For companies that depend on subscription-based revenue streams, calculating and understanding churn rates is critical. Net Revenue Churn (NRC) provides insight into the success of organizations’ customer retention strategies, which directly affects their overall growth rate. Having a high NRC (above 2% per month) can be an indicator that something is wrong in your business and it may have a dramatically negative effect on your company’s growth. Understanding the potential causes of a high NRC can help you manage your customer attrition rates and avoid hitting an unsustainable threshold for success.
Net revenue churn (NRC) measures how much recurring revenue you lose from customers each month as a percentage of total revenue from the same period in the previous quarter or year. To calculate NRC, divide your lost monthly recurring revenue by the prior quarter or year’s quarterly/annual revenue. If your monthly NRC rate exceeds 2%, it could signal that there are problems in your business model or areas where you need to improve customer retention—or both!
There are many possible causes for higher-than-expected net revenue churn, such as ineffective customer onboarding, unannounced product changes, lack of value delivered compared to what was promised during registration, pricing changes, bad customer service experiences, lack of automation, and other technical issues like inconsistent CRM systems. Additionally, if your product isn’t delivering on expectations then customers will become less engaged leading to inactive memberships and fewer renewals over time.
If you want to reduce your Net Revenue Churn rate then you must first identify the underlying cause(s). Start by analyzing real data about what happened with individual customers who canceled their accounts instead of relying on anecdotal evidence from surveys or interviews. From there you can start making improvements in terms of products/services offered, user experience design approaches, onboarding processes, and other customer touchpoints that influence retention rate. Additionally, offering loyalty rewards programs such as discounts or special privileges to long-term customers can increase customer lifetime value over its projected ceiling by persuading them to stay with you longer than expected—reducing net revenue churn as a result. There are many different ways you can improve your NRC rate, and it doesn’t hurt to experiment with a few techniques to figure out what works best for your business.