What is Churn Rate?
A company’s churn rate, sometimes called the attrition rate describes the amount of customers that stop supporting a company over a period of time. If you run a subscription service, churn rate could also describe the number of customers that cancel their subscription over time. Basically, the higher the churn rate, the more customers end their subscription or stop supporting your business.
Your churn rate has a massive impact on customer retention and business performance. This is why it’s essential for businesses to track and measure their churn rate. For example, a high churn rate can indicate that a lot of customers are leaving the company and that the business isn’t performing as well. So, if you’re trying to track business performance, measuring the churn rate is essential.
Importance
Your business’ churn rate has a direct impact on business performance. Your churn rate is a great indicator of how well your company is retaining its customer base, which is why it’s crucial for businesses to track this rate as much as possible.
A high churn rate doesn’t just indicate poor business performance. When companies lose customers regularly, it impacts their market share and business revenue. If you regularly track your churn rate, you have an accurate image of how your business performs. On top of that, it allows you to find areas of improvement easily and improve your churn rate in the process.
Calculating Your Business’ Churn Rate
Calculating your business’ churn rate involves tracking certain metrics. The most important metric to track to measure your churn rate is the number of customers that leave the company or stop their subscriptions. Once you have this measurement, all you have to do is divide it by the total number of customers you had at the start of the period.
For example, if you had 1,000 customers at the start of the period and by the end, you only had 950 customers, this would be your churn rate calculation:
950 customers after the period ÷ 1,000 customers before the period x 100 = 95%
This churn rate means that you retain 95% of your customers and only lost 5% of your customers throughout the measurement period.
It’s essential that you calculate the churn rate regularly over time. This way, you can spot and identify trends and spot issues. When you do this, it will be much easier to identify issues and figure out different solutions to certain problems.
There are many types of churn rates you can calculate. This includes customer, revenue, and user churn rate. It’s important to measure all these types of churn rates so you get a full view of your company’s performance.
Why Your Churn Rate May Be High
A high churn rate isn’t necessarily a bad sign. However, it can be alarming. If you’ve recently calculated your churn rate and it’s higher than you expected, it’s important to determine the reasons why. When you determine why your churn rate is high, it will be much easier to discover the issues and apply the right solutions.
While the factors that affect your churn rate differ for every business, there are some common reasons that businesses experience a high churn rate. Some of these reasons include:
Poor Customer Service
Poor customer service easily drives customers away. This leads to customer frustration, which can result in various customers leaving your company.
High Prices or Fees
Price hikes can drive customers away really easily. If your customers feel like they aren’t getting enough value for their money, they will leave the company.
Poor Product or Service Quality
Sometimes, a poor product drives customers away. You want to ensure you are always providing your customers with a high-quality product. If you aren’t, there’s a high chance you’ll end up driving customers away.
Best Practices for Boosting Customer Retention
If you’re looking to improve your churn rate, you should aim to boost customer retention. This can be quite tricky for any business, regardless of the industry. On top of that, improving customer retention requires a tailored approach for each company. That said, here are some of the best practices to follow for boosting customer retention.
- Improving your customer service
- Ensuring competitive prices and giving your customers a valuable product or service
- Communicate with your customers and determine their needs
- Build customer loyalty programs
