Customer Churn Prediction Using Machine Learning: Main Approaches and Models - KDnuggets (2023)


By Altexsoft.

Customer retention is one of the primary growth pillars for products with a subscription-basedbusiness model. Competition is tough in the SaaS market where customers are free to choose from plenty of providers even within one product category. Several bad experiences – or even one – and a customer may quit. And if droves of unsatisfied customers churn at a clip, both material losses and damage to reputation would be enormous.

For this article, we reached out to experts fromHubSpotandScienceSoftto discuss how SaaS companies handle the problem of customer churn with predictive modeling. You will discover approaches and best practices for solving this problem. We’ll discuss collecting data about client relationship with a brand, characteristics of customer behavior that correlate the most with churn and explore the logic behind selecting the best-performing machine learning models.

What is customer churn?

Customer churn (or customer attrition)is a tendency of customers to abandon a brand and stop being a paying client of a particular business. The percentage of customers that discontinue using a company’s products or services during a particular time period is called acustomer churn (attrition) rate. One of the ways to calculate a churn rate is to divide the number of customers lost during a given time interval by the number of acquired customers, and then multiply that number by 100 percent. For example, if you got 150 customers and lost three last month, then your monthly churn rate is 2 percent.

Churn rate is a health indicator for businesses whose customers are subscribers and paying for services on a recurring basis, notes head of data analytics department at ScienceSoftAlex Bekker,“Customers[of subscription-driven businesses]opt for a product or a service for a particular period, which can be rather short – say, a month. Thus, a customer stays open for more interesting or advantageous offers. Plus, each time their current commitment ends, customers have a chance to reconsider and choose not to continue with the company. Of course, some natural churn is inevitable, and the figure differs from industry to industry. But having a higher churn figure than that is a definite sign that a business is doing something wrong.”

There are many things brands may do wrong, from complicated onboarding when customers aren’t given easy-to-understand information about product usage and its capabilities to poor communication, e.g. the lack of feedback or delayed answers to queries. Another situation: Longtime clients may feel unappreciated because they don’t get as many bonuses as the new ones.

In general, it’s the overall customer experience that defines brand perception and influences how customers recognize value for money of products or services they use.

The reality is that even loyal customers won’t tolerate a brand if they’ve had one or several issues with it. For instance, 59 percent of US respondents to thesurvey by PricewaterhouseCoopers(PwC) noted that they will say goodbye to a brand after several bad experiences, and 17 percent of them after just one bad experience.

Customer Churn Prediction Using Machine Learning: Main Approaches and Models - KDnuggets (1)

Bad experiences may alienate even loyal customers. Source:PwC

Impact of customer churn on businesses

Well, churn is bad. But how exactly does it affect company performance in the long run?

Don’t underestimate the impact of even a tiny percentage of churn, saysMichael Redbord, general manager of Service Hub at HubSpot. “In a subscription-based business, even a small rate of monthly/quarterly churn will compound quickly over time. Just 1 percent monthly churn translates to almost 12 percent yearly churn. Given that it’s far more expensive to acquire a new customer than to retain an existing one, businesses with high churn rates will quickly find themselves in a financial hole as they have to devote more and more resources to new customer acquisition.”

Many surveys focusing on customer acquisition and retention costs are available online. According to this one byInvesp, conversion rate optimization company, getting a new customer may cost up to five times more than retaining an existing customer.

Churn rates do correlate with lost revenue and increased acquisition spend. In addition, they play a more nuanced role in a company’s growth potential, continues Michael,“Today’s buyers aren’t shy about sharing their experiences with vendors through channels like review sites and social media, as well as peer-to-peer networks.HubSpot Researchfound that 49 percent of buyers reported sharing an experience they had with a company on social media. In a world of eroding trust in businesses, word of mouth plays a more critical role in the buying process than ever before. From the same HubSpot Research study, 55 percent of buyers no longer trust the companies they buy from as much as they used to, 65 percent don’t trust company press releases, 69 percent don’t trust advertisements, and 71 percent don’t trust sponsored ads on social networks.”

Customer Churn Prediction Using Machine Learning: Main Approaches and Models - KDnuggets (2)

A glance at the state of customer trust towards businesses. Source:HubSpot Research Trust Survey

The expert concludes that companies with high churn rates aren’t only failing to deliver in their relationships with ex-customers but also damage their future acquisition efforts by creating negative word-of-mouth around their products.

CallMiner conversational analytics solutions provider interviewed 1000 adults to learn why and how they interact with companies. Thesurveyrevealed that US businesses lose about $136 billion a year due to customer attrition. What’s more, the company behaviors that caused customers to cut ties with brands could have been corrected.

(Video) End To End Machine Learning Project With Deployment | Customer Churn Analysis | Churn Prediction

Use cases for customer churn prediction

As we mentioned before, churn rate is one of the critical performance indicators for subscription businesses. The subscription business modelpioneered by English book publishersin the 17th centuryis very popular among modern service providers. Let’s take a quick look at these companies:

Music and video streaming servicesare probably the most commonly associated with the subscription business model (Netflix, YouTube, Apple Music, Google Play, Spotify, Hulu, Amazon Video, Deezer, etc.).

Media.Digital presence is a must among the press, so news companies offer readers digital subscriptions besides print ones (Bloomberg,The Guardian, Financial Times, The New York Times, Medium etc.).

Telecom companies (cable or wireless).These companies may provide a full range of products and services, including wireless network, internet, TV, cell phone, and home phone services (AT&T, Sprint, Verizon, Cox Communications, etc.). Some specialize in mobile telecommunications (China Mobile, Vodafone, T-Mobile, etc.).

Software as a service providers.The adoption of cloud-hosted software is growing. According toGartner, the SaaS market remains the largest segment of the cloud market. Its revenue is expected to grow 17.8 percent and reach $85.1 billion in 2019. The product range of SaaS providers is extensive: graphic and video editing (Adobe Creative Cloud, Canva), accounting (Sage 50cloud, FreshBooks), eCommerce (BigCommerce, Shopify), email marketing (MailChimp, Zoho Campaigns), and many others.

These company types may use churn rate to measure the effectiveness of cross-department operations and product management.

Identifying at-risk customers with machine learning: problem-solving at a glance

Companies that constantly monitor how people engage with products, encourage clients to share opinions, and solve their issues promptly have greater opportunities to maintain mutually beneficial client relationships.

And now imagine a company that has been gathering customer data for a while, so it can use it to identify behavior patterns of potential churners, segment these at-risk customers, and take appropriate actions to gain back their trust. Those following a proactive approach to customer churn management usepredictive analytics.That’s one offour analytics typesthat entails forecasting the probability of future outcomes, events, or values by analyzing current and historical data. Predictive analytics utilizes various statistical techniques, such as data mining (pattern recognition) andmachine learning(ML).

“The one weakness of tracking just real churn is that it serves only as a lagging indicator of poor customer experience, which is where a predictive churn model becomes extremely valuable,”notes Michael Redbord from HubSpot.

The main trait ofmachine learningis building systems capable of finding patterns in data, learning from it without explicit programming. In the context of customer churn prediction, these are online behavior characteristics that indicate decreasing customer satisfaction from using company services/products.

Customer Churn Prediction Using Machine Learning: Main Approaches and Models - KDnuggets (3)

Detecting customers at risk of churn helps take measures in advance

ScienceSoft’s Alex Bekker also stresses the importance of machine learning for proactive churn management:“As to identifying potential churners, machine learning algorithms can do a great job here. They reveal some shared behavior patterns of those customers who have already left the company. Then, ML algorithms check the behavior of current customers against such patterns and signal if they discover potential churners.”

Subscription-based businesses leverage ML for predictive analytics to find out which current users aren’t fully satisfied with their services and address their issues when it’s not too late: “Identifying customers at risk of churn as many as 11 months before their renewal enables our customer success team to engage these customers, understand their pain points, and with them, put together a long term plan focused on helping the customer realize value from the service they bought,”explains Michael.

Use cases for predictive churn modeling go beyond proactive engagement with prospective churning customers and selecting effective retention actions. According to Redbord, ML-based software allows customer success managers to define which customers they should contact. In other words, employees can be sure they’re speaking with the right customers at the right time.

Sales, customer success, and marketing teams can also use the knowledge from the data analysis to align their actions.“For example, if a customer is showing signs of churn risk, that’s probably not a great time for sales to reach out with information about additional services the customer might be interested in. Rather, that engagement should be with the CSM so they can help the customer become re-engaged and see value in the products they currently have. Like sales, marketing can engage with customers differently depending on their current indication of churn risk: For example, non-churn risk customers are better candidates to participate in a case study than a customer who is currently a churn risk,”the expert of HubSpot explains. Generally speaking, the strategy of customer interaction should be based on ethics and sense of timing. And using machine learning for customer data analysis can bring insights to power this strategy.

Predicting customer churn with machine learning

But how to start working with churn rate prediction? Which data is needed? And what are the steps to implementation?

As with any machine learning task, data science specialists first need data to work with. Depending on the goal, researchers define what data they must collect. Next, selected data is prepared, preprocessed, and transformed in a form suitable for building machine learning models. Finding the right methods to training machines, fine-tuning the models, and selecting the best performers is another significant part of the work. Once a model that makes predictions with the highest accuracy is chosen, it can be put into production.

The overall scope of work data scientists carry out to build ML-powered systems capable to forecast customer attrition may look like the following:

  • Understanding a problem and final goal
  • Data collection
  • Data preparation and preprocessing
  • Modeling and testing
  • Model deployment and monitoring

If you want to learn what happens during these steps, read our article about themachine learning project structure. Now let’s find out how to complete each of these stages in the context of churn prediction.

(Video) Customer churn prediction using ANN | Deep Learning Tutorial 18 (Tensorflow2.0, Keras & Python)

Understanding a problem and a final goal

It’s important to understand what insights one needs to get from the analysis. In short, you must decide what question to ask and consequently what type of machine learning problem to solve: classification or regression. Sounds complicated, but bear with us.

Classification.The goal of classification is to determine to which class or category a data point (customer in our case) belongs to. For classification problems, data scientists would use historical data with predefined target variables AKA labels (churner/non-churner) – answers that need to be predicted – to train an algorithm. With classification, businesses can answer the following questions:

  • Will this customer churn or not?
  • Will a customer renew their subscription?
  • Will a user downgrade a pricing plan?
  • Are there any signs of unusual customer behavior?

The fourth question about atypical behavior signs represents a type of a classification problem calledanomaly detection. Anomaly detection is about identifying outliers – data points that significantly deviate from the rest of the data.

Regression.Customer churn prediction can be also formulated as a regression task. Regression analysis is a statistical technique to estimate the relationship between a target variable and other data values that influence the target variable, expressed in continuous values. If that’s too hard – the result of regression is always some number, while classification always suggests a category. In addition, regression analysis allows for estimating how many different variables in data influence a target variable. With regression, businesses can forecast in what period of time a specific customer is likely to churn or receive some probability estimate of churn per customer.

Customer Churn Prediction Using Machine Learning: Main Approaches and Models - KDnuggets (4)

This is the example of logistic regression used to predict churn probability in telecom byTowards Data Science. Here, the visualization depicts how the number of service calls and the use of international plans correlate with churn

Data collection

Identifying data sources.Once you’ve identified which kinds of insights to look for, you can decide what data sources are necessary for further predictive modeling. Let’s assume the most common sources of data you can use for predicting churn:

  • CRM systems (including sales and customer support records)
  • Analytics services (e.g., Google Analytics, AWStats, CrazyEgg)
  • Feedback on social media and review platforms
  • Feedback provided on request for your organization, etc.

Obviously, the list may be longer or shorter depending on the industry.

Data preparation and preprocessing

Historical data that was selected for solving the problem must be transformed into a format suitable for machine learning. Since model performance and therefore the quality of received insights depend on the quality of data, the primary aim is to make sure all data points are presented using the same logic, and the overall dataset is free of inconsistencies. Previously we wrote an article aboutbasic techniques for dataset preparation, so feel free to check it out if you want to know more on the topic.

Feature engineering, extraction, and selection.Feature engineeringis a very important part of dataset preparation. During the process, data scientists create a set of attributes (input features) that represent various behavior patterns related to customer engagement level with a service or product. In a broad sense, features are measurable characteristics of observations that an ML model takes into account to predict outcomes (in our case the decision relates to churn probability.)

Although behavior characteristics are specific to each industry, approaches to identifying at-risk customers are universal, notes Alex:“A business looks for specific behavior patterns that reveal potential churners.”

Digital marketer and entrepreneur Neil Patelclassifiesfeatures into four groups. Customer demographics and support features work for any industry. User behavior and contextual features, in turn, are typical for the SaaS business model:

  • customer demographic featuresthat contain basic information about a customer (e.g., age, education level, location, income)
  • user behavior featuresdescribing how a person uses a service or product (e.g., lifecycle stage, number of times they log in into their accounts, active session length, time of the day when a product is used actively, features or modules used, actions, monetary value)
  • support featuresthat characterize interactions with customer support (e.g., queries sent, number of interactions, history of customer satisfaction scores)
  • contextual featuresrepresenting other contextual information about a customer.

HubSpot specialists try to understand “what makes a successful customer” by using such metrics as website visitors, leads generated, and deals created. General manager of Service Hub Michael Redbord says:“We not only track usage data (e.g., publishing a blog post, editing a deal’s projected closed value, or sending an email) but outcome data (e.g., number of click on an email, number of views on a blog post, dollar value of deals closed during a quarter.) It’s important to understand not just how your customers are using your product but what results they’re seeing. If customers aren’t generating value from the product, we typically see an increase in the likelihood of churn.”

Customer Churn Prediction Using Machine Learning: Main Approaches and Models - KDnuggets (5)

How different user behavior, subscription, and demographic features correlate with churn in Internet service byMatt Dancho for RStudio blog

But having too much data isn’t always good.

Feature extractionaims at reducing the number of variables (attributes) by leaving the ones that represent the most discriminative information. Feature extraction helps to reduce the data dimensionality (dimensions are columns with attributes in a dataset) and exclude irrelevant information.

Duringfeature selection, specialists revise previously extracted features and define a subgroup of them that’s most correlated with customer churn. As a result of feature selection, specialists have a dataset with only relevant features.

Methods.Head of ScienceSoft data analytics department Alex Bekker notes that such methods as permutation importance, ELI5 Python package, and SHAP (SHapley Additive exPlanations) can be used to define the most relevant and useful features.

The principle of work of all methods lies in explaining how models make their predictions (based on what features a model made a particular conclusion.) Model interpretability is one of the high-priority issues in the field, and data scientists keep developing solutions to solve it. You can read more about interpretability in our article onAI and data science advances and trends.

(Video) How to do Churn Prediction of Customers? | Python Code Part - 1

Permutation importanceis one of the ways of defining feature importance – an impact a feature makes on the predictions. It’s calculated on models that have already been trained. This is how permutation importance is done: A data scientist changes the order of data points in a single column, feeds the model with the resulting dataset, and defines to what extent that change decreases its accuracy. Features that have the biggest influence on results are the most important.

Another way to do permutation importance is to remove a feature from a dataset and retrain the model.

Permutation importance can be done withELI5– an open source Python library that allows for visualizing, debugging ML classifiers (algorithms), and interpreting their outputs.

According to theELI5 documentation, this method works best on datasets that don’t contain a large number of columns (features).

Using theSHAP(SHapley Additive exPlanations) framework, specialists can interpret decisions of “any machine learning model.” SHAP also assigns each feature an importance value for a particular prediction.

Customer segmentation.Growing companies and those expanding their product range usually segment their customers using previously defined and selected features. Customers can be divided into subgroups based on their lifecycle stage, needs, used solutions, level of engagement, monetary value, or basic information. Since every customer category shares common behavior patterns, it’s possible to increase prediction accuracy through the use of ML models trained specifically on datasets representing each segment.

For instance, HubSpot uses such segmentation criteria as customer persona, lifecycle stage, owned products, region, language, and total revenue of the account.“Combinations of segments like these are how we carve up ownership of accounts and define a CSM[customer support manager]or salesperson’s book of business,”says Michael.

In addition, armed with knowledge about customer value, employees can prioritize their retention activities.

After data preparation, feature selection, and customer segmentation stages, the time comes to define how long it will take to track user behavior before drawing predictions.

Selecting an observation window (customer event history).Predictive modeling is about learning the relationship between observations made during a period (window) that ends before a specific time point and predictions about a period that starts after the same time point. The former period is referred to asobservation,independent,explanatorywindow, orcustomer event history(let’s use the last definition for clarity). The latter period that follows an observation one is called aperformance,dependent, orresponse window. In other words, we predict events (a user churns or stays) in a performance window, in the future.

Customer Churn Prediction Using Machine Learning: Main Approaches and Models - KDnuggets (6)

It’s critical to define correct event history and observation windows

Machine learning engineer at Spotify, Guilherme Dinis, Jr., in hismaster’s thesis, studied the behavior of new Spotify users registered to a free plan to define whether they leave or remain active during the second week after their registration.

He chose the first week of usage as the event history. To classify users as churners and active users Guilherme checked if there was any streaming activity in the second week. If users continued listening to music, they were classified as non-churners.

“The reasons for keeping the observation[event history]and activation windows[performance window]relatively small is motivated by internal prior studies on the same population of users which indicated high churn probability two weeks after registration,”explained the engineer.

So, to define the event history longevity and performance window, you must consider when your users usually churn. It may be the second week, as in the Spotify example, or it may be the 11th month of annual subscription. But most likely, you wouldn’t want to learn that this subscriber is likely to churn in a month. As you’ll have a very small timeframe for re-engagement.

Balancing the time for observations and predictions is actually a tricky task. For instance, if an observation window is one month, then a performance window for a customer with an annual subscription will be 11 months. It seems that making a short event history and long performance windows would be the most beneficial for businesses. You take little time for observation and have enough time for re-engagement. Unfortunately, it doesn’t always work this way. A short event history may not be enough to make reliable predictions, so experimenting with these parameters can become a repetitive ongoing process with its trade-offs. Basically, you have to define the event history that would be enough for a model to make a justified prediction, but still, have enough time to address potential churn.

Modeling and testing

The main goal of this project stage is to develop a churn prediction model. Specialists usually train numerous models, tune, evaluate, and test them to define the one that detects potential churners with the desired level of accuracy on training data.

Classic machine learning models are commonly used for predicting customer attrition, for example, logistic regression, decision trees, random forest, and others. Alex Bekker from ScienceSoft suggests using Random Forest as a baseline model, then“the performance of such models as XGBoost, LightGBM, or CatBoost can be assessed.”Data scientists generally use a baseline model’s performance as a metric to compare the prediction accuracy of more complex algorithms.

Logistic regressionis an algorithm used for binary classification problems. It predicts the likelihood of an event by measuring the relationship between a dependent variable and one or more independent variables (features). More specifically, logistic regression will predict the possibility of an instance (data point) belonging to the default category.

(Video) 2. Case Study: Churn Prediction

Adecision treeis a type of supervised learning algorithm (with a predefined target variable.) While mostly used in classification tasks, it can handle numeric data as well. This algorithm splits a data sample into two or more homogeneous sets based on the most significant differentiator in input variables to make a prediction. With each split, a part of a tree is being generated. As a result, a tree with decision nodes and leaf nodes (which are decisions or classifications) is developed. A tree starts from a root node – the best predictor.

Customer Churn Prediction Using Machine Learning: Main Approaches and Models - KDnuggets (7)

Decision tree basic structure. Source:Python Machine Learning Tutorial

Prediction results of decision trees can be easily interpreted and visualized. Even people without an analytical or data science background can understand how a certain output appeared. Compared to other algorithms, decision trees require less data preparation, which is also an advantage. However, they may be unstable if any small changes were made in data. In other words, variations in data may lead to radically different trees being generated. To address this issue, data scientists use decision trees in a group (AKA ensemble) that we’ll talk about next.

ARandom forestis a type of an ensemble learning method that uses numerous decision trees to achieve higher prediction accuracy and model stability. This method deals with both regression and classification tasks. Every tree classifies a data instance (or votes for its class) based on attributes, and the forest chooses the classification that received the most votes. In the case of regression tasks, the average of different trees’ decisions is taken.

Customer Churn Prediction Using Machine Learning: Main Approaches and Models - KDnuggets (8)

That’s how Random Forest makes predictions. Source:ResearchGate

XGBoostis the implementation of the gradient boosted tree algorithms that’s commonly used for classification and regression problems. Gradient boosting is an algorithm consisting of a group of weaker models (trees), which sums up their estimates to predict a target variable with more accuracy.

Agroup of researchersfrom the University of Virginia studied the time-dependent software feature usage data, such as login numbers and comment numbers, to predict a SaaS customer churn within the time horizon of three months. The authors compared model performance across four classification algorithms, and“the XGBoost model achieved the best results for identifying the most important software usage features and for classifying customers as either churn type or non-risky type.”The XGBoost model’s ability to define the most significant features that represent how customers use SaaS software can help service providers launch more effective marketing campaigns when targeting potential clients, according to researchers.

LightGBMis a gradient boosting framework that uses tree-based learning algorithms. It can be used for many ML tasks, for instance, classification and ranking. According to the documentation, some advantages of LightGBM are faster training speed and higher efficiency, as well as greater accuracy. These algorithms use lower memory and handle large volumes of data – it’snot advisableto use them on datasets with less than 10,000 rows. LightGBM also supports parallel and GPU learning (the use of graphical processing units for training large datasets).

CatBoostis another gradient boosting on decision trees library. It handles both numerical and categorical features, so can be used for classification, regression, ranking, and other machine learning tasks. One of the pros of CatBoost is that it permits training models with CPU and two or more GPUs.

Technique choice.Numerous factors can influence the number of required models in production and their type. Although each company’s case is unique, but generally approaches to managing customer data and business needs do have weight. The choice of a prediction technique may depend on:

  • Customer lifecycle stage.HubSpot specialists, for instance, concluded that the model choice may depend on the stage of interaction between a customer and a brand.“Customers in onboarding don’t usually display the same value metrics as those customers who have been using HubSpot for greater than a year. Thus, a model trained on customers older than one year may work really great for those customers, but not be accurate when applied to customers still in onboarding,”explains Michael of HubSpot.
  • The need for output explanation.When company representatives (e.g. customer success managers) must understand the reasons for churn, so-called white box techniques like decision trees, random forest, or logistics regression can be used. Increased interpretability is one of the main reasons HubSpot opts for random forest. Sometimes it’s enough just to detect churn, for instance when company management needs to estimate budgeting for the next year while taking into consideration possible losses due to customer churn. In these cases, less interpretable models would work.
  • Customer persona.Think of a company providing numerous products, each of them designed a specific user type. Since different customer personas may have typical behavior patterns, using dedicated models to predict the likelihood of them churning seems reasonable. Michael Redbord adds: “In a growing business, the nature of the customer base will evolve, especially when new products are introduced. Models built on one set of customers may not work as well when a new customer persona enters the customer base. Thus, when we’ve introduced a new product line we’ve typically built new models to predict churn of those customers.”

Deployment and monitoring

And now, the final stage of the churn prediction project workflow. The selected model/models need to be put into production. A model may be incorporated into existing software or become a core of a new program. However, the deploy-and-forget scenario won’t work: Data scientists must keep track of a model’s accuracy levels and improve it if needed.

“Predicting customer churn with machine learning and artificial intelligence is an iterative process that never ends. We monitor model performance and adjust features as necessary to improve accuracy when customer-facing teams give us feedback or new data becomes available. At the point of any human interactiona support call, a CSM QBR[quarterly business review], a Sales discovery callwe monitor and log the human interpretation of customer help, which augments the machine learning models and increases the accuracy of our health prediction for each customer,”summarizes Michael.

The frequency with which a model performance is tested depends on how fast data becomes outdated in an organization.


Churn rate is a health indicator for subscription-based companies. The ability to identify customers that aren’t happy with provided solutions allows businesses to learn about product or pricing plan weak points, operation issues, as well as customer preferences and expectations to proactively reduce reasons for churn.

It’s important to define data sources and observation period to have a full picture of the history of customer interaction. Selection of the most significant features for a model would influence its predictive performance: The more qualitative the dataset, the more precise forecasts are.

Companies with a large customer base and numerous offerings would benefit from customer segmentation. The number and choice of ML models may also depend on segmentation results. Data scientists also need to monitor deployed models, and revise and adapt features to maintain the desired level of prediction accuracy.

Original. Reposted with permission.


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What model is used for churn prediction? ›

Random Forest can yield good results with less data, so it's one of the best classification models for churn prediction.

What is churn prediction in machine learning? ›

Predicting churn is a good way to create proactive marketing campaigns targeted at the customers that are about to churn. Thanks to big data, forecasting customer churn with the help of machine learning is possible. Machine learning and data analysis are powerful ways to identify and predict churn.

Which one of the following describes an approach to customer churn prediction stated in terms of probability? ›

Those following a proactive approach to customer churn management use predictive analytics. That's one of four analytics types that entails forecasting the probability of future outcomes, events, or values by analyzing current and historical data.

How do you model churn rates? ›

The churn rate formula is: (Lost Customers ÷ Total Customers at the Start of Time Period) x 100. For example, if your business had 250 customers at the beginning of the month and lost 10 customers by the end, you would divide 10 by 250. The answer is 0.04.

What are the different types of prediction models? ›

10 predictive modeling types
  • Classification model. ...
  • Forecast model. ...
  • Clustering model. ...
  • Outliers model. ...
  • Time series model. ...
  • Decision tree. ...
  • Neural network. ...
  • General linear model.
16 Nov 2021

What is a customer churn model used for? ›

Predicting Customer Churn. Churn prediction means detecting which customers are likely to leave a service or to cancel a subscription to a service. It is a critical prediction for many businesses because acquiring new clients often costs more than retaining existing ones.

What are the different types of churn? ›

There are four different types of churn: customer churn, revenue churn, gross MRR churn, and net churn. A low churn rate improves your MRR, customer lifetime revenue, and customer retention rate. A good monthly churn rate for SaaS businesses is below 1%.

What is the first step in predicting customer churn? ›

The first step is to collect data on past customers who have churned. This data should include features information such as those mentioned above including the customer's demographics, behavior, and engagement with the product or service.

What are the key factors that predict customer churn? ›

The three leading factors that impact customer churn rate:
  • Average subscription length. Subscription length is the amount of time an average customer spends paying for a company's goods or services. ...
  • Customer acquisition cost. ...
  • Customer lifetime value (CLV)

What is customer churn What are the strategies to reduce it? ›

Customer churn refers to the percentage of customers that ended the use of your company's product or service during a set period of time. It's typically calculated by dividing the number of customers you lost in a quarter by the number of customers you started that quarter with.

What methodology can be used to predict probability of customer churn rate in next 6 months? ›

One of the ways to calculate a churn rate is to divide the number of customers lost during a given time interval by the number of active customers at the beginning of the period . For example, if you got 1000 customers and lost 50 last month, then your monthly churn rate is 5 percent.

What are the top three reasons why customers churn? ›

Here are the top 4 reasons customers churn – and how to prevent it.
  • Bad customer service. Spoiler alert – the biggest reason customers leave is not, in fact, because they found a better price. ...
  • Not enough value. Value is another top reason for customer churn. ...
  • Poor quality communications. ...
  • No brand loyalty.

What is churn method? ›

Churn rate, also known as attrition rate, is a business metric that calculates the rate at which customers leave a product over a given period of time.

How do you identify churn customers? ›

Work out how many customers you had at the beginning of that period. Find the number of customers that churned during that period. Divide the number of churned customers by the number of customers at the beginning of the period. Multiply that number by 100 to get your churn rate.

What is churn in logistic regression? ›

The percentage of customers moving out and disconnecting the service is known as “churn”.

What are the 3 types models? ›

Many types of models can be grouped into three categories; visual models, mathematical models, and computer models.

What are the two approaches in predictive modeling? ›

Two of the most widely used predictive modeling techniques are regression and neural networks.

Why is customer churn analysis important? ›

Churn analysis often reveals patterns that indicate common motivators for customers to leave you, such as price sensitivity or poor product adoption. It also demonstrates how customers engage with your product throughout its lifecycle.

Why is it called customer churn? ›

Customer churn, also called customer attrition, is the number of paying customers who fail to become repeat customers. In this context, churn is a quantifiable rate of change that occurs over a specified amount of time.

What is churn in customer success? ›

The term “churn” describes the loss of customers who don't resign their contract at the time of their renewal. This could mean many things—they found a different product better suited to their needs, they're dissatisfied with their experience, your price point is too high, they're under new management, etc.

Why is churn so important in marketing? ›

Churn helps you understand how many customers are leaving your business, and why they're leaving. This is essential for understanding whether your marketing and customer retention strategies are working. When a business loses a customer, it's not just the revenue from that customer that's lost.

What is churn write in brief two types of churn? ›

Some people simplify all of this into just two types of churn: Involuntary (circumstances entirely outside of their control lead to churn), and voluntary churn (when they actively decide to leave). Note that not one of these reasons involves not building a certain feature.

What is customer churn analysis? ›

Customer churn analysis refers to the customer attrition rate in a company. This analysis helps SaaS companies identify the cause of the churn and implement effective strategies for retention.

How can we avoid churn customer success? ›

Key activities you can undertake to help retain your customers and reduce churn include:
  1. Ensuring your product always does what your customers need it to do;
  2. Make sure your product remains good value;
  3. Building ongoing relationships with your customers;
  4. Conducting regular business reviews to reassess customer needs;
24 Mar 2021

What is an example of churn? ›

Verb The motorboats churned the water. The water churned all around us. The wheels began to slowly churn. He showed them how to churn butter.

How can data reduce churn? ›

Increase revenue options from existing players

This can be done by offering them extra features and building upon the trust they have for the business which is based on previous ones. By getting more revenue from existing users, a business reduces the risk of losing income from players that churned.

Which Modelling technique should you ideally prefer? ›

Which modelling technique should you ideally prefer? Answer: You need to convey to the client which customers are leaving as well as the features that are more important for their departure. Therefore interoperability matters to them. Hence you should preferably go with the Logistic Regression Model.

Which ML algorithm can be used to predict if a customer is about to cancel their subscription? ›

With subscription cancellation predictions, the ML/DL algorithms interpret the complex patterns in high-dimensional data that correlate with one of two outcomes i.e. Subscription and Subscription Cancellation.

Who is responsible for customer churn? ›

Customer success teams are usually tasked with onboarding new clients and stepping in to help at-risk customers based on their product usage, so it's natural to think of customer success as most responsible for addressing customer retention and churn.

What is the purpose of churn rate? ›

The churn rate measures a company's loss in subscribers for a given period of time. Churn rates can be applied to subscription-based businesses as well to the number of employees that leave a firm.

What is churn in CRM? ›

Customer churn rate is the percentage of customers who stop using your product or service over a defined time period. It is the opposite of customer retention rate, which shows how many customers stay with you in a given period.

Is churn prediction supervised or unsupervised? ›

It is therefore crucial to build a churn prediction model that is as accurate as possible. Such models are usually built by applying a supervised learning algorithm to historical data.

What is CTR model? ›

Clickthrough rate (CTR) can be used to gauge how well your keywords and ads, and free listings, are performing. CTR is the number of clicks that your ad receives divided by the number of times your ad is shown: clicks ÷ impressions = CTR. For example, if you had 5 clicks and 100 impressions, then your CTR would be 5%.

What regression would you run to predict churn probability? ›

It is possible to use logistic regression to create a model using the customer churn data and use it to predict if a particular customer of a set of customers will discontinue the service. For example, one of the variables in the data is can be the “annual income”.

What variables affect churn model? ›

The three leading factors that impact customer churn rate:
  • Average subscription length. Subscription length is the amount of time an average customer spends paying for a company's goods or services. ...
  • Customer acquisition cost. ...
  • Customer lifetime value (CLV)

What is the difference between a supervised and an unsupervised approach? ›

The main difference between supervised and unsupervised learning: Labeled data. The main distinction between the two approaches is the use of labeled datasets. To put it simply, supervised learning uses labeled input and output data, while an unsupervised learning algorithm does not.

Is CTR a metric or KPI? ›

The Click Through Rate (CTR) or Click Rate is another well know KPI, it shows the number of times a link was clicked by the number of times it was displayed. Therefore, it is a key metric at the stage of interest in the customer journey.

What is the difference between CPM and CTR? ›

CPM puts a cap on revenue.

But if you sell on CTR, revenue is not capped. You can increase engagement on the same number of impressions per person, or DAU (daily active user). Whereas with CPM, you stretch to reach more and more people, or degrade your user experience with more ads per user.

What is the difference between CTR and conversion rate? ›

A click-through rate (CTR) is a metric, shown as a percentage, that measures how many people clicked your ad to visit a website or landing page. A Conversion rate is a metric, shown as a percentage, that displays how many website or app visitors complete an action out of the total number of visitors.

What are the three most used predictive modeling techniques? ›

Three of the most widely used predictive modeling techniques are decision trees, regression and neural networks.

Which regression model is best for prediction? ›

1) Linear Regression

It is one of the most-used regression algorithms in Machine Learning. A significant variable from the data set is chosen to predict the output variables (future values).

What are three of the most popular predictive modeling techniques? ›

The most common predictive models include decision trees, regressions (linear and logistic), and neural networks, which is the emerging field of deep learning methods and technologies.


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