Churn: what it is and how to fight it
Whether it’s a web app or mobile, subscription based or ad supported, the single most important metric for any successful app - no matter the business model - is retention. Retention touches a part of every other KPI: revenue modeling all but requires consistent retention, and a good customer acquisition cost means very little if your app can’t keep that customer in the ecosystem long term.
The enemy of retention is churn, and that’s why companies and developers are always in a constant fight to keep churn as low as possible. While fighting churn can often be difficult, with a little bit of care you can reduce churn without ruining your profit margins.
What is churn?
Churn rate is the percentage of users that stop using a service, over a given period of time, typically measured on a monthly, quarterly, and annual basis. More often than not, when someone wants to “reduce churn” they’re referring to lowering their overall churn rate. As a quick and simple example: if your app has 2000 monthly average users, and your monthly churn rate is 8% (which is around the average for SaaS apps), you can reliably expect about 160 users to stop using your app each month.
Understanding your churn is a vital part of making accurate revenue and engagement projections. If your app cannot give you reliable usage telemetry, changes in churn provide a rudimentary way of measuring your app’s engagement on a regular basis. Churn rate also has a direct impact on the lifetime value (or LTV) of your average customer. The higher the churn, the lower the LTV, as the amount of revenue you can receive from a customer is derived from the amount of time they remain a customer. If your average LTV isn’t higher than your customer acquisition cost (CAC), you’re effectively operating at a loss.
A stable churn rate gives you a reliable picture of how much revenue you stand to lose each month, and therefore how many new users you need to acquire in order to not only offset your loss, but grow your user base. Using the above example, a business that wishes to see positive growth and remain profitable would at minimum have to acquire 161 new users each month at a very high LTV-to-CAC ratio.
It’s important to recognize that churn is inevitable. There’s just no way to prevent users from falling away. Even if you do everything right and make the most compelling app on the market, there are so many forces out of your control that can cause churn. Attrition is natural: client businesses shut down, or reprioritize their spending, or shift their business model in a way that doesn’t require your services. I've even seen SaaS apps lose their oldest client for no other reason than the client had a new CTO who preferred a competitor’s product and demanded a migration. Instead, your goal shouldn’t be to eliminate churn, it should be to keep it at or below a level that makes sense for your business.
How to reduce churn
First and foremost, one of the keys to reducing churn is also what likely got you your customers in the first place: quality and service. A mentor of mine once told me that converting a customer isn’t the end of the journey, it’s barely the first step. What that means is that once you’ve done the hard work of acquiring your customer through great marketing, tenacious sales, and a superior product, your work has only just begun to retain that customer. That means keeping your app bug free, powerful, and easy to use for new and existing customers alike. Make too drastic a change in any application which people rely on to do their work, and you’re likely to get churn.
Of course, if it were as simple as keeping your great product great, we wouldn’t be talking about churn at all because we’d be too busy counting our profits. To borrow from Amazon, your mission also has to be to surprise and delight customers. That means novelty, and that means new functionality. The reasons for this are both psychological and practical. On the psychological side it’s pretty simple: people like new, shiny things. Novelty when executed correctly creates a sense of joy and helps keep users engaged as they learn to use and then love the new feature.
On the practical side of the equation are market expectations. When someone is subscribing to your app or paying you a license fee, that comes with the reasonable expectation that you are going to take that revenue and invest it in improving and growing your offering. In a sense you’re creating value for your customer, they’re paying you for that value with the assurance that you will continue to find new ways to create value and they can reap the benefits.
As I alluded to earlier, one of the easiest ways to delight your customers is by adding new features. Whether you give it to them for free or for a small fee, new features up the value proposition of your app. Once again easier said than done. When your team is focused on maintaining, improving, and optimizing your core functionality, you may not have the resources to add new features. As any product manager is happy to tell you: new features mean more overhead, more hours, more headcount. In summary: more money.
So how do you add more features without breaking the bank or breaking your team? Despite what you may think, it can often be cheaper to buy a feature than it is to build in house. Licensing a white label API or SDK from a developer or company you trust can not only save you time, but also the money that you would have spent to accommodate the extra development time or staff.
The key to this value equation is of course to introduce features that will increase your user engagement, studies have shown that even a 5% increase in user engagement can increase profits from between 25% and 95%. The easiest way to keep a customer engaged on your platform is to find a feature that they have to go elsewhere to get, and integrate it directly into your app.
Collaboration features that your customers are using daily outside your app like document collaboration and chat are easier than ever to implement using white label APIs and SDKs. Imagine how much time your users are spending in a chat app like Teams or Slack, now imagine what your retention would be if all the time they spent chatting in those other apps were instead spending chatting in your app. When you add collaboration features to your app, you can make it an indispensable part of your customer’s productivity stack.
Churn is an inevitable part of running any service-based business. It touches every important metric, it’s a major aspect of evaluating your performance and it’s crucial to projecting your future. Though it may seem daunting, churn is something that you can get under your control by creating a consistent experience and finding new ways to delight your customers. The easiest way to delight your customers and increase your retention is to add collaboration features that make your app impossible to leave behind.