Customer Churn Analysis: What Is It, Why Does It Matter, and Why We Do It

Knowing how to prevent churn and distinguishing between good and bad churn all starts with having a customer churn analysis strategy.

B2B SaaS companies rely on retaining as many subscribed customers as possible to generate consistent revenue. To achieve this goal, it's crucial to know why a customer might churn and be proactive about developing a customer churn prevention plan.

While every SaaS company with an eye on long-term success should be doing what it can to prevent customer churn, it's also important to recognize that all churn is not bad. Knowing how to prevent churn and distinguishing between good and bad churn all starts with having a customer churn analysis strategy.

What is Customer Churn?

Customer churn is another name for customer attrition or the process of losing a customer. It's natural for every SaaS company to experience the cycle of acquiring and losing customers; some churn is inevitable regardless of the quality of a business's offerings. The goal is to retain as many target customers that best match the services and products you sell for as long as possible.

What is Customer Churn Analysis?

Customer churn analysis is a strategy that involves collecting and analyzing customer data to learn more about why a customer stops paying for a B2B SaaS company's products. While gathering and comparing metrics is a key function of this research, it involves more than just knowing the numbers. Customer churn analysis helps companies understand the underlying cause of churn so that a business knows which customers canceled a subscription, why they canceled, and how to prevent more customers from leaving

There are three essential steps to performing proper churn analysis:

  • First, B2B SaaS companies must select an analytics platform to observe all subscription metrics. 
  • Second, collected metrics need to be analyzed by customer segment. Looking at specific subsets of customers can help a company discover churn-related trends. 
  • Lastly, the data analyst needs to determine when churn occurred and why. Some companies may do this with a follow-up email after cancellation, while others will provide a questionnaire to customers as part of the offboarding process.

What Are The Primary Benefits of Customer Churn Analysis

One of the most significant benefits of conducting routine customer churn analysis is gaining insight into strengths and opportunities for improvement in a company's products and it's go-to-market (GTM) strategy. By understanding what customers love about a product and where it falls short, a SaaS company can proactively make improvements and lean into what's working best.

Another significant benefit of churn analysis is pinpointing opportunities to nurture a company's relationship with its customers. Churn analysis can reveal customer behavior patterns, allowing businesses to engage more deeply and better meet customer needs.

Churn analysis also allows B2B SaaS companies to predict and proactively reduce customer churn. By understanding what customers want and the reasons why customers may leave, businesses have the opportunity to take action to increase customer retention.

And finally, churn analysis helps go-to-market teams like sales and marketing better refine their ICP, so they can market and sell into the right audience, driving top-line growth.

4 Types of Customer Churn to Watch For

Customer churn generally falls into one of four categories: voluntary churn, involuntary churn, downgrade churn, and good churn. Each category represents a collection of circumstances that can cause a customer to move away from your company. 

Voluntary Churn

Voluntary churn refers to customers intentionally canceling a company's product or service. It's common for this type of churn to make up a significant subset of lost customers. Out of the four types of churn, a company will usually have the most control over mitigating this one since it's so closely tied to the quality of the customer experience.

Involuntary Churn

Involuntary churn usually happens when payment methods expire or are canceled due to being lost or stolen. Credit cards may also be declined if the spendable limit has been reached or the issuer suspects fraudulent activity. Other causes of involuntary churn can be related to an app or website that experiences an unusual technical issue.

Downgrade Churn

Downgrade churn is commonly the result of a customer's sensitivity to price or finding a lack of value in a higher-level product or service. It doesn't lead to the complete loss of a customer, but a loss of revenue as a customer opts out of a higher-priced subscription to switch to a cheaper one.

Good Churn

As mentioned earlier in this article, not all churn is negative. Sometimes good churn is necessary to weed out customers who may not be suited to use a company's products. A mismatch between customers and a company's value proposition can create friction that leads to more dependence on customer support and a higher propensity for creating a negative customer experience. To keep operations running smoothly, it's always best to shed customers who are not the right fit for what your company offers.

What Can You Do To Reduce Churn?

The key to mitigating churn lies in having a robust Customer Success strategy. As the saying goes, the best defense is a good offense. Customer Success models are essentially roadmaps for guiding your buyers' journey from start to end. Along the way, your CS team will fully engage in ensuring a customer has every opportunity to achieve their desired outcome using your company's products.

To deploy a rock-solid Customer Success process, any CS strategy must have buy-in from all stakeholders across your company; Sales, Marketing, and in some circumstances, even Accounting, play a role in implementing CS Operations. Once in play, set clear goals and establish key performance indicators that will allow you to track how your Customer Success strategy is performing.

Robust Churn Analysis on Tap

For B2B SaaS companies, driving down customer churn lies in implementing a Customer Success strategy and conducting regular churn analysis. By understanding customers' behavior and the various types of churn that exist, a SaaS company can anticipate potential causes and implement effective action plans to remain competitive and secure future growth.

Vitally's full-featured Customer Success platform has been built to help B2B SaaS companies prevent and predict churn by delivering world-class Customer Success operations and automation from a single platform. See how you can lower your customer churn rate by requesting a free demo of our platform today!

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