Do You Know Your Customer Churn Rate?
Customer churn rate is a scary metric. Left unchecked, it’s a silent business killer.
It’s especially important for companies who rely on recurring revenue, such as subscription clothing services, meal delivery, or membership programs. But that doesn’t mean other types of businesses should ignore it. Repeat customers are important to any business—which is why understanding churn is critical.
Before we give you the strategies to improve your churn rate, let’s back up and discuss what it is and why it matters to your business.
What is customer churn?
Customer churn rate (or customer attrition rate) measures how many customers you lose over a given period of time. It’s also the exact opposite of your customer retention rate.
It’s important to look at churn along with your customer acquisition (which measures how effectively you’re acquiring customers). The two measurements and their respective strategies essentially keep your business running: One gets customers in the door, and the other tells you how to keep them.
Why is customer churn rate important? Because your average customer needs to stick around long enough (or make high enough purchases) to more than cover your customer acquisition costs. If they don’t, you’re operating at a loss.
How to calculate churn:
- Figure out how many customers you have at the beginning of a period of time.
- Find the number of customers you lost in that time period (don’t forget to account for new customers).
- Divide the number of customers you lost by the number of customers you started out with.
- Multiply by 100 to determine the percentage.
For example, here’s what it would look like if we had 100 customers at the beginning of the month and 90 customers at the end of the month:
- Customers lost ÷ customers at the start of the month x 100 = customer churn
- 10 ÷ 100 x 100 = 10%
In this example, your customer churn rate would be 10%.
The first step to reducing customer churn is to understand it.
Now that you’ve calculated your customer churn rate, it’s time to understand what that number really means.
Before you jump to sweeping conclusions (we’ve all been there!), take a wider look at your business. Was there anything unique happening in your business, the industry, or even globally that could be skewing your numbers? Make sure to account for it.
Next, figure out how to benchmark your numbers. Is there an industry standard? Are you comparing year over year? There’s no wrong way to do it—you just need to be consistent.
It’s also important to remember that despite your best efforts, you will have customer churn. And it isn’t always bad. If you’re revamping a service, targeting a new customer, or redesigning products, some churn is expected, or even a good thing, as long as it’s controlled with a new influx of customers.
Another example of expected churn is when subscription services, be it clothing, meal delivery, or SaaS, see a drop-off in the first month or two of service.
New customers are trying your service or product and determining if it’s a fit for them. When the product doesn’t click, they drop off quickly.
Now, if it gets out of control and you have a hard time keeping clients, you need to rethink your service. But it’s mostly an expected and planned occurrence.
Keep that in mind when you take a first look at your numbers.
Find the problem areas.
Once you have your churn rate, you can start figuring out how to reduce it. The best place to start? Customer surveys.
Survey customers at pivotal moments in their customer journey—particularly where you see the biggest drop off. Start with these three key junctures.
1. After their first purchase.
Theoretically, this is when they’re most excited. Use this survey to see how to capture that excitement and share it with all of your customers. Of course, the opposite could also be true. This is when they feel that first wave of disappointment. As uncomfortable as that is, you need to know when it’s happening and why so you can prevent it from happening again.
2. When they haven’t logged in or made a new purchase.
When customers aren’t excited, they often go silent. They forget you exist, forget they signed up for a program, or even that they purchased a subscription. Pick a time period that makes sense for your business and reach out with a survey. Maybe it’s 15 days or even a month. (Pro tip: Try to avoid those passive-aggressive, “Did you forget about us?” emails that no one likes.)
3. When they’ve canceled or gone completely silent.
At this point, you know something is wrong. Whether they haven’t made a purchase in six months or outright canceled your services, it really helps to know why. While it can be difficult to ask a customer who no longer uses your product to help you improve, this will give you the most valuable feedback on how you can reach customers like them in the future.
Once you have your churn rate and feedback from customers at these key stages, you can take decisive action.
4 ways to reduce customer churn.
There are many factors that go into your churn rate, but messaging is a big one. How you connect and engage with customers impacts their experience, whether you’re selling a flight to Rome or a healthy version of cacio e pepe.
Here’s how messaging helps reduce churn rate and where you should implement it.
1. Revamp new customer onboarding.
We tend to think that customer onboarding only applies to software technologies or online classes, and the like, but any business can build an onboarding experience. When a customer makes their first purchase, don’t just send an order confirmation. Craft an experience that walks them through the first purchase and leads them toward the next. Start with these messaging ideas:
- Send a welcome email.
- Share product or service information.
- Point them toward a knowledge-base or FAQ page.
- Invite them into a brand community and to connect on social.
- Text them a discounted offer on their next purchase.
- Tell them about your rewards program.
- Encourage them to connect with customer support when they have questions.
Welcoming your customers with support and extra benefits will demonstrate your brand’s value right from the start.
2. Revisit brand and product messaging.
Your churn rate heavily depends on customer expectations. If customers expect something that your product or service doesn’t give them, they’ll be disappointed—no matter how great it actually is.
Take a look at your brand messaging, your product descriptions, and any other marketing materials. Is everything accurate? Are you overpromising? Make sure you leave some room to overdeliver and wow your customers from the first interaction.
3. Make customer service fast and accessible.
Churn rates are often attributed partly to the customer service team (although it’s merely a very important piece of a larger puzzle). And it makes sense to involve your customer service team. After all, the opposite of customer churn is customer retention. In Zendesk’s CX Trends Report, 60% of business leaders agreed that customer service improves retention.
Make your support team easily accessible from wherever your customers are. Save the call center for complex problems, and instead answer questions with business messaging. Start by identifying which digital channels they frequent most and make your service team available on them.
4. Be proactive with at-risk customers.
After you’ve collected data to help you determine your customer churn triggers (think immediately after the tutorial, after a week of not logging in, or on the checkout page), engage customers at those key points. See if they need extra support, resources, or help checking out.
Being proactive helps you prevent customer churn by solving issues early in the process before a customer disengages.
Embrace messaging to lower customer churn.
Now that you have a better idea of what churn rate is, you can take the steps to reduce it. When you spend time on keeping your customers instead of just attracting new ones, your business benefits on both ends (revenue and costs).