Churn rate is expressed in terms of interest or money and refers to the clients who have left the company, thus the fall of incomes is implied. Calculation of this indicator is extremely important for business as it allows to detect losses in the competitiveness of the enterprise’s offer.
How to calculate the churn rate
The process of churn rate calculation is relatively simple if the company has a clear definition of a lost client and accounting for this indicator. For example, if your churn rate is 5%, it means that every month your active client base is reduced by 5%. Or your churn can be $ 2000: in that case, every month you lose $ 2000 of income due to the cancellation of customers or their downgrade.
To discover you churn rate, divide the number of lost clients by the number of clients you had at the beginning of the month, for example, and multiply by 100%.
The more buyers you have today, the less of them will remain tomorrow with you and it means that the cost of each new customer, like the difficulty of their search, is steadily growing. If you continue to lose your current users, finding others will be much more difficult.
Churn rate is an indicator of problems with the product itself. You need to understand what exactly causes the churn customers and eliminate the discovered drawbacks of the product because only this will reduce the churn.
What are the reasons for churn rate
- Low products' quality. People became your clients because they had a need for your product or they appreciated its high quality but soon it might fell and they are no longer satisfied, so you have lost them.
- Bad service. Not only a product's quality is important but the service as well. Your customers might have waited for their order for two weeks but you promised to deliver it in 5 days or you sent damaged goods. All your mistakes may easily make your client leave you in search of better service.
- Brand's loyalty decrease. It happens that prospects find somewhere negative feedback about your company and it prevents them from dealing with you. Besides, you might have made a mistake once and it did harm if not even spoilt your reputation. Thus, people lose trust in your brand.
- Appealing competitors' offers. Competitors always try to offer more appealing offers for lower prices and it's quite okay as it makes you develop, improve your business. Mostly, people choose something cheaper or they are simply interested in new and original products and services.
- Personal reasons. Reasons like change of interests, needs, preferences, income decrease.
How to reduce the churn rate
Of course, it is impossible to avoid the churn but you can reduce it. Churn rate means dissatisfaction with your business. Who knows the reasons better if not your clients? Ask them! You should establish and maintain relationships with them not only to get your regular revenue but to improve.
- Ask your clients what they are not satisfied with, what can be improved or what they expect from your service/products.
- Create a questionnaire where you can ask "What should we improve in our service to make it better?" Mention that you will surely take into account customers' pieces of advice.
- Make it easy for subscribers to leave feedback about your work.
- Don't forget to reward your loyal customers offering them special discounts.
So, there are many chances to reduce the churn rate but it takes much time and effort. Analyse your work, communicate with your clients and take the necessary steps to improve!
Published: 2017-05-08 Last Updated: 2019-01-16