What is Churn Rate? How to Calculate & Improve Your Churn Rate

Published on September 15th, 2015

Last Updated on April 14th, 2021

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In this post, we tackle what is churn rate, how to calculate your business churn rate and improve it.

In business, it is inevitable to experience customer churn at a certain period of time. Even the biggest and most profitable businesses suffer from this, and knowing what drives previously loyal consumers to abandon ship is critical to long-term, sustainable market development. By monitoring the churn rate, you can use this as your basis for further improving your product or services. 

Furthermore, since it costs about five times as much to acquire a new client as it does to retain a current one, this constant cycle can surely cause a severe deplete on the company’s earnings. Instead of putting all of your resources and energy into attracting new customers, you can just improve your services to avoid losing many clients.

Sounds good, huh?

What is a Good Churn Rate?

On the top, it may seem to be a straightforward query, but the solution is anything but. For one organization, a “healthy” churn rate can be disastrous for another. Worse, comparing average churn rates across economies and industries can leave you befuddled by figures and studies that refute each other.

Since churn is undesirable but unavoidable, it’s crucial to control and develop the churn rates over time. If your product evolves and your market model matures, you can strengthen your ability to close and attract good-match consumers. To put it another way, your churn rate should improve over time. There’s no certain rate that can actually describe the good churn rate but in some studies, the average churn rate is around 5%, and a “good” churn rate is considered 3% or less.

How to Calculate Churn Rate? 

You can start doing the math once you’ve decided what customer attrition means for your company. 

To calculate churn rate for a given month:

  1. To calculate the churn rate for a given month, Check how many clients you have at the beginning of the month.
  2. Then, take a look at how many of those customers leave by the end of the month. 
  3. Divide the number of churned customers by the number of customers at the beginning of the month.
  4.  Multiply it by 100 to get a percentage.

Note: do not include any updates or new revenue from current clients.

Calculate churn rate for a month

For example, an app had 1,000 subscribers at the beginning of the month of January and had 964 subscribers at the end of the month, its customer churn rate would be 3.6 %.

This is the simplest formula for calculating a month-to-month churn rate.

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 In the same way, you can measure your annual churn rate. 

  1. Examine the number of customers at the beginning of the year and also the number of customers who left during that period.
  2. Divide the number of churned customers by the number of customers at the beginning of the year.
  3. Multiply it by 100 to get a percentage.

To check the churn for each day 

Most subscription-based companies allow for a one-month minimum commitment. Add new consumers that churned to the statistic at the end of each week if the company sells weekly subscriptions, for example.

Recurly suggested a different method of calculating churn. Count the number of opportunities a client had to quit and how many times he took advantage of them. This approach allows you to check churn for each day individually, providing more detailed information than checking your monthly churn rate.

  1. Check how many customers you had at the start of the month.
  2. Multiply the number by the month’s number of days. The total number of opportunities the consumers have to leave would be the number you get. One day equals one opportunity for a customer to leave. We would also accept potential clients in this situation.
  3. See how many new customers you gained, multiply it by the number of days in the month
  4. multiply that by two. We ought to limit the number of churn chances for these consumers so they would have fewer opportunities to quit. We estimate that a potential client will use your product for half a month on average. As a result, we split the number of churn opportunities by two.
  5. Once you have both numbers, add them up.
  6. Now, divide the number of customers who left this month by the number of churn chances. The result will be the churn rate for one day. 
  7. Multiply it by the number of days in a month to get the churn rate for that month.
Calculating Churn Rate

In this case, we have a business that began with 1000 customers in March (31 days) and has since added 240 new customers. During those 31 days, 70 consumers left. 70 customers took advantage of the 34,720 churn opportunities available. This equates to a monthly turnover rate of 6.25 percent for the firm. If you want to convert it to a percentage, multiply it by 100.

How to Reduce Customer Churn?

Reduced turnover is a long-term operation, not a one-time event. It can be primarily determined by how the company identifies active and inactive clients, as well as what issues you are able to recognize as the primary causes of churning and loyalty shifts.

1: Understand why customers churn to improve customer service.

Despite your best efforts, customer churn will happen and when it does, use it as an opportunity to dig into what led the customer to leave, and what you can do to prevent a similar customer from churning for the same reason

Knowing what causes a consumer to abandon ship is the first step in resolving the issue. Consider interviewing or surveying churned clients to learn more about their motivations for leaving. You may use churn data to investigate individual customer service rep or manager results or compare your product or service to rivals that you want to focus on with your product and development teams in the coming quarter.

2: Provide educational and supportive services.

Customers can desert you if they believe they don’t understand your product or aren’t getting the most out of it. You might consider offering interactive resource centers, blog posts, and educational email onboarding journeys, depending on your industry and goods.

3: Provide educational and supportive services.

Customers can desert you if they believe they don’t understand your product or aren’t getting the most out of it. You might consider offering interactive resource centers, blog posts, and educational email onboarding journeys, depending on your industry and goods.

4: Invest in more training for support and sales representative

To avoid consumers feeling cheated, sales reps should sell the real value of the goods or service. In order to ensure customer loyalty, customer service representatives should be well-equipped to handle any problem that arises. Investing in these two divisions’ procedures and infrastructure may have a significant effect on churn.

5: Be sure you’re marketing your services to the right people. 

Are your promotion and distribution strategies aimed at people who are more likely to benefit from your product? Consider refocusing your marketing efforts to attract customers who are more interested in your product.

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6: Define your most valuable customer

As devious as it might be, you can distinguish your most important clients from the others and go the extra mile to ensure that they get at least what they signed up for.

What is the reason for this? Let’s face it, these are the clients you’d really like to hold. Since valuable consumers generate the most income, they must be treated with special consideration.

A record of the interactions with consumers will reveal how involved they were at each point, whether they had any concerns with the product, and whether these issues were resolved.

So, you should divide your consumers into categories based on their viability, willingness to leave, and propensity to accept your offer to stay. You will help forecast consumer turnover this way.

7: Offer incentives

Another good idea is to provide benefits to consumers who have been marked as likely to leave, such as discounts and exclusive deals.

If you have any doubts about the effectiveness of this strategy?

The most successful strategy for minimizing turnover is to include rewards and coupon deals.

8: Recognize the warning signals that a client is about to leave.

Is it been a month since they last signed in? Is the length of their sessions brief and infrequent? These signs will also alert you to the possibility that a customer is going to leave, allowing you to respond with services and help to entice them back.

9: At crucial times, ask for feedback and respond quickly.

If you know that customers who don’t log into your tool every 15 days are likely to churn, ask them for feedback on day 10 and try to re-engage them. Follow up with a comment request whether they hit a benchmark for using your product or service.

10: Communicate proactively with customers

Develop a positive relationship with your clients by engaging with them on a regular basis so that they see you as a reliable partner. Reach out with material you think they’ll find useful or helpful on a daily basis, interact and communicate with them on social media, and let them know if there are any product problems or outages so they know they can count on you.

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11: Assign the best employees to handle cancellations.

Saving a client on the verge of churn is surely not unlikely.

However, in order to retain them, you’ll need to enlist the help of the best salespeople. Determine who the brightest, most vocal, and persuasive B2B sales reps are, and assign them the role of speaking with others who have chosen to quit, thus preventing client turnover.

You will definitely benefit from their charm and experience coping with tough circumstances and unhappy customers at this stage.

Often what it takes is a good listener who is able to put themselves in the shoes of the client to turn things around.

 According to Customer Service Group’s customer satisfaction report, the majority of respondents said that being understood and valued is more important than making their problem resolved.

12: Flaunt your competitive advantages

What sets you apart from your competitors? What distinguishes you from the crowd? What would your clients miss if they opt to stop using your services?

Answering these questions will assist you in identifying your strategic advantages and promoting them more effectively. Competitive advantages bind your clients to you like honey.

Consider this: are your clients aware of it?

If not, it’s probably about time you told them.

13: Offer long term contracts

Finally, how about extending your customers’ commitment?

Instead of the month-to-month contracts, try offering a longer subscription model. In such a way your customers will have enough time to implement the product and see the benefits of using it. And once they see the benefits, they are more likely to commit to the product.

How Often Should You Calculate Your Churn Rate?

There is no certain requirement on how often you should calculate your churn rate since the churn rate depends on what kind of business you operate. You can decide which is the best for your business. But keeping an updated record of your churn rate is ideal so you can monitor and compare the churn rates for a certain time. 

What Can Churn Rate Tell You About Your Business?

Keep an eye on the turnover rate to make sure it is running smoothly. You will watch any adjustments in the turnover rate by doing this month after month. You’ll learn if you’re having any issues and if the remedies you’ve tried to solve them are successful.

When the churn rate rises, you can rethink your technique and double-check two points.

Did you break something by accident?

When a company’s turnover rate rises over time, it recognizes that a core aspect of its market model is faulty. The organization may have a defective product, bad customer service, or a product that isn’t appealing to people who have agreed that the cost isn’t worth the benefit.

The churn rate will alert an organization to the fact that it wants to figure out why customers are leaving and how to improve its market. Since the cost of attracting potential clients is far greater than the cost of keeping existing customers, it makes sense to consider the efficiency of your market as you try to ensure that the customers you worked so hard to win stay paying customers.

Companies with high turnover rates lose a considerable number of customers, resulting in slow growth and a negative effect on sales and earnings. Customers are retained by companies with low churn rates.

Let’s see this from a human standpoint. From July 2019 to May 2024, any employee can work their tails off and get little or no compensation.

  • The investment will dry up
  • Salaries will remain stagnant
  • Customer turnover will dent morale
  • The business will come under cash-flow pressure

This is why it’s crucial to comprehend churn and take measures to manage it. Why reducing turnover is the most important thing you must do.

Wrapping It Up

Now that we’ve decided that you can’t afford to lose clients, it’s time to concentrate on keeping them. That means your clients must easily understand why it is preferable to hold you and stick with you rather than leave.

Furthermore, you should be diligent in preventing customer turnover by providing environments in which consumers can easily see and use the value your goods have.

To remain focused, remember that 82 percent of businesses say that retention is less expensive than acquisition and that even a modest 2 percent rise in retention will save up to 10% on costs.

It’s also crucial to remember that the primary causes of churn have nothing to do with the commodity and are almost entirely due to inadequate customer care!

Overall, holding the clients isn’t a magic trick. It all comes down to determining the causes of turnover and then taking action.

Boost your customer experience rate by communicating with consumers and including them in your offerings. Make sure they understand the benefits of being with you rather than going elsewhere.

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