Customer retention is an important aspect of running a business. Despite the best efforts, every business has to deal with customer churn. Since every person’s preferences are different, satisfying everyone isn’t ideally possible. As a result, dissatisfied customers might switch brands.
If customer churn is normal for businesses, then why do they take it seriously? How does it impact a business? Is there any way to prevent it? Well, we have a lot to discuss.
You will get all these answers in this article. Starting from the customer churn meaning to worrying churn rate, get to know everything as you go on reading down. You will also learn how to lower the attrition rate.
So, without further delay, let’s start.
What Is Customer Churn?
Customer churn, also known as customer attrition, is a situation where the existing customers of a brand break their ties with it. In simple terms, customers stop using the product or services offered by that brand.
For example, Netflix has a total of 1000 subscribers. If 50% of the customers decide to cancel their subscriptions or stop renewing their subscriptions, then that is the case when Netflix is facing customer churn.
Why Is Customer Churn Important?
Customer churn is important because the success and growth of your business depend directly on it. Customer churn is even more important for businesses with the subscription model. That is because high customer churn means more customers are leaving the company. This will ultimately impact on the company’s financial health.
Suggested Read: Difference Between Customer Service Vs. Customer Support
How to Perform Customer Churn Analysis?
Now that you know why you should focus on customer churn. So how would you deal with customers leaving your brand? If the number of people leaving is way more than the acceptable threshold, you need to do something.
Your first step should be to analyse the whole scenario and figure out what’s going wrong. You need to have data for two important factors here: who are leaving and why are they leaving?
When you have answers to these two questions, you can take the appropriate steps to bolster your customer retention strategy.
So here are some ways you can perform customer churn analysis:
Use Churn Analytics Tools: These analytics tools help you monitor customers coming and going off your brand. Also, these tools can help you get insight into users’ behaviour like which features they use the most or which is the least visited feature.
Conduct Surveys to Figure Out the Reason: You can’t really stop people when they want to leave. However, you can really find out the reason for their churn. A simple survey is enough to get you the answer.
There are two ways to do this survey. First, you can send a personalised email and ask for their feedback about your offerings. Second, you can put a short questionnaire as the last step before they click the unsubscribe or cancel icon. You can mention all the probable reasons in this questionnaire and users have to just tick their reason for leaving.
What is the Customer Churn Rate?
Churn rate, sometimes known as attrition rate, is the rate at which customers disassociate themselves from a business. It is calculated as a numerical percentage based on active users and leaving users.
Simply put, this rate indicates the pace at which people are choosing their brand to use a product or to avail a service. In a subscription model, this rate indicates the number of people cancelling their subscription or not renewing it.
Why Calculate Customer Churn Rate?
Calculating churn rate is essential to gauge the success of a business. This rate also gives an insight into the customer satisfaction factor.
Higher customer churn rate means that a large number of people have decided to stop using a company’s product. Likewise, less is the churn rate, more is the customer retention of the company.
Hence, by calculating customer churn rate, you can decide important factors like change in business strategy and customer retention strategy.
5 Ways to Calculate Customer Churn Rate
Here are five ways you can calculate the churn rate in your company.
The Simple Churn Model: As the name suggests, this method involves the ratio of revenue lost against the total revenue in a particular business year. For example, your company lost $80,000 in revenue, while the total revenue collection was $800,000 at the start of the year. Since the ratio is 10, the churn rate is presumed to be 10%.
The All-In Churn Model: This method is similar to the first method except for the total revenue at the end is considered. That means revenue lost is divided by total revenue at the end of the given period.
The Annual Cohort Model: To calculate the churn rate from the annual cohort model, find the ratio of people unsubscribed over the period and the total number of customers at the start of that period. This method is more popular in the B2B business model due to its higher accuracy in predicting churn rate.
The Segmented Cohort Churn Model: For businesses having monthly subscribers, this method works the best. To calculate the churn rate, you need to find the ratio of revenue lost during a month and the total revenue you are expecting if all your subscribers renew their subscriptions in that month.
The Splits Model: The spilled model of churn calculation is more effective for hybrid businesses, which follow both B2B and B2C models. To calculate the churn rate, you can use the Annual Cohort Model for the annual subscribers, and the Segmented Cohort Model for the monthly subscribers.
What Is a Good Customer Churn Rate?
No matter what you do, you can’t satisfy every customer. Therefore, customer churn is a part of every business. However, which rate is good or acceptable might vary from business to business.
Normally, when your churn rate is between 2% to 8%, it is considered as accepted, instead of saying good. However, the average churn rate for B2B and B2C differs greatly.
The B2C models generally witness a churn rate of 7% in the acceptable range. On the other hand, B2B models can consider 5% customer churn rate as acceptable.
Smart Ways to Reduce Customer Churn Rate
- Track the Customer Effort Score (CES)
This score indicates the level of effort the customers have to put in to reach you. If the level is low, more customers are likely to continue their business with you. A low score also indicates your highly efficient customer service which in turn lowers the customer churn rate. Hence, focusing on customer service can really help your business retain and gain customers.
- Run Customer Feedback Survey
Customers are the most important element in any business ecosystem. That necessitates you to ask them about their feedback. Also, you can request suggestions to improve. Who else than the customers can tell you what they want from you?
- Keeping the Loyal Customers Happy
When customers are happy with your service, why will they leave? So always give them a reason to choose you from the various brands. Periodically you can offer them cashback, loyalty rewards and wish them on their important life events. Another point to keep in mind is that your happy customers will more likely refer their friends and families to choose you. That itself is a strong organic marketing strategy.
- Customer Service Can Make a Difference
Customers often leave a brand because they don’t like the support service. When they don’t find their issues being addressed promptly, they make a move. Popular surveys have shown that brands providing excellent customer service witness lower attrition rates.
- Work on a Proper Roadmap for New Customers
Having a proper roadmap for your new subscribers or users can make a key difference. New customers may not know exactly how to use your services and features in the best way. So, help them with the transition after they come on board your brand.
You can send them a personalised email, explaining your features and how to use them. When they feel empowered with your brand, the churning rate will drop.
- Innovate to Stay Competitive
The market condition changes frequently. As new players enter the market with better offers than yours, your customers are more likely to switch over.
Hence focus on constant innovation in every aspect, including the latest trends and technology in your competitive sphere. Also, take clues from your competitors about their working strategies and success.
- Create a Loyal Community Around Your Brand
When a brand works to build a community around itself, customers are more likely to stay loyal to it. With the rapid expansion of social media, focus on engaging your customers on social media platforms. Create engaging content, plan for events, and other such ways to keep your community intact with your brand.
What are the Good Customer Churn Rate Examples?
Several companies including SaaS and entertainment companies focus on churn rates. Since most of these companies operate in the B2C space, they periodically publish their customer churn rate data to show how they keep their customers happy and retain them for longer periods.
Here are some classic examples of companies having good churn rates.
Netflix: 2.5% Monthly Churn Rate
The video streaming giant has a churn rate of 2.5%. This strikingly low churn rate is the lowest among its competitors. A well-established strategy and engaging video content, along with a powerful brand voice have Netflix retain more than 97% of its global users.
Disney+: 4.3% Monthly Churn Rate
It might not have as powerful a streaming service like Netflix but Disney has its own ways of promoting its services. Its focus on providing unparalleled customer experience has paved the way for retaining more than 95% of customers worldwide.
Spotify: 4.8% Monthly Churn Rate
Spotify, since its inception, has focussed on personalized recommendations for music lovers around the world. Along with that, the extensive music library gives users enough reason to stick to it. The amazingly low churn rate of 4.8% clearly tells that.
Peloton: 8% Yearly Churn Rate
Peloton enjoys a dominant market position in the fitness subscription business. By offering unique services and the best exercise equipment, it succeeds in retaining about 92% of its active users.
Apple TV+: 15.6% Monthly Churn Rate
The customer churn rate is higher compared to the other brands mentioned above. However, given the absolute number of Apple TV+ subscribers, the percentage shows that a majority of these subscribers choose to continue their association with Apple.
Customer churn is a part of any business. No matter what you do, you will always have some customers for different reasons.
However, a high customer churn rate is a red flag for your company. It is high time to rework your customer retention strategies. Always give your customers a reason to stick to your company rather than leaving you.
More than the product, poor customer service leads to customer churn. Hence, establishing hassle-free and simplified customer service.
- What is the customer churn rate formula?
The formula for calculating churn rate is:
(Number of Lost Customers/Total number of customers at the beginning) x 100
- What is the customer churn rate definition?
The churn rate is the rate at which loyal customers leave a brand or stop their business association with it. We express it in a numerical percentage of the number of customers leaving divided by total number of customers in a particular business year.
- What is the meaning of customer churn?
In simple language, customer churn means customers leaving a brand because they feel the company is no longer offering them their desired or expected products or services.
- Why do customers churn?
Customers churn when they feel that a company is not meeting their expectations or when its offerings no longer attract them. That is why regular churn analysis can let you find what’s going wrong in your company. Afterwards, you can take the corrective steps so that you don’t lose your valuable customers.
- What is the customer churn problem?
Customer churn problems are faced by companies when their customers leave them for their competitors. As a result, companies incur the loss of revenue.
- What is customer churn prediction?
Customer churn prediction is the mechanism to find out the likelihood of potential customers leaving your brand in the coming days. Using certain methods, companies can predict which customers might unsubscribe or stop using the service.