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What Is the Definition of Customer Churn?

Customer churn is one of the most important metrics for a growing business to keep track of. While it’s not the funnest to measure, it’s a number that can give your company the hard truth about its customer retention. It’s hard to measure success if you don’t measure the inevitable failures, too. While you strive […]

Written By Sarah Mooney

On May 22, 2020

Dedicated wellness expertise each step of the way.

Customer churn is one of the most important metrics for a growing business to keep track of. While it’s not the funnest to measure, it’s a number that can give your company the hard truth about its customer retention.

It’s hard to measure success if you don’t measure the inevitable failures, too. While you strive for 100% of customers to stay subscribed with your company, that’s really unrealistic. That’s where customer churn pops up.

What Is Customer Churn?

Customer churn is the percentage of customers that stopped using your company’s services during a specific time frame. You can calculate churn rate by dividing the number of customers you lost during that time period — say a quarter — by the number of customers you had at the beginning of that time period.

For example, if you start your quarter with 400 customers and end with 380, your churn rate is 5% because you lost 5% of your customers.

Of course, your company should aim for a churn rate that is as closest to 0% as possible. 

customer churn

In order to do this, your company has to be on top of its churn rate at all times and treat it as a top priority. You’ll need to strive for customer satisfaction and success.

In the aforementioned example, I calculated the churn rate as the percentage of customers lost during that quarter. However, you can calculate churn rate in whatever way is best for your company. Some examples are:

  1. The number of customers lost
  2. The value of recurring business lost
  3. The percentage of recurring value lost

Why Is Customer Churn Rate Important?

Naturally, you’re going to lose some customers, and 5% doesn’t sound too bad, right?

It’s important because it costs more to acquire new customers than it does to retain existing customers. In fact, an increase in customer retention of just 5% can create at least a 25% increase in profit. This is because returning customers will likely spend 67% more on your company’s services. As a result, your company can spend less on the marketing costs associated with acquiring new customers. You don’t need to spend time and money on convincing an existing customer to choose your company over a competitor because they’ve already made that decision.

It might seem like a 5% churn rate is healthy. You can still make a vast revenue with that churn rate. However, consider the example below when you’re thinking about the impact of your churn rate.

Source: Churn Rate

In this example, simply decreasing your churn rate by 10% could add an extra $100,000 in revenue to your company. Dropping from 3% to 2.7% doesn’t seem like a lot, but it actually adds massive benefits for your company.

You can help reduce your customer churn and sustain it in many ways. 

customer churn

3 Ways to Reduce Customer Churn

1. Focus your attention on your best customers

Rather than only focusing on offering incentives to customers who might be considering churning, it could be even more beneficial to pool your resources into your loyal, most profitable customers.

2. Monitor churn as it happens

Use your churned customers as a way of understanding why customers are leaving. Monitor how and when churn happens in a customer’s lifetime with your company, and use that data to put into place preemptive tactics.

3. Show your customers that you care

Instead of waiting to connect with your customers until they reach out to you, try a more proactive approach. Communicate with them all the perks you offer and show them you care about their experience, and they’ll be sure to stick around.

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