What is Customer Churn (How to Calculate It)

What Is Cusotmer Churn

If you’re a growing business owner, you should never underestimate the importance of Customer Churn. Yes, it’s an important metric that a growing business should measure. 

The thing is customer churn isn’t the happiest measure, however, it’s sufficient enough to provide you the data and truth about customer retention. 

As HubSpot blog quoted — it’s hard to measure success if you don’t measure the inevitable features. Hoping to retain all your 100%  customers is kind of an unrealistic goal. This is where — Customer Churn helps you evaluate customer retention for your business. 

What is Customer Churn?

To put it simply, customer churn is the basic percentage of customers who stopped using your company products or service (during a certain period of time frame). You can easily measure and calculate that rate just by dividing the number of customers lost (during that certain period). 

Let’s take an example here for a better understanding. Let’s assume you started your month with around 250 customers and lost around 10 by the month-end. To conclude your business churn rate will be — 4% monthly. 

The formula to calculate Churn Rate Is — 

(Lost Customers ÷ Total customers) x 100

Any business or company would want to reduce the churn rate to zero (sometimes unrealistic). In order to keep your company churn rate to zero, the company has to be on the top all the time.  

We have mentioned the formula which you can use to calculate the customer churn rate. However, there are other metrics of churn rate you can calculate. These are listed below:

  • The number of customers lost during a period
  • The value of recurring business lost during the period
  • The percentage of recurring value lost

Why is Customer Churn Important?

If you’re thinking about why Customer Churn is so important and have no problem with losing customers here and there, then you’re so wrong because every customer is important for a business. If you’re losing customers rapidly, you must calculate the customer churn and try to reduce it as much as possible. Businesses usually spend more on acquiring new customers compared to retaining existing customers.

If you can retain at least 50% of new customers that are coming, then you can increase your revenue by a lot. Because you don’t have to spend a lot in acquiring new customers because you are already retaining customers who are coming to your store, and it is most likely they will spend more compared to the last time on your store. If you’re managing to reduce your Customer Churn to 7-10%, then your business will earn more revenue than ever. 

So it is good to be aware of your business’ Customer Churn rate to you can implement different techniques and create strategies to reduce it as much as possible.

Why Should Businesses Take Customer Churn Seriously?

As a growing business owner, you might be wondering — why I should focus on customer churn when my business is booming. We would say, — what if you lose some customers in the future? What if you lose 10%? In that case — how would you calculate customer retention? This is where customer churn helps. 

Needless to say, its costs a lot to acquire new customers compared to retaining your existing customers. Somehow, if your business’s customer retention increases by 5%, it can help you increase by 25.5% in profit. Yes, your returning customers have the trust already and are likely to spend more when compared to new customers. 

This way a company doesn’t have to invest much in the operating costs of having to acquire new customers. What’s more, a company doesn’t have to spend energy, time, and money convincing new customers to choose your company — product or services. 

The thing is, you might be thinking it’s not that bad to lose 10 customers a month, and it’s still healthy. However, seeing the above example and explanation you would understand — how much profit you can make with just 5% of customer retention. 

Top Three Ways To Reduce the Churn Rate (WORKING)

Well if you’re looking to reduce the churn rate, these are the top five ways that can help you can reduce the churn rate. 

  1. Focusing More On Potential Customers

Instead of focusing on new customers we suggest focusing on potential paying customers first. You should focus on rewarding and incentivizing potential paying and loyal customers. 

  1. Measure & Analyze Churn Rate As It Occurs

First of all, you need to make use of the churned customer percentage to know why your customers are leaving in the first place. You need to be serious in analyzing how and when customer churn occurs in a customers’ life.  And then you need to use that data to analyze everything and then proceed ahead with proper planning. 

  1. Show Customer That They Are Yoru First Priority

Reach out to customers and always solve their issues and problems if they have any. Don’t ever wait to connect with your customers, you need to have a more proactive approach. First of all, you need to communicate with them and make them feel that you really care about them and the services you offer.

So these are a few ways that can literally help you reduce the churn rate. Now you have an idea of how important is it to calculate customer churn. You can make use of these ways listed above to reduce customer churn effectively. 

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