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What You Need to Know About Customer Churn Analysis

Customer churn. Doesn’t sound good, does it? And, let’s face it, it’s not. But what exactly is it?

Customer churn is a simple calculation: Customers lost divided by the customers you had in the beginning.

If this figure creeps up, even little by little, then you’re leaking revenue and your business is not performing at its best.

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We know churn is inevitable. When it comes to sustaining and growing your business, one of the most important factors is retaining customers. It's well known that it's more cost-effective to keep a customer than it is to gain a new one. So reducing churn is certain to be a key goal of your sales and marketing team. In this article, we’ll explain the best ways to analyze customer churn and look at some key performance indicators (KPIs) and technology that can help.

Can you stop customer churn completely?

Probably not. You’re always going to lose customers, even if it’s through no fault of your own. People change jobs, requirements change, another vendor is cheaper. However, you can actively reduce customer churn. Because while it’s a natural part of the business cycle, you do want to keep it at a low level.

Why is analyzing customer churn important?

How can you reduce something, or keep it at a low level, without knowing your figures? It’s not good enough to go on gut feelings. At the end of the day shareholders and senior management want facts. They want to have systems in place that identify trends and act on reduce the impact of the negative ones. To reduce churn, you must be proactive in understanding why customers are leaving. You want to make the customer experience stronger and more engaging so they stay with you.

What’s the best way to analyze customer churn?

As with any other part of your business that could contribute to margin leak…develop a strategy. A process that allows you to clearly see why the churn is happening. The data-usually captured and analyzed in technology called a CPQ tool, also known as configure, price, quote software. This can provide you invaluable insight such as:"

  • Who’s leaving? Is it a certain industry? Customers that have been with you for one month? One year? One decade? Is it happening at a faster rate in specific countries or territories?
  • When are they leaving? Is it seasonal? When the unemployment or inflation rate rises above a certain percentage? Just after their free three-month subscription runs out?
  • Why are they leaving? Are they switching to a lower price vendor or one with different capabilities? What does your competitor have that you don’t? What makes a different brand more attractive to your customer? Did your solution fail to solve their business problem? Are there reports in either mainstream or industry media that point to trends customers are upset with sector-wide?

When you start charting the data and have a consistent analysis program, then you’ll see the trends and you can put a plan in place to attack potential degradation in the customer experience.

What KPIs should you use?

There can be so many KPIs that you need KPIs for your KPIs so you know which ones to focus on. That’s not very helpful, so let’s look at the top four:

  • Customer engagement and usage—Are your customers still using your service or product like they did when they first engaged with it? Is the usage declining at a consistent rate? Usage decline means that customers aren’t loving their experience any more.
  • Competitor price points—How does your pricing stack up against your competitors? Are you keeping an eye on this? Are they offering deals, discounts, rebates, or incentives that lure your customers away? At PROS we’re all about keeping pricing competitive and agile so that you can react, or technology can react for you, to keep your business the most competitive in the marketplace.
  • Customer support tickets—Monitor the volume of your customer support tickets. They point to where you can improve the customer experience. If they start to reduce in numbers don’t assume everything’s getting better. Do your customers think they’re not getting the service when they enter the tickets so have stopped doing that? Does your customer service not meet their expectations, spurring them to engage with other vendors? Are they logging so many problems that your service may not be meeting their needs?
  • Likelihood or need to upgrade—When is it the right time to upsell your customers? This-making sure your tool meets their evolving needs-allows you to be proactive in the fight against churn. Measure which customers are likely to upgrade and when.

Analyze and reduce churn with CPQ

Get the right tool on your side and have Artificial Intelligence (AI) work for you by analyzing the churn and keeping it at bay. PROS Smart Configure Price Quote uses a churn algorithm that allows you to understand buying patterns and spot potential customer dissatisfaction early. This CPQ tool shows you activity that’s out of the ordinary, such as unusual or significant changes in buying patterns, letting you act on these early insights and reach out to your customers to strengthen that relationship. It also identifies products a customer’s peers are buying that they have yet to purchase. Now, your sales team can instantly bring relevant new product suggestions to the customer.

Also, if you are using a CRM tool like Microsoft Dynamics 365 or Salesforce, all recommendations are automatically delivered to Microsoft Dynamics 365 or Salesforce, so the sales team can instantly review and take relevant action directly in their CRM system. The solution first presents the top opportunities and then continues to replace them as action is taken. We encourage you to use your CRM more – now customer account and quote opportunities are available in one place; one common user interface (UI) for effective account management and success.

Any churn can be harmful to your business. But if you keep an eye on those important KPIs, get the data on who’s leaving, when, and why, look for trends and use AI technology to aid you then you can reduce the rust. You can keep it at a point where it’s manageable and doesn’t do long-term damage to your business.

If you’re wondering how to reduce customer churn, consider PROS AI-powered software solutions such as PROS Smart CPQ. Configure, price, quote tools will continue to adapt to make the analysis easier, more accurate, and immediate. Our churn forecasting algorithms identify where customers are struggling, where they fall off in the customer journey, and where opportunities exist.

About the Author

Eric Knutson, Senior Manager, Product Marketing at PROS, leads the go-to-market strategy for PROS Configure Price Quote solution. Eric is a product marketing professional with a strong international B2B background and more than twelve years of industry experience in collaboration, content management, and data management solutions. He is passionate about improving the dynamic between vendors and customers, so engagements, transactions, and most importantly relationships are more efficient and rewarding.

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