Role of Customer Success Improvement of Churn Rate

2. Types and Calculation Methods of Churn Rate

There are several types of churn rates. Since the criteria for calculating each value differ, it is necessary to use them appropriately.

Customer Churn Rate

The customer churn rate is the rate of cancellations based on the number of customers. Generally, when referring to churn rate, this is often what is meant.

Calculation Method
Customer Churn Rate =
Number of Cancelled Customers (ID) this Month ÷ Number of Contracted Customers (ID) at the End of Last Month × 100

The customer churn rate represents the percentage of licenses or users that have canceled the service within a certain period. Therefore, the number of customers in this formula refers to the number of licenses or users.

For example, if the number of licenses at the end of the previous month was 100 and the number of licenses canceled in the current month was 2, the calculation method would be "2% = 2 ÷ 100 × 100". The customer churn rate is based on the number of customers, so it will always be a positive value.

Cancellation will be considered even if you downgrade from a paid membership to a free membership. In SaaS, there can be an increase or decrease in the number of IDs, but if a customer who previously had 100 IDs reduces it to 60 IDs, the 40 IDs that were reduced will be treated as canceled.

Account Churn Rate

The account churn rate represents the percentage of companies or subscribers that have canceled their service within a certain period of time. The calculation formula is the same as the customer churn rate, but here the number of customers refers to the number of companies or subscribers, so it is slightly different from the customer churn rate.

Calculation Method
Churn Rate =
Number of canceled customers in the current month ÷ Number of contracted customers at the end of the previous month × 100

For example, if the number of companies at the end of the previous month was 100 and the number of companies that canceled this month was 2, then this month's account churn rate would be "2% = 2 ÷ 100 × 100". Since the number of licenses and companies varies, different values will actually be reflected.

The account churn rate, like the customer churn rate, is always a positive value as it is based on the number of customers.

Revenue Churn Rate

The revenue churn rate is the cancellation rate based on revenue. It is also referred to as the "MRR churn rate." For example, if there is a 10,000 yen monthly plan and a 5,000 yen plan, the cancellation of one subscription from the former is considered equivalent to the cancellation of two subscriptions from the latter. When there are multiple pricing plans, it is necessary to pay attention not only to the customer churn rate but also to the revenue churn rate.

Calculation Method
Revenue Churn Rate =
Revenue lost due to cancellations or plan changes in the current month ÷ Monthly revenue from the previous month × 100

In other words, it will calculate what percentage of the previous month's revenue is represented by the decrease in revenue due to cancellations or plan changes. Similarly, there is a term called "net revenue churn rate" that reflects the increase in revenue from upselling or cross-selling.

Net Revenue Churn Rate =
(Lost revenue for the month - Revenue gained from upsells, etc. for the month) ÷ Monthly revenue from the previous month × 100

3. Measures to Take to Improve the Churn Rate

Naturally, a lower churn rate is preferable. However, the appropriate value for the churn rate can vary due to various factors. It can change based on price, growth rate, target audience, and scale. That said, generally, a churn rate of within 3% per month is considered a guideline. If the churn rate significantly exceeds 3%, improvements may be necessary. Therefore, analyzing the causes of churn is important.

Churn Cause Analysis (Identifying Usage Phases and Behaviors Leading to Churn)

In the case of B to B, one of the reasons for cancellation is that "we tried it, but it does not fit our company's situation." Other reasons for customers to cancel include "switching to something that is easier to use, more convenient, or cheaper," or "not being able to expect results that exceed the costs, leading to a negative asset, and having difficulty securing a budget to maintain it." While some issues are difficult to address, there are cases where we can avoid cancellations in advance through our responses. Therefore, it is common to conduct a survey during the cancellation process to explore the reasons for cancellation.

It seems that one of the reasons for cancellation is "I tried it, but it was not helpful." This is a common issue when the representative at the time of the new contract is different from the users on-site. To solve this problem, it is essential to first understand the client company that will become the customer.

・What business challenges are you facing?
・How can your products or services be utilized to address these challenges?
・What benefits can be gained from this?

With this understanding, we accurately convey the details of products and services to our clients and ensure thorough alignment. By conducting preliminary alignment, it becomes clear whether we can meet the client's objectives, helping to avoid mismatches.

Establishing a customer success framework

Many companies are now focusing on customer success.
Tools like SFA and CRM can generate significant benefits if used effectively. However, this comes with the burden and cost of learning various functions and mastering efficient usage. In such situations, how the provider of products and services can support customers greatly impacts the churn rate. It is essential to understand customers as well as to analyze the causes of churn. It is necessary to accurately recognize what the customer's goals are and to respond with a focus on customer success. If there is a proactive approach to understanding the situation and addressing challenges, it should not only help reduce the churn rate but also lead to increased customer satisfaction and branding.