Returning churned customers

lnick · 2023-05-09T19:57:06+00:00

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lnick

How to account for previously churned customers that return in the current time period?

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Adam Ince

If this is a case of missed payment, it’s slightly different.

1. Do they ever make up the missed payment? Or is that month lost? This determines how you count someone as “churned”

2. From a revenue standpoint, I’d argue it’s more accurate to handle it this way. If I’m expecting $100 in Month 1, and get paid $70, on what scenario would I want to show anything but 70%?

If I’m expecting $70 in month 2 and am paid $100, how should I account for that?

3. For comp, this depends on how often you pay.

Knowing a few more details I could provide more concrete examples.

If you’d like to connect email me at adam@retainfocus.com and I can go a little deeper!

lnick

@Adam Ince Yeah that could make sense, but then the monthly churn numbers will always be overstated, right? Because if all three customers in Month 1 missed payment, but fixed their payment information in Month 2, 100% monthly churn is wildly inaccurate and should not be used to assess the health of the platform.

Similarly, if monthly churn is factored into the compensation structure of the CSM, it would be unfair to penalize them for churn if all those customers came back shortly after?

Adam Ince

Inick,

Most companies I’ve worked with count the churn when the customer leaves and track reactivation as a separate measure that offsets churn.

In your example…

Month 1: 3 out of 3 customers leave. 0% retention.
Month 2: 3 out of 3 customers leave. 3 Month 1 customers deactivate. 100% retention.

If you didn’t lose any customers in Month 2, you could have 3 retained and 3 activated, for 200% net retention.

Most do not revise Month 1 churn so that when the month or quarter closes, numbers can remain final.

Hope that helps! Happy to explain more if needed.

lnick

@HetalUdani Thanks! I'm trying to figure out how to determine monthly churn rates. For example, let's say I have three customers in Month 1. And at the end of Month 1, I lose all three customers. My churn rate for Month 1 is 100%.

But in Month 2, all three of those customers come back. Would you go back and adjust Month 1 churn to 0%? Is it okay to keep retroactively adjusting historical churn as we win customers back?

Or would you keep historical churn the same and account for the returned customers some other way?

HetalUdani

Hi Inick,

Depending on the nature of business there are various policies that can be implemented. At the B2B industry that i worked in, we did it as mentioned below

Have a renewal timeline and mark customers who renew on-time as within quarter , those that renewed before their quarter began is termed Early and those that renewed after quarter ended were "Late Renewals". Technically there is a 90 day grace period given for late renewals.
We had 2 metrics called "On-Time Renewal" and "Overall Renewal". The On-Time Renewal Rate was fixed one time view who were snapshotted by end of quarter 11:59 pm PT. Any fluid changes such as late renewal etc were counted towards late renewal. There are a couple of advantages to knowing both the metrics.
There is an incremental arr backfill policy is above does not work for your use case where the rep gets paid on quota since renewal / logo was secured but does not make it to ARR increase .

Happy to expand further since there was a lot we had to drive to get this implemented and also exception reports to get notified of such scenarios. Sometimes even a new deal in same parent account hierarchy can also falsley implicate new dollars .

Hope this helps. Feel free to PM me to learn more.

Best,

Hetal

lnick

@Michelle Wideman thanks for your feedback! Our customers have the option to pay monthly/quarterly/annual . An example would be, they churned in April & we accounted for the churn in our reports but came back in May; would you go back to April & account for them or do you account for them coming back in May in another way?

Rich Rans

Typically I see a policy in place -

Customer returns in < X months, then its a renewal with a downsell
Customer returns in > X months, then its considered new business

Michelle Wideman

@lnick this can be a complicated one depending on how you license/sell your product and the length of time between when a customer churned and when they returned. Can you provide more details? Why I say this gets complicated as I've seen sales folks try to manipulate the system and tell a customer to churn and try and sell a new bundle/package so they can hit their number when this isn't always the best thing for the company.