Setting up Churn Analysis in Excel Simplified 101

This article aims at expanding your knowledge on why doing a Churn Analysis is important. It will help you understand the concept of churn, forms of churn, types of churn, tell you the kind of data to look out for when analyzing your Churn Rate, and a step-by-step guide on how you can perform Churn Analysis in Excel.

Setting up Churn Analysis in Excel

• Churn Analysis in Excel mostly carried out on a spreadsheet as this will show in detail the information required and changes can be inputted subsequently without altering it. 
• Calculation of Churn Rate is based on the formula: 

number of customers that left your service during a given period/total number of customers during that period

• To get the exact number of customers that left, subtract the number of users at the end of that period from the number at the beginning of the period. That is:

number of users at the beginning of the period - the users at the end of the period

• These formulas can easily be applied in Excel for large number of rows without any manual input. This is why Churn Analysis in Excel is considered to be one of the easier analyses that can be performed on it.
• In the example below, we will look at how to perform a Churn Analysis in Excel. This example is a simple company showing new customers for each year or period of time, number of new customers, number of customers that churned during that period, and Churn Rate. 

• In the illustration above, Column A (A7-A16) shows the number of years (10), Column B shows the number of customers at the start of the year (B7-B16) and it is equivalent to the end customers of the previous year. Column C (C7-C16) indicates new customers for that year added to the start customers of that year. For example, 15000 + 400 = 15400 for year 1.
• Column D shows the number of churned customers for that given time/year (D7-D16) calculated as B7 * B3 (Churn Rate which is fixed for demonstration at 8%). Column E indicates the total number of customers at the end of the year. For example, for the first year, C7 – D7 = E7.
• In cell B1, it was assumed that the initial number of customers at the start of the first year were 15000, cell B2 is the assumed number of new customers at a fixed rate for all the years is 400, while cell B3 is a fixed Churn Rate (calculated with the formula stated previously). 
• The illustration above is a simple form of calculating customer Churn Rate to perform a simple Churn Analysis in Excel but there are more complicated models but the basics remain the same for all of them be it customers Churn Rate, revenue generated by a customer before churn, etc.

Introduction to Churn Analysis

• Churn Analysis which is also referred to as the Rate of Attrition can be defined as the process of analyzing data to understand why customers stopped using certain products or services.
• It can further be defined as the rate at which customers stop doing business with an entity or the rate at which employees leave their position in a firm.
• It doesn’t only give you the rate at which users stop using your services but also tells you why, when, and how to fix the problem. 
• It is not possible to change the strategy of your business because of a reduction in customer retention without carrying out a comprehensive study behind the reasons why they left, categories of those who left, and mapping out models to alter future occurrence.
• Churn Analysis is also very important for a subscription-based business as it calculates the rate at which subscribers discontinue their subscription within a period and it is expressed in percentage.
• For such organizations to increase their client base, the Growth Rate which is the number of new acquisitions must exceed their Churn Rate. There are various widely used softwares that can help you perform Churn Analysis. Churn Analysis in Excel is considered to be the easiest to perform.

Forms of Customer Churn 

There are various forms of Customer Churn and a few of them are as follows:

• Cancellation of Subscription
• Non-Renewal of Subscription
• Switching to Competitors
• Closure of Accounts by Customers

Types of Churn

Churn can be categorized into two categories which are as follows:

• Voluntary Churn
• Involuntary Churn

1) Voluntary Churn 

When clients consciously deactivate their usage of your services as a result of attractive offers from competitors, negative customer experience, or ultimate closure of a business venture, it is referred to as Voluntary Churn. These types of churn are often tricky to prevent as it may be difficult to convince the user otherwise.

2) Involuntary Churn 

Involuntary Churn occurs most times without the intention of the user. It can happen as a result of insufficient funds on credit cards, expired cards, failed payment processing, etc. Unlike Voluntary Churn, Involuntary Churn is easily handled as it is a result of a faulty business process and can be dealt with to avoid reoccurrence. 

Importance of Churn Analysis

• Calculating your Churn Rate regularly can be the difference between sustaining your business or crashing it.
• Not doing a comprehensive analysis of your Churn Rate would lead the enterprise to various failings which will hamper growth.
• Effective handling of Churn Analysis helps you in focusing on areas where the loss of subscribers is prominent so that it can be stopped rather than trying to cover it through acquiring new customers.
• This loss may be from poor pricing, wrong or faulty payment systems, and all other problems which can be corrected as long as you discover where the losses are from. 
• Also, Churn Analysis will improve customer relationships as you will form a lasting bond with your clients.
• Deductions made during the analysis will provide ways of improving how you relate with consumers of your product and service thereby forging a considerable level of satisfaction.
• It would also mean you have loyal customers that would generate revenue instead of trying to acquire new ones all the time to maintain profit margins bearing in mind that the cost of acquiring new customers is relatively higher compared to maintaining existing ones. 

Data Needed to Perform Churn Analysis in Excel

The data required to build a Churn Model is as follows:

• Customer Details
• Purchasing Information
• Level of Interaction with Products
• Seasonality of Products
• Common Complaints of Consumers

1) Customer Details

• This would include the names of customers, addresses, job titles, employment status, etc to build an in-depth customer profile and is one of the most important parameters required to understand the root cause for churns while performing Churn Analysis in Excel.

2) Purchasing Information

• It is paramount to know your user’s purchase and billing history to perform a comprehensive Churn Analysis in Excel. Doing this gives you a picture of how billings affect churn as you would know when they signed up, canceled a service, upgraded to a higher package, and a customer’s general lifetime value. 

3) Level of Interaction with Products

• Another useful parameter to keep track of is user interactions as this shapes their experience with your service. Monitoring interactions between users and your team also contributes to lowering the Churn Rate as it identifies areas where improvements can be made and can help you make your Churn Analysis in Excel more comprehensive.

4) Seasonality of Products 

• Some products or services are required during a time of the year therefore having this knowledge is a pointer to why clients may decide to cancel your service and that may not be a cause for alarm. Also, certain periods of the year see an increase or decrease in the purchasing strength of consumers. All this has to be understood to perform Churn Analysis in Excel. 

5) Common Complaints of Consumers

• Having an anonymous cancellation survey given to users would give an insight into complaints and would indicate why services were halted. This information can then easily be used to determine the root cause of churns while performing Churn Analysis in Excel.

Learn how to build an effective churn prediction model to retain customers and improve business performance. Discover the details at Churn Prediction Model.

Conclusion

In this article, you learned about Churn Analysis in Excel, forms of Customer Churn, and types of churn. You were also shown how to set up Churn Analysis in Excel using a simplified example. However, you can use proven processes to run your Churn Analysis in Excel to avoid your business crumbling or incurring further revenue loss.