its existing customers.”
Turning a problem into an opportunity
While these UX principles provide a foundation for increased customer retention, you may be experiencing more specific problems leading to churn. In order to improve customer retention, you need to understand why exactly customers are leaving in the first place.
These are some common reasons for high churn rate and how a focus on UX can solve the problem.
Problem #1: Slow setup or poor utilization
When users aren’t shown how to use a particular feature of your product, they’re less likely to use it to its full capabilities. Survey data and analytical data can reveal specific issues within your product that frustrates your users or could lead to churn. Some red flags include upticks in support ticket volume, an unusually high amount of assistance requests, poor product reviews, and negative feedback on social media.
Solution: Improve your onboarding flow. First, offer to assist users with the setup process, if there is one. Make sure you’re also offering a user-friendly and efficient product tour that explains the core benefits of the software and showcases unique and significant features for them to perform the tasks at hand—get them to the “aha” moment as quickly as possible!
Groove, a SaaS startup, recognized that users who had very short first sessions and users who had a difficult time performing tasks within its software were most likely to churn, so they decided to offer extra assistance specifically to them. They sent automated messages to those with short session times or longer than average task completion times to walk them through in more detail.
The result? It worked—they retained approximately 40 percent of the customers who read the emails.
Problem #2: Poor customer service
It’s not rocket science. Customers need to feel appreciated, supported, and rewarded in order to stick around. Research conducted by the US Small Business Administration and the US Chamber of Commerce pinpointed customer service as the number-one reason why businesses lose customers: “68% of customers leave because of they are upset with the treatment they’ve received.” If your process for support is falling short of customer expectations, this could be the reason you’re losing people.
Solution: Step it up a notch—use research and analytics to identify specific issues within your customer service experience. You can also measure this with Net Promoter Score (NPS). NPS is calculated by asking your customers one question using a 0-10 scale: How likely are you to recommend us to a friend or colleague? A score of 9-10 means the customer is a loyal enthusiast, 7-8 means they are satisfied but not enthusiastic and may be easily lured away, and 0-6 indicates an unhappy customer that is more likely to churn. If your NPS is low, start talking to your low-rating former customers to figure out why.
“Customers need to feel appreciated, supported, and rewarded in order to stick around.”
Increase the communication options for sales and customer support to include email, calling, online chat, and Twitter. Hire more people to answer phones or support tickets if need be. Make sure different email subscription levels are available so people can get the amount of emails that they want from your company, as well as a clear and easy unsubscribe process. Providing additional resources, such as how-tos, FAQs, and videos about how to use your product should also alleviate customer frustrations and lower the amount of support tickets.
Problem #3: Lack of customer engagement
If customers can’t find the value in your software, then your company has either a) missed the mark somewhere with your features or b) forgotten to remind customers of valuable features. Looking at user engagement can provide a good indication for which it may be. Are they using the tool but not certain features? There could be certain features that your customers are looking for but not finding, or using but not utilizing to its fullest. Are they using the features but still churning anyway? You could be offering features that don’t actually solve the pain of your customer and therefore are of low value to them.
Solution: If you’ve done your homework before creating your product, it’s probably not that users don’t want the features you’re providing. Most likely it’s that they are having trouble finding or utilizing the functionality properly. With some user testing you’ll be able to understand where the disconnect is occurring. You may need to update your UI design by following best practices for information hierarchy, call-to-action button placement or contrast, etc. For instance, perhaps the most valuable function is buried in the menu. Help your customers out by giving the function more visibility in your menu or calling attention to it in a more obvious way.
“What you name a button or link can have a huge effect on its usability.”
Similarly, you may need to update your content. Make sure that your product uses the language that your customers would expect, especially when naming features or functionalities. What you name a button or link can have a huge effect on its usability for the user. Let’s say that you changed where that one important function is on your menu, but users are still having trouble. Changing the text label for that button can transform a usability dead-end into one of the most-used features.
Decrease your churn, increase your revenue
Understanding why churn is happening and working to decrease and prevent it will ultimately lead to stronger growth. Gathering quantitative and qualitative data from surveys, studies, and analytics can expose weaknesses within software that causes customers to cancel. With data and UX design principles, companies can use their churn rate as a rallying cry to vastly improve their customer’s experience and strengthen their product offerings.
You worked hard to acquire those customers. With some investigation and thoughtful tweaks, you won’t have to work as hard to keep them.
This post was originally published on the Digital Telepathy blog.
Brian is an Account Strategist at Digital Telepathy with a passion for life-hacking, sketching on a whiteboard, and making awesome web products that matter.