In this series, I've shown why customer churn rates are useless for improving retention. But there is a more serious problem: using churn rates can actually MAKE CHURN WORSE by hiding the truth.
Let me explain...
CHURN RATES ARE NOT LINEAR
The churn rate implies that churn is linear. But in the real world, customers don't line up to leave in a nice, orderly fashion.
For example: a churn rate of 10% per year implies that you are steadily losing about 10% of your customers in each period.
But I can assure you that's NOT what's happening.
In reality, most customers who churn tend to leave around the same stage of their lifespan. Knowing when customers leave is a HUGE KEY to solving churn because...
→ THERE ARE DIFFERENT KINDS OF CHURN ←
And you can't solve churn unless you know what kind of churn you have. But the real churn pattern is entirely hidden by the churn rate.
CHURN RATES CAN MAKE CHURN WORSE
Because they conceal the real causes, operating to churn rates can actually make churn worse by...
• wasting resources on ineffective efforts
• failing to address the true causes
• misunderstanding why customers stay
• marketing to the wrong "ideal customers"
• building the wrong product features
WHAT KIND OF CHURN DO YOU HAVE?
It's vital to figure out precisely what kind of churn you have so you can focus your efforts on the real causes.
The solution is to analyze churn using individual customer cohorts. Cohort analysis simply takes groups of customers that started at the same time and measures the share that remains in each period over time.
HOW TO FIND YOUR CHURN TYPE
I've made a guide to finding your churn type using cohort analysis with simple instructions and a template you can download here: https://www.churnrx.com/churn-guide/#comp-l6nq4vf2
In my guide, I also explain the three different types of churn and how they reveal the ESSENTIAL INSIGHTS you need most:
• what kind of churn do you have
• what is causing it
In my next post, I'll reveal the powerful churn metric you can use as an alternative to churn rate that tells the truth about your churn. The Powerful Alternative to Churn Rate (4/4)