What Is Customer Churn Rate?
Customer churn rate is the percentage of customers that stop using your company’s product
or service. The metric is most effective when drop offs are measured within a certain timeframe.
Calculating Your Churn Rate
Take the following steps to calculate your company’s churn rate:
Define what it means to be an active customer. It sounds simple enough, but when it comes to these calculations, the devil is in the details. Get crisp on what it means for a customer to be active. Do customers in a trial count? Are they active if they’re still paying for the service? Or do they need to be actively using it too? And if they need to be using it, which features and how often? It’s all up to you to decide.
Define the period of time you want to look at. People usually measure churn rates in terms of months, quarters, or years. The natural lifecycle arc of every product is different. As you decide which time period to measure, ask yourself: at what “age” are customers most likely to be debating their commitment to your product? Measuring churn at day 3 following first signup, for example, might be too early. After all, did you really ever capture them to begin with? And measuring churn at 7 years post signup might be silly if everyone else seems to be leaving around their first annual renewal. Find the timeframe that feels right for you. (And remember, you can always adjust it later on.)
Pull your metrics. Things move more quickly from here on. To calculate your churn rate, you just need to know how many active customers you had at the beginning of your identified timeframe and how many you still had at the end.
Determine how many customers “churned out”: This is the number of active customers at the beginning of the timeframe minus the number of active customers at the end.
FOR EXAMPLE: I had 10 customers at the beginning. At the end I have 4. That means 6 customers churned out.
Calculate the rate: This is the number of churned customers divided by the number of customers you had at the start, then multiplied by 100.
FOR EXAMPLE: 6 churned customers divided by 10 = 0.6. Then, 0.6 x 100 = 60%. My churn rate is 60%.
Calculating your customer churn rate should become an ongoing exercise for your company. Something you do for every monthly or quarterly business review.
Why?
Let’s discuss that.
Why Your Customer Churn Rate Matters
Understanding your customer churn rate is useful because it helps you understand the inverse: your customer retention rate. And your customer retention rate is a metric that can really impact your bottom line.
Here’s why:
Acquiring new customers is expensive. Five to 25 times as expensive as retaining existing customers, according to research.
Think about your costs for content development, marketing, trade shows, advertising, and sales. Think about how long it takes to nurture a new lead to conversion. Think about how few leads actually make it to purchase. It’s a necessary but less-than-efficient part of doing business.
Conversely, research shows that improving your customer retention rate by just 5% can increase profits by 25% to 95%. It makes sense: The probability of selling to an existing customer is 60-70%. Compare that to the probability of selling to a new customer. It’s just 5-20%.
And did you know that an average of 68% of new customers come from current ones?
The necessity of investment in customer retention efforts is clear.
So, how should a company do it? Let’s look.
How to Prevent Customer Churn
Some of the most impactful methods for preventing customer churn and increasing your customer retention rates include:
Creating an incredible user experience. Find out what matters to your customers. Find out what feels like a win for them. Ruthlessly prioritize any feature or program that makes those outcomes more frequent for as many customers as possible. And on the flipside, seek out and eliminate anything that’s getting in their way.
Making sure help is easy to find. An excellent user interface paired with exemplary customer service will be your biggest help here.
Prioritize listening for feedback. From CSAT and Net Promoter Scores to AI-enabled programs that analyze customer language online, there’s a host of tools available to help. More importantly, be sure to adjust plans based on what you hear.
Taking customer complaints seriously. If a customer complains, the odds are you’ve already lost them. But only 1 out of 26 unhappy customers complain, the rest just leave your business silently. So take that complaint as a rare and precious opportunity for learning. Fix the issues that will have 25 other customers leaving silently.
Successfully onboarding customers in the first place. Their signup and early learning period should be simple, effective, and easy (even fun) to get through. From product experiences to customer support to effective retention marketing campaigns, devote more time and resources to this lifecycle than any of the others.
Engaging your existing customers well on your website, with email marketing programs, and via social media. These are the channels that lead to the biggest upticks in customer retention, upsell, and engagement.
Launch a loyalty program for your most engaged audience. It helps to have tiers with increasingly juicy benefits. The sense of exclusivity and seeing even more perks within reach can be very motivating.
Ask your most satisfied customers to tell their friends about you. Not only does this attract more customers, but outwardly expressing loyalty and affinity for a brand actually increases the likelihood a satisfied customer will stay.
I hope this blog gives you some ideas for your brain to start churning on. (Ha!) If you enjoyed this blog, we have a few others you might like to read:
If you’d like a second set of eyes on your metrics or your customer journey, apply for a complimentary marketing assessment. The team and I always like a chance to chat!
