Black and white ash
In the test environment of the earth, we can see the bugs behind the scenes.
The modern market has been completely transformed into a buyer's market, and consumers are the real gods. This is especially true in the field of SaaS or continuous income: buyers can freely choose to use any software solution and give up using it, as simple as clicking "Cancel Service".
So, how to stop customers from going this far? We have always said that if we can't measure, we can't manage and we can't grow. In a modern company with scientific operation, the index to measure customer performance is the business index that can provide the most effective data. These data will tell us whether the enterprise can maintain its current performance level for a long time. Among them, the most important customer-related indicator is the churn rate.
What is the wastage rate?
Loss can be divided into customer loss and income loss. The reasons for customer loss and revenue loss are different, because many companies have different product lines, different price systems and even different service models.
Customer churn rate
Customer churn rate can be defined as "the percentage of users who cancel service subscriptions in a certain period of time". According to this definition, enterprises can calculate the churn rate period by dividing the number of customers lost in a specific period by the number of subscribers. The data formula is simple:
Customer churn rate = (number of customers lost ÷ total number of existing customers) * 100%
Generally speaking, the turnover rate we understand is the above way, and it is precisely the customer turnover rate.
Income loss rate
From a business point of view, we prefer to use the income loss rate. It will become much more complicated when considering the loss rate of income.
First of all, we need to know the monthly recurring income (MRR), that is, "the income that customers can continuously earn every 30 days". We should not only consider subscription income, but also consider expanding sales from existing customers (upselling, cross-selling, etc.). ), and the data formula is simple:
Income loss rate = (last month MRR- this month MRR)/ last month MRR* 100%
Of course, you can also choose quarters or years as the time dimension. For simplicity, only monthly analysis is used here.
Let's look at an example:
Your company has two product lines, and there are 65,438+00,000 customers who buy basic services. Each customer spends $200 per month, so your MRR is (65,438+00,000) x ($200) = 2,000,000. There are 5,000 customers who purchase advanced services, and each customer contributes $500 per month. The MRR of these customers is: (5,000) x (500 USD) = 2,500,000 USD. Therefore, there are * * *15,000 customers and a MRR of $4,500,000.
If 500 basic service customers and 100 senior service customers are lost in one month, then calculate the customer loss rate: (500+100) ÷ (15,000) = (600) ÷ (1) To calculate the income loss rate, please add the relevant dollar amount: ((500 x 200)+(100 x 500)) ⊙ (4,500,000) = (100,000+$50,000).
It can be seen that the customer churn rate (4%) is slightly higher than the revenue loss (3.3%). It is very important to distinguish these two indicators because each number provides different business-related information.
In addition, distinguishing product lines helps to understand customer retention and revenue. For example, you have lost a lot of basic service customers, but you have generated a large customer turnover rate, and your income turnover rate may seem to be increasing. But if you focus on retaining high-quality customers (that is, customers with the highest monetary value), then losing some basic customers may not have a huge financial impact.
Voluntary loss and involuntary loss
When calculating customer churn, it is very important to distinguish between those customers who voluntarily choose to leave and those who are forced to leave. The former is called voluntary drain, and the latter is called involuntary drain.
When the customer stops the service due to uncontrollable factors, it is called involuntary loss, such as bankruptcy and other services necessary to stop using your service. If these types can be determined, there is no need to include these losses in the wastage rate or calculate them separately.
Involuntary loss is even more uncontrollable, while voluntary loss should be the focus of enterprises' attention, which is more caused by unsatisfied demand.
Understand the reasons for these customers to cancel their subscriptions, and at the same time, identify risky customers in time through data or the customer health model mentioned above, intervene in advance, and eliminate the crisis.
Why is the drainage index so important?
The turnover rate can help you understand the overall operation of the company. You can know how many customers leave you and how fast they leave. At the same time, we can know whether the customers who have left or will leave this time have affected the growth of the enterprise or even touched the bottom line of the enterprise.
But the impact of the loss is far more than that. For an enterprise, maintaining existing customers is far cheaper than acquiring new customers. There are many different versions of this cost accounting. According to Gartner's analysis in 20 17, 5% customer retention can increase the profit by 25%~ 100%. At the same time, the cost of selling a new customer is 5~ 12 times that of selling to an old customer.
In addition, the loss will slow down the business growth of the enterprise, because every time you lose a customer, you must get a new customer to maintain the growth rate. For example, you have a growth rate of 15%, but the turnover rate is 10%, and generally there is only a net increase of 5%.
The loss of a single customer does not seem to be a big problem in the short term. Once the enterprise has passed the early stage, there will be more and more customers and the same turnover rate, but the losses to the enterprise will be greater and greater.
For example, the turnover rate is 2.5%, because there are few customers, which has little impact in the first month. With the increase of new customers' income every month, by the fifth year, the loss of nearly $64 per month has been difficult to make up by selling new customers! This is why a company should pay enough attention to the problem of customer churn at the early stage, especially before the churn causes irreparable impact.
Finally, if you are striving for financing, venture capital firms (VC) will be very concerned about losses. In addition to paying attention to the current situation of the company, renewal hopes to see the long-term growth potential of the company, and the loss will directly affect the company's valuation.
What is negative drain?
Yes, you are right, there is a negative drain. Bad companies may suffer customer churn, while some excellent companies guarantee negative churn. If you can do this, you can wake up laughing when you sleep.
For existing customers, continuous expansion/up-selling/cross-selling can achieve negative turnover in essence. Continuing to borrow the above example, in addition to the income brought by new customers, if we can get 2.5% expansion, in the fifth year, we can generate nearly $65,438 +0.80 K of increased purchase income, which can completely make up for the loss caused by customer turnover. If we can continue to increase and exceed the lost income, we can achieve negative losses.
So, how to achieve this magical realm? You can do at least one of the following three things:
Optimize the pricing model: As time goes by, the income of each customer will increase. For example, in some cloud technology companies, customers need to pay extra to use more data storage space.
Upgrade existing customers: If you have different versions or grades of products or services, you can focus on guiding customers to buy more advanced services.
Selling new products: introducing new products or additional products to existing customers. If you provide several different types of products or product accessories, please cross-sell these products to existing customers.
Remember, whatever you do to expand sales, the premise is to meet customer expectations. Expanding sales is not the focus of the initial stage of the enterprise. In the initial stage, enterprises still focus on pricing, products and services, so that more users can use products, gain value continuously and reduce losses. Once the business of an enterprise is relatively stable, it can also draw resources and promote negative losses on the basis of expanding sales.
Strategies to reduce brain drain
For most companies, a certain degree of brain drain is inevitable. However, you can do something to achieve the lowest wastage rate. Here are some suggestions:
1, ask the lost customers.
When the customer decides to cancel the service, don't do nothing. This is an excellent opportunity to collect valuable opinions. Especially in the initial stage of enterprises, these suggestions are extremely precious. When the customer decides to give up, you can contact the customer directly to find out why.
The customer's abandonment may be due to voluntary and involuntary reasons such as the product does not meet the demand, the implementation is blocked, and the product will not be used. Through the analysis of the reasons, we know where to start optimizing the customer success system.
2. Monitor customer activities at any time.
This matter is simple to say and difficult to do, but it is indeed the key to stop loss. As mentioned above, in the stage of customer adoption, we build a customer health model, monitor customer behavior and other data in real time, and the data can directly reflect the problems, and then take further actions to recover the losses.
3. Increase the cost of customer churn
The higher the cost of customer churn, the more likely it is to prevent churn.
We need to make the products more sticky, such as appropriately reducing the "one-stop" functions or solutions (Cisco put forward the concept of "one-stop/once and for all", that is, we can meet all the needs of customers at the first contact, no matter what media they use). There are still a few points to refer to:
Improve product utilization: If a new user uses most of your products and services in the first month or year, the possibility of loss will be reduced.
Increase the depth of product use: for example, let customers know more about the functional value and use the product in depth.
Increase the frequency of product use: for example, integrating products into customers' daily workflow and becoming a part of work will become more sticky.
Increase the use of key "sticky" functions: there will be some particularly sticky functional modules in the product, such as the membership management module of an e-commerce SaaS company. If customers are willing to access their own membership data and manage their members with products, the possibility of losing this customer is very low. If the customer can continue to use the member's stored value function and the member's money is in the system, then unless there are very special circumstances, the customer will basically not be lost.
4. Don't give up easily.
When the customer asks for cancellation, there is one last chance to save it. However, people with rich experience and ability are needed here, not only to understand products and business, but also to maintain good relations with customers.
If we can solve the customer's confusion, provide a complete and clear solution to the dissatisfied part, and guide customers to understand the product value again, we will win back a glimmer of hope.
5. Extend the contract period
At the level of pricing and sales, we tend to let customers sign contracts with longer term. It can give customers a longer period of time to implement and promote products, and enterprises also have a longer time for customers to succeed. In addition, the more customers spend money, the more carefully they will choose to abandon it.
6, in-depth understanding of the reasons for customer churn.
Do multi-dimensional in-depth analysis of lost customers. For example, we can see which dimensions of customers are more likely to be lost according to the customer grouping mentioned above, including attribute grouping, demand grouping and value grouping. These can help you optimize various business links, such as market acquisition, product optimization, customer success strategy and so on.
Finally, let me repeat it.
Customer maintenance is very important for the healthy development of any enterprise, no matter what scale or industry. Turnover is a key indicator for enterprises to maintain existing customers and expand revenue growth.
Reducing customer churn is also one of the most concerned indicators of customer success. The urgent task is to dig deep into the loss of customers and optimize them in a targeted manner.
Note: The full text is reproduced from the official account of WeChat (pictured above). Because I admire the author very much, I personally think that CSS has potential, so I reprint it and do my bit. If you have any criticism, please write privately.