Customer Churn: Definition, Calculation and Ways to Improve Retention
- Datameer, Inc.
- June 30, 2022
What is Customer Churn?
In this article, we will explain the meaning of customer churn, how to calculate it, and how to improve customer retention.
Whether you produce, retail, or provide services, you probably engage in marketing activities to increase your profitability.
The very foundation of marketing is hinged on carefully engineered and executed activities to attract new customers to your establishment.
But your majesty! It only makes sense that while you are going hard at conquering new lands and increasing your customer population, you should also consider activities and systems that prevent you from losing the conquered territories and loyal customers you currently have.
Customer churn is the percentage of customers your business loses over a particular period. Especially for avoidable reasons, it refers to the customers that stop interacting with or purchasing your company’s product or service.
A higher churn rate usually indicates that your business model needs revision or a product strategy needs improvement.
When evaluated alongside other key customer retention metrics, customer churn rate helps you assess what your brand is doing well and expose what needs improvement.
Customer churn or attrition rate can be mathematically calculated to know the percentage of customers who have stopped purchasing and are unlikely to buy again from you.
How to Calculate Customer Churn
You can calculate churn rate by dividing the number of customers you lost over a particular period – say a quarter – by the number of active customers at the start of that period, then you multiply it by 100 to get the percentage value.
Customer Churn Rate = (Customers Lost ÷ Total Customers at Start of Period ) x 100
If your organization’s monthly churn rate is 5%, and you are not gaining a higher percentage of new customers each month, you may be losing close to half of your loyal customer base annually.
More practically, let’s look at the example of Uber. In April 2017, CNBC cited a report from The Information that only 4% of Uber drivers who sign up to drive remained on the platform after 1 year. Uber’s annual driver churn rate was a whopping 96%.
Note that Customer Churn is not always indicative of success or failure when evaluated independently from other key metrics. Despite the churn experienced at Uber, the company still managed to stay afloat because the annual subscription of new drivers was significantly more than the churn rate.
But this does not mean you should rest on your oars because customer churn exposes the attrition rate in your organization and areas for improvement.
How to Reduce Customer Churn Rate
Customers come in all shapes and sizes and with just as many preferences. Depending on your industry and niche, your brand cannot cater to the needs of everyone.
You cannot personalize your brand to resonate with such a diverse crowd. Sometimes customers desire to try something new or different. Therefore it is perfectly natural to lose a few customers.
Understanding your customers’ needs is essential if you expect to retain them. Below are a few points on how to reduce customer churn:
1. Personalize the loyal groups of customers
Creating campaigns to acquire new customers, retain loyal customers, and reengage churning customers may spread your budget too thin.
Concentrate your efforts on analyzing metrics like Customer Satisfaction Score, Customer Effort Score, and Repeat Purchase Rate to determine your best customers. Then create offerings to them to drive repeated engagement and increase loyalty.
Did you know that repeat buyers are likely to spend 67% more on your products than new customers or customers that have churned?
2. Analyze churn with the Right Tools
Frequently using the correct data analysis tools to analyze churn rate would exponentially transform your enterprise, positioning your business to perform iterative improvements that reduce your churn rate and fortifying your product and marketing strategies.
You would have to analyze churn alongside other key customer sales and retention metrics to do this. And generate churn analytics reports using data visualization dashboards and robust reporting tools.
What is Customer Retention?
Customer retention is your ability to implement strategies that help you retain repeat customers and increase their lifetime profitability. It is influenced by the number of customers that churn.
Good retention strategies are focused on exploring your customer base, building strong relationships, and maintaining these relationships to increase loyalty.
It typically costs about seven times more to acquire a new customer than to keep an old one, making it imperative to implement effective customer retention strategies.
Customer retention is necessary because:
- Loyal customers spend significantly more on your business, increasing your ROI
- They are easier to sell to than new customers.
- They adopt new campaigns quickly.
- They give word-of-mouth recommendations significantly more potent than paid ads and multiply sales by as much as five times.
“The goal is for customers to purchase from you; the key to the goal is for them to be retained.”
Customer Retention Strategies
The following customer strategies can help you to strengthen your customer relationships:
1. Mirror Brand Values
Shared values refer to beliefs that both businesses and customers have in common. Relationships that keep customers coming back are built on shared values. And brands with common identities attract and retain loyal customers more than random marketing campaigns do.
Sometimes, People are subconsciously biased towards things they relate to or associate directly with themselves. It is something that you should take into account.
2. Improve Improve Improve
Make sure to constantly track your customer onboarding steps and define goals for each step. Every goal must be clear and easy for customers to achieve. And you should reward your customers at the end of each goal if it is feasible.
For older customers, analyze onboarding steps to remove ambiguity and reach out to existing customers with surveys to know which stage needs improvement. Offer assistance if they can’t achieve the goals you set for them.
3. Understand Your Customer Expectations and Overdeliver every time
The 21st-century customer can be unforgiving and impatient because there are many options to choose from, and any misstep could easily send your customers running to your competitors.
Understanding the specific needs of your customers, structuring your campaigns and offerings to fulfill those needs, and ensuring that you move heaven to keep that system stable is one of the fastest ways to build trust between your business and your customers.
4. Keep Customers Informed
Always provide customers with up-to-date information about your products and services. This should include sharing product milestones so your customers know you strive for continuous improvement.
Communicate regularly using channels like social media, email copy, and texts where necessary. Personalize your content to target your different customer segments.
5. Reward loyalty
In addition to discounts and offers, think of schemes that will make your customers feel good about purchasing or using your product and one that will make them want to do it over and over again. A personalized thank-you note or positive acknowledgment can keep your customers returning. You can offer cashback discounts or additional products to loyal customers as well.
6. Use Data-Driven Strategies
Every other point listed above consolidates in this one, as your impact is minimal if you don’t follow the data. It would be best if you employed a complete data-driven process, where you collect data from every channel in which you interface with clients. Then integrate all the data points into a data warehouse and derive key metrics that will reveal the new strategies to implement and the old strategies to improve.
Explore Datameer, a tool with multiple interface options that integrate with the Snowflake Data Warehousing application to enable you to integrate all your data capture points and calculate critical metrics like Customer Churn and Repeat Purchase Rates.
Improve your brand and solidify your relationship with your loyal customers by analyzing churn rate alongside other customer retention metrics with Datameer today.