The Six Types of Churn


Andrew Ishimaru

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Churn. The greatest enemy of subscription SaaS.

We hate it. We fight it. We try to eliminate it. But how should we think about it?

In the new world of SaaS the market plays by new rules, and churn is no exception.

Today, there are only six types of churn:

  1. Product-expectation-need mismatch
  2. Lazy users / bad onboarding
  3. Dunning reasons
  4. Time decay over useful value
  5. Competitors stealing users
  6. Force Majeure

In the case of a mismatch between expectations, needs, and the product, simply put the product isn't good enough. This could be because sales & marketing promises simply don't measure up and the product is overhyped on actual use. Or, it's useful but not useful enough when annual budgets are set and your product gets axed.

In the case of lazy users / bad onboarding, either the product isn't optimized enough through sticky features or white glove onboarding, or users just don't care enough to use the product. Or perhaps you don't offer payment options the customer wants to use, and they never move to a paid account.

In the case of dunning reasons, credit cards expire, long F500 processes kill the deal, customers stop paying their invoices, etc. etc.

In the case of time decay over useful value, there simply isn't enough of a reason to continuously pay for the product. Seasonal businesses fit this category, such as eCommerce brands that only pay for promotional software around Black Friday / Cyber Monday. Contractors who work in the summer, and not in the winter when it snows. Or tax firms who only need to pay for the software during busy season.

In the case of competitors stealing users, other brands offer better features at lower prices, and convince your customers to leave. It may be the case that you end up in this position from raising prices, or competitors building new competitive feature sets. But it also may be the case there are referral fees and relationships that move between companies.

This is the greatest new churn threat that most SaaS companies face in 2024.

In the case of Force Majeure, greater forces re-shape the world and your product suffers as a result. A global pandemic hits, closing down your customers' businesses. The owner of your best customer has a heart attack and his business shuts down. A new law is passed that makes your platform illegal in California. So on and so forth.

How to reduce churn in each of these cases?

It's fairly easy to see the categorical cause of churn.

Do users churn quickly after signing up? Might be an expectation or need mismatch.

Do users sign up, and then never log in or use certain features? Might be an onboarding problem.

Do credit cards frequently decline or invoices not get paid? Dunning issues.

Do users churn seasonally or sign up, use the product a ton, and then churn? There's a mismatch in the time-value relationship users have with your product.

Do you notice complaints in your online reviews and competitor threats looming over your corner of the market? You're either screwing up your 5 P's or competitors are outplaying you.

Force majeure is probably the most difficult to plan for. For example, if you were in the hospitality biz in 2020 you were pretty SOL. Best you can do is to make yourself as antifragile as possible.

Churn sucks.

In the valiant battle against churn, try to keep a strong balance sheet.

Stay nimble and flexible.

Know your metrics.

Align incentives across your team.

Stay ahead of the competition.

And be careful of customer concentration in any one category.

Good luck out there in your pursuit of sweet, sweet MRR.

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