“Customer left is forever?” How to count customer churn in SaaS and what’s wrong with basic metrics

On the one hand, outflow management increases revenue. On the other hand, a client who thinks about leaving the service cannot be loyal. Therefore, it is important to know the outgoing customers, communicate with them and return to cooperation.

But you can effectively manage only what you measure.
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I will tell you how to determine the level of customer churn: which metrics and in which section to look. I will show on concrete examples how we do it in UniSender.




My name is Andrei Churanov, I am the leader of the UniSender client experience management team .

UniSender is a simple email and SMS mailing service. We help marketers create beautiful letters, combine them into series, conduct tests and monitor marketing effectiveness.

Every day we explore customer experience at all points of contact between the client and the company. The metrics we use will be close and understandable to many SaaS.

Features of measuring customer churn in SaaS products

When we talk about outflow, first of all, we need to answer two questions:

1. How stable is our customer base? Ideally, the number of clients at the beginning of the month and at the end is unchanged.
2. What percentage of customers left the company? Ideally zero.

Two important metrics will help answer these questions:

Customer Retention Rate (CRR). You can calculate by the formula:

Churn rate (CR) . We think so:

With these metrics, you can calculate the proportion of customers who no longer use the services of the company. Formulas take into account new customers - so we can level the impact of the rapid growth of the base in any period. In total, CCR and CR give 100%.

How to count these metrics by example:

Given:

• Clients at the beginning of the period = 100.
• End of period clients = 105.
• New customers = 10.

Consider the Customer Retention Rate:

• CCR = (105-10) / 100 = 95%. In our example, we see that the number of customers decreases, since the indicator is less than 100%.

Given:

• Clients at the beginning of the period = 100.
• Number of customers left = 5.

Consider the Churn Rate:

• CR = 5/100 = 5%. This is an indicator of outflow. Much or little depends on a particular company and industry.

What's wrong with Customer Retention Rate and Churn Rate

The problem of calculating CCR and CR is to fix the outflow. To stop using the SaaS product, in most cases, you just need not to replenish the balance. And if the client did it temporarily and after a few months will return? In this case, the calculation of CCR and CR may be inaccurate.

This feature!

We must choose a hypothesis of behavior that will show whether the client is gone forever or is a temporary inactivity.

I tell you what metrics we use to more accurately calculate customer churn.

Process performance metrics

These metrics will help you understand how much our outflow management work pays off.

Share of active clients

Immediately, I note that the concept of “active client” is different for each company. For example, in UniSender we consider active those who made any newsletter and replenished the account in the service during the billing period. You need to understand what actions the client must take to become active. After that you can calculate the share of active clients from all clients of the company.

Why count. So it is easier to answer the question: "What percentage of customers use the service?" If this proportion starts to rise or fall, we must respond: find out which segment of customers is changing and decide what to do about it.

We recommend counting the share of active clients for such periods:

• Clients active for one month (Monthly Active Users, MAU).
• Customers active two months in a row (2Monthly Active Users, 2MAU).
• Clients active during the quarter (Quarter Active Users, QAU).

Active clients bring money. Not active is an outflow.

How to calculate MAU, 2MAU and QAU using the example of 4 clients with different activities (“1” means that the client was active this month):

• MAU = 3/4 = 75%.
• 2MAU = 2/4 = 50%.
• QAU = 1/4 = 25%.

What to look for. It is logical that you need to focus on increasing customer activity. First of all, the causes of inactivity are studied, in each period they may be different. For example, in UniSender, customers stop using the product because:

• believe that email marketing is not effective;
• there is no informational reason for the new distribution;
• There is no time / specialist who will be engaged in mailings.

The main reasons why customers refuse to email-marketing, can be found in our article .

You also need to study the drivers that lead to activity. For example, in UniSender, the activity driver is the client's actions in the service (login to the account, creating a letter template, creating a mailing, sending a mailing). These actions are most often followed by recharge account balance. That is, we must encourage the client to “touch” the service as often as possible, and not immediately sell it.

Revenue from the returned customer

We determined that the user leaves the service and contacted him in some channel. The client agreed to continue cooperation and paid.

Revenue from the returned customer is the amount that the customer paid after our communication in any channel.

Why count. This indicator is used to calculate the average check. The average check must be calculated for each client separately and in general after all communications on the outflow.

What to look for. A separate section for analytics of this indicator can be a communication channel (telephone, email, personal meeting) and a client segment. You can segment by several indicators:

• What was the previous income?
• When was the last refill?
• What services did you use before?

For example, you identified customers who left the service and made calls to them. Naturally, there will be customers whom you have not phoned. Compare the amount of income after dialing to customers and under the call. If the choice of the outflow segment was made correctly, then the amount of revenue after dialing should significantly exceed the amount after a callback to customers.

Amount of payments 30, 60, 90 days after communication

The number of payments characterizes the stability of the process and the correctness of the choice of outflow management strategy.

Suppose you returned the client to the service. After a long break, he added to the balance. It's good! What next? Do you control the way forward? We believe that this is necessary.

Why count. Normally, the share of repeated payments from returned customers with whom you communicated should significantly exceed the share of repeated payments from customers with whom there was no communication. This trend confirms that we have chosen the right strategy.

To find out this figure, simply check whether the client has paid again after the first refill.

An example from the life of UniSender.

1. We make a sample for the quarter. We look at the number of payments after dialing and without it. The share of payments after dialing is higher. Our strategy is correct - we influence the decision of the client to return to the service.


Payments after dialing and without him

2. Next, we look at what percentage of customers made more than one payment.


After dialing, customers more often make more than one payment.

3. Fix financial performance. Compare the average check with customers after dialing and without it. The difference in terms of the number of payments is obvious. We also see that for customers who have already made 4 payments after the return, the average check is higher. The share of such clients in our case is small (about 3%), so there may be any trends.


Average customer check after dialing higher

What to look for. If the client returned, it means that he believed that the problem that caused him to leave was resolved.

In order for the indicator to grow, it is necessary to analyze the causes of customer churn and to develop tools for keeping the churn causes.

For example, the client left the service for email-mailings due to poor letter deliverability. We contact the client and give recommendations on how to increase the deliverability . After his return, we must check whether he used our advice. If we did not succeed in raising the indicator, we are once again working on ways to increase deliverability. If this is not done, the client risks getting negative experience again and refusing the service.

Process Quality Metrics

Quality indicators show the balance of the process. For example, we received $ 10,000 from returned customers - is it good or bad? And if the money brought one client? And if 10,000 customers? The figures below will allow you to see if the process is distorted.

Average check

To calculate the average check of the returned customers, you need to divide the income from the customers with whom the communication was divided by the number of customers who made the payment after the communication.

The calculation of the average value has several disadvantages. For example, the average is distorted for arrays with a large variation in values. For numbers 100, 200 and –300, the arithmetic average will be 0, and this cannot always be interpreted. Therefore, we further recommend measuring the standard deviation and the median.

Standard deviation shows how many units each indicator deviates on average from the average value of the sample. For calculation, we use the formula in MS Excel:



The median divides the sample into two equal parts. Half of the observations lie below the median, the other half - above. We use the formula in MS Excel:



What to look for. A good way to increase the average bill (tariff changes are not counted) is to connect holding tools. The offer of the company for the return of the client should be useful and understandable. And most importantly - to contain a solution to the problem faced by the client.

For example, one of our proposals contains a personal consultation of a specialist. With this tool we listen and hear the client, and he us. We give additional value and after that the client is ready to pay his previous payment, but not the minimum.

Conversion

Conversion - the proportion of customers who returned to the service, from all customers with whom there was communication.

What to look for. In short: do not take into the processing of those customers who are “not outflow”. To do this, you need to constantly analyze customer behavior for churn.

For example, we in UniSender are watching how long the account was replenished and sent out in the service. For us, the combination of these two criteria allows us to determine the outgoing client.

I recommend to compare the conversion rate for customers with whom you spoke about the return, with the conversion, when there was no communication. If the conversion in the second case is higher, then the actions are not directed to those customers. Customers pay without our efforts. So this is not leaving customers.

Such actions save company resources and help focus on customers who have left the service.

Customer Feedback

Reviews help to understand whether the customer is satisfied with the service after the return. Naturally, we must focus on raising this grade.

What we consider:

• CSAT (Customer Satisfaction Index) . It shows how satisfied customers are with the service at the point of contact with the company (phone, email or point of sale). For example, in UniSender, customers evaluate the quality of technical support work immediately after communication. Now CSAT UniSender 95 out of 100%.
• CES (Customer Efforts Score) . Shows how convenient the customer is to use the service. Our question is: “How easy was it to register with the service?”
• NPS (Net Promoter Score) . Customer loyalty index. Shows what proportion of brand promoters among customers. For example, we ask: “Based on your experience with the company, are you ready to recommend it to your friends and acquaintances?” NPS can be from -100 to 100. For UniSender +41.

We describe how to collect customer feedback, and how it works in UniSender.

What to look for . Low scores should push for a more detailed dissatisfaction study. Analytics and changes should apply to specific employees, employee groups, retention tools, or company products.

The process of collecting feedback should be constant, and its analytics is cyclical. The main tools for improving the quality of the process and customer satisfaction are:

• Constant collection of feedback.
• Cyclicity in measurements.
• Collect suggestions for improving and controlling the effectiveness of implemented changes.

In what sections to measure the outflow

Stationary intervals

At UniSender, we measure the outflow in such intervals: day - week - quarter - year.

I recommend to measure indicators as often as possible. New actions occur in the service every day. Therefore, we must control them.

Customer segments

It is quite normal that different segments will have different indicators. We set different goals for them in conversion and average check.

You can also optimize outflow management costs using segmentation. For example, for more profitable customers, we use telephone calls, and for less profitable customers, we set up automatic email conversations.

Communication channel

We determine which channel holds customers better: a phone call, a message to Viber, or an email. For each channel, we get different values ​​for the outflow metrics.

It's all?

Not.

Collecting statistics is not enough to effectively assess the outflow. We at UniSender build mathematical models to predict various outflow rates. This will be our next article.

In the meantime, you can read our other publications about the management of the outflow:

• “Why do they leave?” How do you know what customers really think about you? UniSender Experience
• How to avoid stagnation and fakapov in email marketing. 5 major problems .

In the near future, we will write how to create a mathematical model to predict churn. Not to miss, subscribe to our blog on Habré .