This document provides an overview of customer churn, including: 1. Defining churn as the loss of customers or revenue over time, which can be measured as customer churn (percentage of customers lost) or revenue churn (dollars lost). 2. Describing the different types of churn as voluntary (customer choice), involuntary (expired cards), or negative (when revenue from new customers exceeds losses). 3. Suggesting ways to reduce churn through improved onboarding, ensuring proper customer fit, monitoring product quality, using account updaters to catch expired cards, and learning from exit interviews and feedback loops.

1. Customer And MRR
Churn
The Ultimate Guide

2. Table of contents
1. What is churn?
2. Types of churn
3. How do you analyze churn?
4. How do you reduce voluntary churn?
5. How do you reduce involuntary churn?
6. What can you learn from churn?
7. Getting started with churn reduction

3. 1. What is churn?
Churn, or attrition, is a metric that measures how much business you’ve lost. This loss can be expressed in:
● percent of customers - this is called customer churn and measures how many customers you’ve lost in a given
period
● or in revenue lost - this is called revenue churn and measures the money you’ve lost in a given period. It’s important
to note that revenue churn doesn’t only measure the money lost due to customers leaving you, but also the money
lost from customers downgrading their subscriptions.
Based on these 2 types of losses, churn can be classified in several ways:
● customer churn and revenue churn
● voluntary and involuntary churn
● negative churn.

4. 2. Types of churn
Customer churn and revenue churn
Customer churn, also known as subscriber churn or logo churn, represents the rate at which your customers are canceling their
subscriptions, and it’s most often calculated in percentages. Here’s how you can calculate it:
( Number of customers you’ve lost during a certain time frame / Number of customers you had at the beginning of that
time frame ) * 100

5. 2. Types of churn
Customer churn and revenue churn
Revenue churn (also known as MRR churn), on the other hand, is most often expressed as a whole number and can mean the
actual lost revenue or, more commonly, a normalized value such as MRR (Monthly Recurring Revenue). Here’s how you
calculate revenue churn:
( MRR at the beginning of the month - MRR at the end of the month - any upgrades or additional revenue from existing
customers ) / MRR at the beginning of the month
As customer churn and revenue churn are not always tied, it’s important to measure both - measuring customer success gives
you context.

6. 2. Types of churn
Voluntary and involuntary churn
Going more in-depth, we can then characterize each type of churn as voluntary or involuntary.
Voluntary churn means customers voluntarily choose to spend their money elsewhere, or they’re unable to pay (if they go
bankrupt, for example).
In contrast, involuntary churn means your customers don’t even know they’re churning. This type of churn is most often
associated with expired or maxed out cards.

7. 2. Types of churn
Negative churn
This is an ideal situation that only applies to revenue churn. A negative churn rate means that the revenue you generate through
cross-sells, upsells, and new signups exceeds the revenue you lose through cancellations.

8. 3. How do you analyze churn?
There’s no one-size-fits-all approach to calculating churn, so here we propose 2 options:
Cohort analyses
In a cohort analysis, customers are grouped based on their shared characteristics. Each business is unique, so there
are many ways you can group your customers to extract valuable insights. Here are a few examples:
● Month of purchase
● Acquisition source (organic, paid, affiliate, etc.)
● Customer age

9. 3. How do you analyze churn?
Customer behavior analyses
Alternatively, you can group and analyze your customers based on how they interact with your product. The most common
things SaaS businesses look at are:
● Features used
● In-app actions
● Health score
● Engagement score
● Patterns

10. 4. How do you reduce voluntary churn?
Hopefully, by now you know what causes your customers to leave you. So it’s
time to look at a few strategies that will help you reduce your churn and grow
your business, depending on the issues you’re facing:

11. 4. How do you reduce voluntary churn?
Cause #1: Onboarding problems
Most of the churn SaaS businesses experience happens before the “a-ha moment” (the moment when your customer finally
realizes the value of your product). To avoid this, track every step in your onboarding process and define goals (like filling in
their details or using a specific feature) your customers should achieve to complete the onboarding successfully.
Whenever you see a customer doesn’t achieve the goal you set for them, reach out and help them achieve it.

12. 4. How do you reduce voluntary churn?
Cause #2: Wrong customer fit
Not every customer is fit for your business. Sometimes there’s a discrepancy between what you offer and what they’re looking
for.
There are a few things that lead to wrong customer fit:
● your product positioning is wrong;
● your sales team oversold and set the wrong expectations;
● you’re too expensive compared to your competitors.
In this case, there’s not much you can do to prevent churn from happening. But you should use exit interviews (either online exit
surveys or 1-on-1 interviews) to find out why the customer is leaving so that you can work on your product positioning.

13. 4. How do you reduce voluntary churn?
Cause #3: Poor product quality
No product is perfect; crashes and downtime will happen. What matters is how you respond to these issues. Act fast,
acknowledge your fault, and communicate the steps you’ll take to solve the issue and how long it will take.
Custify can help you with this. By integrating our product with your ticketing system, you can be notified whenever there are more
than one or two open tickets marked as high severity. Although Custify does not replace a ticketing system, it can help you
monitor customer satisfaction in real-time, allowing you to react fast when something goes wrong.
Additionally, you can use Net Promoter Score surveys. As simple as it sounds, the NPS is a powerful tool that can help you
identify upsell opportunities and anticipate churn.

14. 5. How do you reduce involuntary churn?
Unlike voluntary churn, involuntary churn is completely avoidable. This means that you can eliminate a big chunk of your
overall churn (up to 40%) with little or no effort.
The most common reasons that determine involuntary churn are:
● expired cards
● hard declines after fraud attempts (if the card details have been stolen before)
● soft declines after credit limit maxes
● out-of-date billing information
● charges not flagged as recurring.
Fortunately, involuntary churn is easy to fix. Here are 3 tactics:

15. 5. How do you reduce involuntary churn?
Account updaters
An account updater is a service that automatically checks your customers’ card details with their issuing banks, before each
renewal. On average, SaaS businesses that use this service see 2-5x improvement in recovery rate.

16. 5. How do you reduce involuntary churn?
In-app lockouts
Most of the time, issues can be solved if the card is tried again or updated. But if the situation isn’t fixed by the time the
grace period ends, you can consider locking them out.
Although in-app lockouts are effective, you shouldn't lock a user out of your app immediately after their payment fails.
Instead, you should allow them a grace period to sort things out.
Also, make sure to also store their data for a set period of time, in case they decide to return.

17. 5. How do you reduce involuntary churn?
Dunning emails
Over time, cards expire or get stolen, misplaced, maxed out, etc., which leads to customers churning involuntary. A
dunning strategy can help you prevent a significant percentage of this churn.
To ensure your customers get the best experience possible, Custify can help you automatically retry a failed payment or
expired credit card and send a drip of renewal notifications to your customers whenever a charge to their credit card is
declined.

18. 6. What can you learn from churn?
Sometimes, no matter how good your product is or how great a customer
experience you offer, customers still choose to leave you. That’s out of your
control, but what you can do is find why so you can prevent other customers
from doing the same.
There are multiple ways you can do this. Here are two:

19. 6. What can you learn from churn?
Exit interviews
Not to be confused with exit surveys, exit interviews dig deeper into patterns.
If possible, use exit interviews to gather as much information about the reason your customer is leaving. You can hold the
interview over the phone (this way, they can’t avoid answering) or via online questionnaires, and you use both open-ended
questions or ask customers to choose from a list of predefined answers.
If you’re looking for more ideas on how to reduce churn and increase retention, check out these 14 Customer Retention
Strategies.

20. 6. What can you learn from churn?
Feedback loops
Unlike exit surveys and exit interviews, feedback loops help you prevent churn. That’s because you’re regularly asking for
feedback and implementing it, and then building a product your customers love.
Feedback loops are a great tool to use when your product isn’t mature yet. They can be divided into three stages:
● Stage 1: gathering info;
● Stage 2: analyzing data;
● Stage 3: implementing changes.
Once you’ve reached stage 3, it’s time to start again.

21. 7. Getting started with churn reduction
Reducing churn is less about issue resolution and more about how you can implement and measure customer feedback
step by step.
In this guide, we’ll teach you how to:
● analyze churn (both voluntary and involuntary)
● identify the challenges your customers are confronting with
● address these issues and prevent churn from happening
● learn from your churned customers and improve your service and customer experience.

22. Figure out exactly why, when, and where
your customers churn
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