Debugging Churn as a Product Manager

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Churn rate — a crucial metric that product managers often use from their arsenal while working on improving their products and businesses. While churn rate is used by the majority of the organizations, like any other approach it has its merits, shortcomings, and some misconceptions.

However, first let’s consider what churn signifies:

Churn is referred to as the number of customers that leave and stop using the product during a given period. Any fluctuations in the churn for the product could shed some great insights about the business ← → customer interactions, competition & their services, customer’s overall satisfaction, pricing, services offered and much more. As a Product Manager there’s a need to measure and keep an eye on this rate, as it also refers to the loss in overall business revenue because of such exits by their product users.

How to calculate your product churn rate

Typically churn rate can be classified into 2 major heads: Customer Churn rate and Revenue Churn rate. Both these churn rates are important for the business to measure the health & acceptability of the product.

• Let’s first talk about the Customer Churn rate: this is calculated simply as (Canceled Customers in the last X days ÷ Active Customers X days ago) x 100

On the face of it this looks easy however the important factor here is identifying the value of X. Depending on your business type (B2B, B2C, etc…) product offering, target audience, customer session and active rate, the value of X can be ranging from 3–365 days. As a PM it is in our purview to work with the business and identify what is the best number which will help us define the activeness and churn rate of the customer

• The next here is Revenue Churn rate: similar to customer, the revenue churn rate is calculated as [X (time) Recurring revenue loss due to user exits ÷ X (time) total revenue] x 100

The value of X and the time is depending on the actual revenue metrics acceptability by the business. In most of the cases this is for a month to help the organization measure the health of the product.

Misconceptions about churn

1. ‘Standard churn’ number for every business: most of the businesses generally calculate their churn on a 30 day basis and this is usually followed without understanding all the underlying factors that go into identifying the right time frame. Hence it becomes one of the biggest misconceptions that a churn rate should be calculated for 30 days and should remain standard forever. As the business evolves and the conditions change with time, the time frame is something which first needs to be identified, implemented in the tracking, followed by regularly adjusting this factor based on the customer acceptability, repeat returns on the platform and more industry specific factors.
2. Most Ideal acceptable churn: ok, let’s take a pause to think a bit more about this. Most businesses and product managers operate on the premise that their offerings are unique (which is essentially true since your product is earning a revenue so you would be offering something different from your competitors) If we all agree with this statement, how can we say that there is a ‘most ideal’ and general churn rate of X% and since it falls in this range, my product is healthy. Since every product in the industry is different, so should be the churn rate for each of them. Pick a churn rate for your product based on what’s the most suited for your product and business type.
3. Every churn is bad for the business: I’m sure all of us would have seen alarm bells ringing when there’s a word about churn in the organization. But let us think rationally and see if it is really a fire kind of a situation or not. We start analyzing churn primarily by checking the data sets and trying to talk to the churned users. This helps us in getting the bucket categories of reasons as to why they left our product. While these are the initial steps, are they good enough? The answer here is NO. Since a great product solves the problem for a specific set of users and not for everyone, in the same way not EVERY churn can be termed as a bad one.

Now let’s check out some ways to to manage churn

To better manage the churn rate for your product and its relevance while calculating the rate, I follow a simple framework of use case vs audience plot.

Image Credit — Ishaan Suri

1. Identify the right churn user: to better manage your product churn, the first and foremost step is to identify the exact current users who are your target audience. In our previous diagram every user can be identified into a quadrant by bucketing them in the right one and the ability to do this correctly is an art which PMs should learn.
2. Review your full customer experience and lifecycle: in my view a lot of times users drop off and never return because of 2 major reasons, either the product is too complex to use or the experience they have had with the product is not pleasant. As a business the onus lies on us to regularly review the customer experience and ease out every pain in their journey or lifecycle to keep them hooked and engaged with our product.
3. Focus on the right user retention: this might sound like a paradox but instead of focussing on your churn or bounce, always focus on user retention. A retained user is highly likely to jump into the next higher tier pricing and engage more with your product. From the qualitative side, they act as our product promoters and manage more leads followed by conversion. But the catch here again is the ‘right user’

Finally, the hard fact: even if you employ the best of the best strategies and brains behind attaining a zero churn for your product, churn is inevitable and unavoidable. There will ALWAYS be some amount of churn customers for your product therefore manage your product churn effectively. Remember the biggest danger in this game is always not fighting hard to reduce churn.