👋 Hey, it’s Sundar! Welcome to a  paid subscriber only article of experiMENTAL: a weekly newsletter on B2C Marketing & data science how-to guides, frameworks, and stories from 15 years including early Uber. Free tier subscribers can continue reading for limited preview of the article.

While most companies focus on increasing retention, I prefer focusing on churn prevention. While you might think that’s the same, customers are looking for reasons to stay and are often disappointed by some part of the experience (onboarding, transaction, support, etc.).

But, before you can create a strategy around churn (or retention), you first have to define what churn is. That’s not always so straightforward. To help you define churn for your business, I’ve brought in guest author Drew Maniglia. 

Drew Maniglia has been focusing on customer churn for over 15 years. Prior to starting his startup, Drew built and led the data science team at Roku, implemented the churn models for Barnes & Noble’s Nook platform, and developed churn measurement for financial services companies.

He’s now the founder of Hakuin, a customer churn measurement and prediction company, helping B2C companies across media, e-commerce, fin-tech, and health-tech to improve customer lifetime value.

Disclaimer: Hakuin is not a paid sponsor and this is not an endorsement for Hakuin

What is Customer Churn? (✏️ to Drew)

Customer churn is one of the core dynamics playing out in every business. It’s simply a question of magnitude – just how many steps back for each step forward? At its most basic, customer churn is friction. It’s the headwind in the face of customer growth. It can also be compared to heat loss, or electrical resistance, or any other countervailing force that occurs in nature.

There’s so much human energy that goes into creating a product or service, bringing it to market, and recruiting customers. Churn is nothing other than the erosion of that energy.

Here’s a top-level definition that applies to all businesses: Customer churn occurs when customers turn off, depart from, or in any other respect cease to purchase our products or services for a prolonged period.

We’ll discuss below how this generic definition applies to different business models. Of course, the reason to define churn is to manage and reduce it. All metrics, churn and otherwise, should exist in service to action.

A useful churn definition helps companies:

1. Improve Customer Acquisition – Once we define churn, we can analyze and compare churn rates for different types of customers. The most relevant customer segment is the customer acquisition channel - how does acquisition relate to churn? We can update our acquisition strategies to focus on lower churn sources.

2. Improve Revenue Planning — We use churn analysis to project the number of customers and volume expected to churn out from our existing customer base in upcoming periods. 

3. Predict Customer Churn – Once we’ve defined churn, we can use machine learning to predict it at the user level. If we can predict it accurately, we can try to preempt it. 

But, before diving into churn definitions, we need to better understand customer cohorts which are the foundation of all churn analyses.

Customer Cohorts

A customer cohort is a group of customers who first engaged with your business within the same time period. By grouping customers into a cohort, we’re standardizing some of their user experience – the state of your product when they first engaged,  marketing campaigns, competitor activities, and overall market and economic sentiment. Think of the cohort of students who started kindergarten in September 2020. This cohort of students had a unique experience, and we’ll want to compare the academic performance of this cohort with other cohorts to understand what happens when your first introduction to school is remote.

Time is an key factor in any situation, and cohorts account for customer timing. When B2C subscriptions report on churn, they count the cancellations per cohort. This is what enables us to build churn curves and compare over time:

Let’s dive into how we should define churn based on your business model + product.

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