Let’s start with the obvious.
You can’t have a successful product if too many customers churn.
But if you’re tasked with reducing churn rate, it can feel almost impossible to actually move your metrics in a positive direction.
When stuck in this metrics trap, Product Managers often try anything possible to keep customers around so they don’t walk out the door.
That’s how we end up with cancellation flows filled with steep discounts or the option to pause your subscription indefinitely.
Reducing churn is frustrating because most product teams approach it incorrectly:
- They see all churn as bad and avoidable
- They myopically focus on customer resurrection
- They assume churn is the end of a journey
Instead of focusing on reducing something negative, like churn, they should try to increase something positive, like retaining the right people.
Product teams that take this approach will have a much higher chance of changing the trajectory of their customer’s journey and, ultimately, their business.
In this piece, we’ll bust these common myths about churn and share some tips to increase your chances of success.
About the Authors
Natalie Rothfels is an Operator in Residence at Reforge and runs a leadership coaching practice. She has held product leadership roles at Quizlet and Khan Academy and was a classroom teacher before that.Learn More
Behzod is a Program Partner at Reforge, where he built the User Insights for Product Decisions program. Outside of Reforge, he runs Yet Another Studio and is a venture partner at El Cap. Previously, he led Research Operations at Slack and was a Senior UX Researcher at Meta.Learn More
Ely is an EIR at Reforge and an advisor for startups transitioning from traction to hypergrowth. Previously he was Head of Consumer Product at Chime, Head of Product at Eat24, and Product Leader/GM at Yelp.Learn More
What is Churn & How Is Churn Rate Calculated?
Companies are in the business of retaining customers. Customers are in the business of getting their needs met.
When these two things don’t match up, people churn.
Churn is a measurement of how many formerly-healthy customers have stopped using or transacting with your product or service.
On the surface, this can seem straightforward.
But churn is notoriously complex because product teams struggle to effectively define it.
To have any chance of improving your churn rate, you first need two clear definitions specific to your product:
- What is a healthy customer and how do they act?
- What is a churned customer and how do they act?
As you read, apply your learnings with the free Churn Segmentation Worksheet.
These two definitions vary widely across products, niches, and industries.
A healthy customer on Netflix may be determined by subscription renewal, while a healthy customer on Figma may be determined by weekly feature usage.
A churned driver on Lyft may be defined by three months of inactivity, whereas a churned WHOOP customer may be defined by one week of no fitness tracker data.
Most teams try to reduce the number of overall users who have left a platform without first defining these two categories.
And then they are confused about why they can’t ever seem to get a handle on their churn rate.
Thankfully, we have brought some experts together to bust the 3 most common churn myths once and for all.
Let’s get into them.
Myth #1: All customer churn is bad & should be avoided
If you’re tasked with reducing customer churn, your first intuition may be to talk to churned users to understand why they’ve stopped using your product.
From there, you might be inclined to generate a list of reasons why people have left, broken down into different categories in order to brainstorm ideas for how to improve the product.
While well-intended, this is usually an ineffective strategy for two reasons.
First, not all churn is created equal, and not all of it is bad.
Great products have specific users and use cases in mind. They don’t solve everything for everyone.
There will always be customers who come to your platform and don’t get their needs met. The goal is to identify which customers can and should use your platform and which cannot and should not.
This is called regrettable vs. unregrettable churn. If you see a bunch of churn from populations who don’t match your target customer profile, that’s unregrettable.
Regrettable churn matters a lot more because it represents unsatisfied customers who theoretically could have retained. You don’t want these folks to leave with a bad taste in their mouths about your product.
Let’s walk through a hypothetical example to illustrate why segmenting your churned population is so important.
Imagine a product that teaches computer science concepts to groups of students by helping them create their own video games. The product is explicitly focused on middle and high school students who are getting exposed to engineering concepts for the first time.
The product doesn’t directly serve college students or engineering boot camp graduates, even though these students fall into adjacent population groups. When the product team looks to improve their churn rates, any churn from these adjacent audiences is likely to be unregrettable because it’s not currently a core audience.
On the other hand, because the product is used, loved, and built for middle or high school students, any churn from those populations may be regrettable.
Most teams lump regrettable and unregrettable churn into a single group when investigating customer churn.
This misstep makes it extremely hard to significantly improve their churn rate because it’s an uphill battle to satisfy the wrong population of users.
Secondly, only talking to churned users gives you a data point, but not a narrative.
If you only talk to churned users about their reasons for leaving, you’re likely missing the full picture.
Churning is the last step in a journey that likely includes persistent and/or varied dissatisfaction with a product. There are many people who are in earlier stages of that journey who still use your product today.
By talking to current users, you can learn about both their frustrations and what is driving their retention.
This recognition of different experiences within the product also helps you acknowledge that churned users are not a monolithic group. Just like there will be different reasons for retention, there will also be different reasons for churn depending on the user.
Being specific about what those user journeys look like up to the point of churn can help you shift from single data points to more clear narratives.
Darius Contractor, SaaS Investor/advisor for Airtable, Otter, Vendr, shared an example that highlights how important it is to have a narrative insight.
“A ton of churn is exploratory. People will add their credit card not because they’re committed, but because they’re effectively creating their own 1 month paid trial. Then, when you look at your churned population, you’ll realize that it isn’t full of committed customers but rather those evaluating whether the product is right for them. Fixing that might require a different strategy, like enabling a usage-capped freemium plan.”
Without those insights, it’s too easy to over-index on solutions for those that have left instead of improving what’s working for those who have stayed.
Myth #2: Improving churn rate requires resurrecting inactive customers
Organizations want to do everything possible to decrease the size of the churned population by putting folks back into the product.
After all, the more folks in the pool, the bigger your growth and monetization opportunities, right?
Organizations that goal-set against the full population of churned users tend to do so for vanity metrics without assessing whether those customers are:
- Valuable customers to serve
- Ideal customers to retain
- Viable customers to resurrect
In turn, they play a game of churn whack-a-mole that’s unsustainable because the product may never effectively serve those customers.
To illustrate this idea a bit further, let’s look at an example from Figma.
Figma has built great tools for designing visuals and UI for software products, but they didn’t initially create a solution for presenting slides in classroom settings.
Because presenting is a different use case than designing software UI, it would likely require different features to get the job done, like creating animations or enabling presenter notes.
Figma has several choices here. They could decide that these customer needs aren’t a good fit for their product and accept the customer churn. Or they could alter their product to make it a better fit for this use case.
But if they simply try to resurrect those churned classroom users without this insight, their resurrection efforts would quickly hit a ceiling.
You can’t resurrect a user whose needs aren’t met if you still don’t meet their needs.
That’s why we’d love to rebrand “churn” as Ideal Retained Customers Who Have Left. With this nomenclature, your team will start seeing churn as a retention problem rather than a resurrection problem.
You are also likely to have a large segment of users “churn” who actually just never activated.
For example, if 95% of your signed-up users churn and these are your ideal customers to retain, focus on successfully activating them into the product and retaining them instead of trying to resurrect those you’ve already lost.
“Inactive customers who you resurrect will have higher standards than new customers because they’ve already given your product a chance once, and it failed them,” says Adam Fishman, EIR at Reforge and former Chief Product and Growth Officer at Imperfect Foods. “Your likelihood of retaining a resurrected customer isn’t great, and you should just try to keep them from churning in the first place if they fit the ideal profile.”
Hemal Shah, former Chief Product Officer at Root, adds that even if you are able to resurrect churned customers, it may not last.
“Focusing on the reasons customers leave your product takes away from investing in the reasons that customers hire your product, and from investing in the customers who are staying with you. While you may extend retention of former customers incrementally, at some point these customers will find another reason to leave you again.”
As in many arenas, preventative care is a more effective strategy than corrective care.
Churn is no exception to this rule. The best thing to do is focus on retaining your ideal customer through better activation or engagement strategies.
Myth #3: Churn means the end of a customer’s journey
Most product organizations treat churn as a binary state — a customer has either churned or not churned. There is no in-between in their mind.
As a result, churn has taken on an unintended connotation of the “last chance to save this customer.”
But the moment before someone churns is when you have the least leverage to change the trajectory of the customer journey.
Instead, you should be addressing churn from the moment someone interacts with your product.
Onboarding is often the best spot to start. You should strive to connect people with the value proposition of your product from the beginning.
But you also want to be intentional about how you define real churn so that you don’t over or under-estimate inactivity.
“Churn can sometimes look like churn, but is actually seasonal dormancy,” says Adam Fishman.
At Imperfect Foods, his team noticed that some people go inactive and look like they’ve churned, but really they just want to take a break and come back later. They’re still satisfied with the product and intend to use it again.
“We also saw this at Lyft. Drivers and passengers are much less active in the first few weeks of January. You might think they’ve churned, but they’re really just going through a temporary behavior shift and will come roaring back.”
In other words, churn is a state on a spectrum of engagement, and that state can constantly change.
Reframing churn as a retention problem will help you understand the full customer journey rather than just a single moment in time.
In the Lyft example above, focusing on week-over-week retention may not reveal the seasonality inherent to customer behavior. The team would need to look at a longer time horizon to get the full picture.
With this retention mindset, you’ll be more inclined to segment different use cases or audiences, see how retention impacts each one, and look at behavior over a more appropriate timeline.
Want To Improve Churn? Focus On Retention Instead
Now that we have an idea of the myths that plague product teams working to improve churn, let’s turn to how to center retention instead.
We’ve aggregated these tips from having made many of these mistakes ourselves.
Tip #1: Don’t Try to Catch Sand, Build the Beach.
Resurrecting engaged users is like trying to catch sand that’s falling through your fingers. It takes a lot of effort, and there’s not much left over even if you’re successful.
Instead, try to build a beach for the right beachgoers. Focus on activating and retaining the customer profiles that matter most rather than hopelessly trying to save customers who don’t fit in the first place.
As Behzod Sirjani, current Reforge EIR, says, “If I’m trying to build a steakhouse, I don’t want to ask a vegetarian to tell me what they think of the food. Let them go — they’re not the right customer.”
Tip #2: Segment your Churn Beyond Regrettable vs. Unregrettable
Churn is not a binary state but instead an outcome of different customers moving along a continuum of engagement.
To illustrate this idea, let’s walk through an example from Patrick Moran, Reforge EIR and former Global Head of Growth Marketing at Spotify.
In an effort to improve activation amongst free users, Spotify launched a new version of their mobile product that included design changes to the main tabs at the bottom of the app.
Version A, the old app, had 5 main tabs, while Version B, the new app, was simplified into 3 main tabs.
After launch, the data showed that Version B had a lower engagement rate. But as the team investigated further, they realized something powerful: the overall average engagement rate was lower, but engagement among new users was substantially higher.
Existing users felt like a choice was being taken away, while new users had an easier time navigating to the tabs that mattered most: Home, Search, and Library.
This meant that the churn rate actually increased amongst existing free users. However, new user activation and growth far outweighed this loss, leading to a net positive impact.
The moral of this story is that segmentation matters. You will have to make tradeoffs for user segments that have different engagement profiles.
The Spotify team did at least three things correctly:
- They were explicit about which customers were most important to serve while making hard tradeoffs.
- They understood that activation for new users would be a more successful long-term strategy than resurrecting customers lost from the redesign.
- They segmented the data to understand churn beyond just regrettable or unregrettable.
We suggest you do the same.
If you’re early on, start by breaking down your churned population into different groups based on their shared attributes. You can then get an honest read on how big of a problem churn is and where it’s concentrated.
But don’t stop there, this level of segmentation often isn’t enough to act on.
You need to understand the sub-segments of regrettably-churned customers and the retention curve for each before you can take action. Then, you need to know what the drivers are to move that curve for each population.
This ensures that you’re effectively moving people from just setting up an account to actually experiencing value from it.
In our experience, the majority of folks who make it part of the way through activation but later churn haven’t truly been activated. This tends to be a high-leverage area for improvements that helps all future cohorts.
In Patrick’s Spotify example, different populations were retained at different rates. Free users weren’t activating as effectively into the product, while the paid tier had significantly lower churn. His team then tailored the redesign to focus more on new user activation.
Even if you’ve improved activation, especially with high-frequency use products, you may still have folks churning from groups A and B.
In these cases where customers have successfully established a habit with the product, there are only a handful of reasons why truly activated users churn:
- Their needs change (e.g, they mature out of using the product)
- The market changes (e.g, there’s an alternative on the market that’s better)
- The product changes (e.g, it can’t be used for the same use case anymore)
Generating a solid strategy for improving retention for established users requires diagnosing which of these three changes may be the culprit.
Ultimately for all segments, you will need to move past the specifics of why they churned and look for where along the journey you could have prevented it.
This level of segmentation will help you tailor your retention-improvement strategies by first understanding the size and leverage you have over each population.
Tip #3: Focus on the Full Customer Journey or Expect Incremental Gains
Ultimately, product teams need to reclassify customer churn as a problem that spans the entire customer journey. This includes acquisition, activation, retention, and monetization.
If not, they’ll soon reach a ceiling because there are only so many churned users you can resurrect.
If you’re focused on retention, there are bigger levers you can pull for greater impact:
- Change the product to meet your customer needs more effectively.
- Change the positioning to target and speak to your customer needs more effectively.
- Change the pricing to be valued for meeting those needs effectively.
Here are a few examples to illustrate how this works in practice.
Saleem Malkana’s team at AMC had to make a product change to improve retention for subscription video service customers. While documentary-viewers loved the content, they eventually churned from the platform because they simply didn’t want to watch multiple documentaries per month.
Saleem’s team believed that they could establish more of a weekly viewing habit with this audience by expanding the content offerings to include content that resonated with this user segment alongside the documentaries.
It worked. Documentary viewers were also interested in content areas like true crime, which they could watch more regularly, and they retained better when they did. With this new content strategy, the team adopted a new product strategy: make it easy to discover and watch a range of new content, launched across 7 device platforms.
In essence, they met the customer needs more effectively and reduced churn in the process.
In 2018, Slack made a change in positioning to improve acquisition. Behzod Sirjani noted that they realized that many potential customers couldn’t understand what working in Slack really meant. Slack’s website called it “a better way to work” but they didn’t do a good job showing it.
“We ended up building SlackDemo.com to highlight the range of activities that Slack could be used for and give prospective customers a better idea of whether or not Slack would fit their teams’ needs.”
This helped Slack shift the public narrative from being around how Slack works to actually showing people how to work in Slack.
Lastly, Darius’ example of users exploring a product for a month and then churning illustrated how changes in the pricing model can be very impactful.
Rather than trying to resurrect these customers, changing the pricing model to include a freemium tier may be more advantageous. This effectively drives them to realize initial value, establish a habit with the product then and have much more clarity about what they’ll get if they pay
These three types of changes — product, positioning, and pricing — are relevant across the customer journey, not just right before a customer churn.
Unfortunately, teams get stuck on a churn island if they have no decision-making authority or influence on the core product, positioning, or pricing changes that can improve retention.
That’s why it’s so important to view churn as a full-lifecycle retention problem. Leaders can’t set teams up for success if they’re too focused on salvaging scraps at the end of the customer journey.
These three common myths highlight that churn is not one small thing that can be fixed by a single team.
Instead, to truly address churn your team needs:
- A deep understanding of your user segmentation
- A full-lifecycle view of how each segment is activating and retaining over time
- A narrative insight for why people fall off that you can then actually act on
- A willingness to make tradeoffs about customer segments and use cases you will and won’t serve
Product teams are often scared to do the necessary work to improve churn because it requires bravery and commitment to not being everything for every customer.
But this isn’t a nice-to-have. Growth at the expense of real product-market fit is a recipe for becoming irrelevant over time.
You can look to data for some directional guidance, but ultimately you’ll need to make these tough calls as an organization to have any hope for sustainable impact.
If you’re hoping to immediately apply what you’ve learned in this article, access the free Churn Segmentation Worksheet, where we review some of the examples covered in this article and provide you a scratchpad to think through this for your business.