Manage Churn to Manage Your Valuation

Janet Schijns

As promised, we’re continuing to dig into our discussion concerning churn management, which is a critical element to increasing your business value and ensuring sufficient revenue streams to continue funding your business growth.

Today’s topic is how to design a churn cohort program to better defend your business from competitive and economic pressures and inertia that leads to loss of customers and revenue.

What’s a Churn Cohort?

Let’s start by defining a churn cohort. And why is this a secret ingredient to reduce churn? A churn cohort refers to a group of customers who share similar qualities who started using a product or service and subsequently stopped using it during a specific period. A churn cohort analysis is a method used by businesses to track the behavior of these customers who stopped using their product or service and understand why they left.

By analyzing the patterns and characteristics of churn cohorts, businesses can gain insights into why customers are leaving and take steps to prevent future churn through product improvement, customer experience and marketing programs aimed at similar churn.

For example, a collaboration-as-a-service subscription-based partner might track the churn cohort of customers who signed up in January, never fully used the solution, and canceled their subscription at the next contract renewal period one year later. By analyzing this cohort, the partner might discover that this group of customers left because they were never fully trained to use the product, which resulted in low use and thus lower value, leading to the turnover.

With this knowledge, the business can make changes to improve their onboarding, training, usage tracking, or other elements and reduce churn for future cohorts with similar characteristics. The key to most churn cohorts is a strong marketing plan that helps you to engage the customers earlier and more often to help prevent churn. Ready to get started?

Identify, Analyze Churn Cohort Behavior

To get started using churn cohorts as a silver bullet to reduce churn, partners should design churn cohorts by identifying groups of customers who exhibit similar patterns of churn behavior, and then analyzing these groups to understand what factors may be causing customers to churn.

Here’s a step-by-step process for designing churn cohorts for a future marketing treatment:

• Define the churn event: Start by defining what constitutes a churn event for your business. For example, if you run a service-recurrent revenue business, you might define churn as when a customer cancels their subscription or when no upsell has occurred in a certain period of time. If you sell hardware and software as a product, you might define churn as when a customer hasn’t made a purchase in a certain period of time. Just remember, the customer doesn’t have to fully leave you as a customer to be lost — just losing their future business or increased usage can be a red flag that they are a risk to your bottom line.
• Determine the time period: Decide on the time period you will use to measure churn. For example, you might look at churn over a month, a quarter, or a year.
• Segment your customers: Once you’ve defined your churn event and time period, segment your customers based on their churn behavior. For example, you might create cohorts of customers who churned in the last month, the last quarter, or the last year, or ones who churned from a particular solution or service.
• Analyze the cohorts: Once you’ve segmented your customers, analyze each cohort to understand their behavior and characteristics. Look for patterns in demographics, purchase behavior, onboarding, usage, and engagement with your marketing campaigns. You might find that certain segments are more likely to churn than others, or that certain marketing tactics are more effective in reducing churn for certain groups.
• Place current customers in churn-prevention treatment pods: using the analysis of your cohorts, place all customers in a churn-prevention treatment pod designed to limit your risk, using the data you gathered from previously churned customers. These pods will form the basis for our marketing and services treatments moving forward to lower your risk of churn.
• Develop marketing and services treatments: Based on your analysis, develop marketing treatments that target specific cohorts. For example, you might offer special discounts to customers who are at risk of churning in the future, or create a new onboarding VIP program for those more at risk, or targeted email campaigns for customers who have already churned in the past to win them back.
• Test and measure the treatments: Implement your marketing and service treatments and measure their effectiveness over time. Use metrics such as customer retention rate, customer lifetime value, and customer acquisition cost to track the impact of your treatments on your business.

Bottom Line Payoff

By following these steps, the average partner will reduce churn by more than 200 basis points, which is a large improvement to your bottom line. Remember, while this might seem like hard work, every dollar you keep a competitor from stealing is a dollar that you can put toward reinvesting in and growing your business! Happy Churn Reduction.

Janet Schijns is CEO and co-founder of JS Group, a go-to-market acceleration firm. She is a Top 50 Channel Influencer (Channel Futures) and was named Channel Influencer of the year in 2019. Schijns was formerly EVP and CMSO at Office Depot, was Verizon’s chief channel executive and chief marketing technologist and ran the channel organization for Motorola Enterprise and government. She co-founded the nonprofit Tech World’s Half in 2017 to address the issue of women dropping out of technology, and WomWon in 2021 to help women establish financial independence. Schijns also speaks about empowering and advancing women in the technology industry. You may follow her on LinkedIn or @channelsmart on Twitter.