Churn rate: a metric not to be ignored

In increasingly competitive environments, customer loyalty is just as crucial as customer acquisition. A company can engage in a chain of frantic customer acquisition costs, trying to replace those it has lost. But wouldn’t it be simpler to keep those hard-won ones? That’s why a low churn rate, indicating customer loyalty and satisfaction, should be a prime objective in a company’s long-term success strategy.

In this glossary article, you will discover what is a churn rate, how to effectively calculate and analyze it and what strategies to implement to reduce customer loss, and ultimately drive sustainable growth.

Understanding churn rate

Churn rate, also called attrition rate, is a key metric that represents the percentage of customers who stop doing business with a company within a given period. This rate could apply to the number of subscribers lost, clients who didn’t renew a contract, etc.

This metric is a clear snapshot of customer dissatisfaction, product relevance, or value proposition. It shouldn’t be considered just a number in periodic business reports. High churn rate is a potent red flag that can reveal serious underlying issues in your business model. Aside from the loss of revenue, it may also reflect negatively on a company’s reputation, damaging the trust and loyalty built with existing customers and making it difficult to attract new ones.

Effectively analyzing and calculating churn rate can push businesses to identify areas of improvement, optimize customer retention strategies, and ultimately boost profitability. It also holds the potential to aid the development of predictive models to identify at-risk customers before they churn. 

How to calculate churn rate?

Calculating the churn rate is relatively straightforward, but requires special care to interpret the results correctly. Here is a step-by-step guide how to do it: 

Identify the time period

To begin digging into your churn rate, it is crucial to define a specific period. Could be a quarter, a month, or even a week, this timeframe will be the baseline for your calculation. Bear in mind, this period should align with your business cycle to bring out the most precise results. 

For instance, if you run a monthly subscription service, it would be most logical to calculate churn on a monthly basis. However, a B2B enterprise-sales company might opt for quarterly or yearly calculations due to the longer sales cycle.

Count the number of customers at the start

Once you’ve identified the time frame, chalk up the total number of customers you started with. This step sets the stage by stipulating the denominator in the churn rate formula. 

💡Do note, while drawing up this total, only include active customers – those who had the potential to churn during your selected timeframe.

Using this as a base will ensure the churn rate reflects the actual risk of attrition your company faced.

Count the number of customers lost

With your original customer list in order, it’s time to count those who left during the specified timeframe. This is the pivotal point in the equation – the churned customers. But remember – all types of lost customers are not equal. Prioritizing on cancellations and disregarding failed renewals may reflect an inaccurate churn rate. Thus, it’s important to categorize and account for lost customers appropriately to capture an accurate churn rate.

For example, a customer who actively cancelled their subscription presents a different kind of churn than one who simply didn’t renew at the end of a trial period. Both reflect important information about your customer experience, but each might require different interventions.

Apply the churn rate formula

Armed with these significant numbers, churn rate calculation becomes as easy as pie:

By dividing the number of customers lost by the number of customers at the start of the timeframe, you’re awarded a clear, valuable insight: your churn rate. 

Don’t panic:  every company experiences churn; the trick is to keep it well within manageable limits!😉

What churn rate is considered good?

Churn rates vary significantly across different industries, reflecting various customer behavior patterns, industry standards, and business models. 

• For the SaaS companies that have a subscription based business model, a good annual churn rate is placed between 5-7%. What concerns the monthly churn rate, the average is 4% which is considered a good benchmark according to Recurly.
• For the subscription based commerce retail companies, the healthy churn rate for different industires seats between 8-10% according to Statista .
• What concerns the single-purchase e-commerce businesses, they have the higher churn rate. At around 70% to 80% churn per cohort would be considered average according to Omniconvert .

What are the types of customer churn?

Customer churn is categorized into two principal types, primarily focusing on the reasons behind:

Voluntary Churn

Voluntary churn occurs when customers consciously decide to stop using a service or buying a product. Common reasons include dissatisfaction with the service or product, better offers from competitors, or changing needs that no longer align with what’s being offered.

Involuntary or delinquent churn

This type of churn happens due to reasons outside the customer’s control. For example, a failed credit card charge, leads to service cancellation. Companies often manage delinquent churn by implementing effective dunning processes to recover overdue payments.

Each type of churn provides different insights and can be useful for various aspects of business strategy. For instance, focusing on voluntary churn can help improve product offerings and customer service, while monitoring involuntary churn might lead to better payment systems and account management processes.

So analyzing and better understanding these churn types helps companies tailor their customer retention strategies more effectively, aiming not just to reduce churn, but also to enhance the overall customer experience.

Strategies to reduce the churn rate

Reducing churn rate is crucial for maintaining profitability and long-term growth in businesses that rely on recurring revenue or customer retention. Here are several effective tactics to consider:

• Improve customer onboarding: Ensure that customers fully understand how to use the product or service and recognize its value early on.
• Enhance customer support: Provide reliable, accessible, and helpful customer service. Rapid responses to queries and proactive support can prevent dissatisfaction and potential churn.
• Engage customers regularly: Maintain communication with customers through newsletters, social media, or personalized outreach via Web Push Notifications. Regular engagement keeps your brand fresh in your customers’ minds.
• Implement loyalty programs: Reward long-term customers with loyalty programs that offer discounts, special offers, or perks. Such programs encourage customers to stick around longer.
• Identify at-risk customers: Use analytics to identify customers who show signs of potential churn, such as reduced usage or decreased engagement. Reach out to these customers with special offers or support to address their issues.
• Offer flexible pricing plans: Adjust pricing plans to accommodate the varying needs and capacities of different customer segments. Flexible terms can prevent customers from leaving if their circumstances change.
• Monitor and optimize: Regularly review churn metrics and other related analytics to understand what works and what doesn’t. Continuously optimize your strategies based on these insights.

Implementing these strategies requires careful planning and consistent execution. In the result, they can significantly contribute to reducing churn and enhancing the overall customer experience.

Focus on Web Push Notification: an effective tool for reducing the customer churn

Web Push Notification can indeed be an effective technique for reducing customer churn. These targeted messages allow the businesses to communicate with users directly on their devices, thus boosting customer engagement and retention. Here’s how they can help reduce churn:

• Timely updates and reminders: Web Push Notifications can remind customers of upcoming renewals, expiring deals, or incomplete actions (like an abandoned cart). These reminders can prompt immediate action and keep your service top-of-mind.
• Personalized offers: Sending personalized promotions or discounts through Web Push Notifications can re-engage inactive users and encourage continued subscription or usage. Tailoring these offers based on user behavior and their specific needs increases customer engagement and loyalty.
• Collecting feedback: Web Push Notifications can be a quick way to solicit feedback from users about recent updates, features, or overall satisfaction. This not only shows that you value their opinion but also helps you catch and address potential issues before they lead to churn.
• Re-engagement campaigns: Target users who haven’t interacted with your product or service for a while with specific re-engagement notifications. These can highlight new features or products, sales, benefits, or changes that might interest them.

Best practices for using Web Push Notifications

To maximize the effectiveness of Web Push Notifications in reducing churn, consider the following best practices:

• Be concise and clear: Keep your messages short and to the point to capture attention quickly.
• Segment your audience: Send messages that are relevant to specific groups of users based on their behavior, preferences, and history with your company.
• Optimize timing: Time your notifications based on when users are most likely to be receptive.
• Provide real value: Every notification should offer something valuable to the recipient, whether it’s exclusive content, a special discount, or useful information.

When using well, Web Push Notifications can be a powerful tool to reduce churn by maintaining regular, valuable contact with your customers, thus improving their overall experience and satisfaction.

Conclusion

Understanding and acting on your churn rate is not only beneficial, it’s imperative. It’s an essential metric that deserves ongoing attention. By calculating it regularly and implementing targeted strategies, you can significantly improve customer loyalty and long-term growth.