What Is Customer Churn? Tips To Calculate It and Reduce It

Marketing 20 minute read 22nd August 2023

Are you wondering what is customer churn? Then, this article will help you figure out what it is and why it’s important. Just like tides rise and fall, customer relationships can shift. What was once a loyal clientele might gradually start to slip away. It’s an important challenge that all businesses face to ensure success in the long run.

If all this sounds intimidating, let this article be your guide to answering “what is customer churn” and its acceptable percentage. You will also learn its causes, effects, and reduction methods.

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The Culprit Behind Sinking Profits: What Is Customer Churn?

It is more expensive to bring in new customers than to retain the ones you already have. Therefore, losing customers can be a costly mistake. And while you might want to avoid hard truths about your business, ignoring customer churn is out of the question. So, what is customer churn?

It is a metric that businesses use to track how many customers they are losing over time. Before you panic, let’s make one thing clear. Facing some marketing customer churn is normal. Only an excessive percentage is worrisome.

But we’ll discuss those percentages later in this article. Let’s discuss the drivers of customer churn for now because prevention isn’t possible without knowing the reason.

Firstly, customers won’t stick around if your product or service has problems. Moreover, when they have a problem, they need to know you’re there to help them. Slow, unresponsive, or unhelpful customer service also causes churn.

Secondly, if you raise your prices too much, they may decide it’s no longer worth the cost. On the other hand, if your price is too low, they may deem your product or service as deficient. So strike a balance in your pricing.

Lastly, customers want what’s best for them. So they may switch to a competitor if they find a better alternative.

Notice that other than customer churn, there are other metrics worth considering. These include customer lifetime value, retention rates, repeat purchase rates, and more. So, you need other data to have a complete view of how your business performs.

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What Is Customer Churn and How Does It Affect Your Business?

Now that we’ve answered “What is customer churn,” it’s time to explore how it affects your business. Reduction in the number of customers can be problematic, both financially and reputationally. Here’s how:

  1. Revenue Loss: When customers leave, they take their money with them. This can be a major hit to your bottom line, especially if the churn rate is high. Or if the departing customers were of high value.
  2. Reduces Profits: Revenue and profits are two peas of the same pod. Profit loss shouldn’t come as a surprise if your revenue reduces due to customer churn.
  3. Impact on Growth: Churn can hinder your customer engagement strategy. It’s difficult to expand when you’re constantly losing customers.
  4. Reputation Damage: Customers are more likely to do business with companies that make them happy. High churn rates show something is wrong with your business, and it affects your customer satisfaction rate.
  5. Increased Costs: When your churn is high, you’ll need to invest more in marketing campaigns to attract new customers. This can strain your budget and make it harder to grow your business.

Exploring the Science Behind It: What Is Customer Churn Analysis?

While related, customer churn is not the same as customer churn analysis. Churn is a metric, as mentioned in the section “What is customer churn?” So there must be a way to calculate this metric. That’s what customer churn analysis is about. It is the process of measuring and understanding why customers leave. But how to calculate customer churn?

Well, there are several ways to go about this process. The most common method is to divide churned customers by total customers at the start. Let’s make an example. If you have 100 customers and 10 of them churn in a year, then your customer churn rate is 10%.

Moreover, you can calculate customer churn by creating customer profiles. This means dividing the customers into groups based on when they signed up for your product or service. Identifying trends in churn becomes easy with this method. But all customers don’t bring in the same revenue. So it’s vital to calculate the revenue churn rate as well. To do this, divide the churned revenue by the total revenue and multiply it by a hundred.

Additionally, different seasons bring about different customer requirements. Some parts of the year bring more revenue while others lag. So how do you factor in these changes?

  1. Multiply your busy period’s total customers with your churn rate.
  2. Do the same for your slow period.
  3. Add the values from steps one and two.
  4. Divide the sum by the total number of customers you have during both periods.
  5. Multiply this value by 100.

And that marks the end of our discussion about calculating churn rate.

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Revive Your Business With These 5 Methods To Reduce Customer Churn

When you experience customer churn, rushing to acquire new ones might not be the right strategy. Because as mentioned earlier, customer acquisition is 5 to 7 times more expensive than retention.

But you can’t request or force customers to stay. Then what can you do? After answering “What is customer churn,” let’s discuss some methods to reduce it.

What Is Customer Churn And How To Reduce It Method #1: Exceptional Customer Service

When it comes to reducing customer churn, exceptional service is your trump card. Customers who don’t have a good experience with your company will take their business elsewhere. Here’s how you can avoid this situation.

When customers reach out to you, be sure to respond promptly and in a helpful way. This shows you value their business and are willing to go the extra mile to resolve their issues.

Moreover, put yourself in your customers’ shoes and try to understand their needs. But don’t wait for customers to come to you with problems. Be proactive in reaching out to them and offering assistance.

Additionally, going above and beyond is crucial. Don’t just do what people expect of you. Go out of your way to exceed your customers’ expectations. This way, you will show them you care and want to provide the best possible service. Once you follow these steps, you won’t have time to worry about “What is customer churn.”

What Is Customer Churn And How To Reduce It Method #2: Loyalty Programs

As mentioned earlier, it’s important to understand what customer churn is and how to reduce it. However, exceptional service is not the only way to keep it low. So what other method can you use? Well, it is none other than the introduction of a loyalty program. This method is important because one loyal customer is worth more than ten temporary ones.

These programs are a great way to reduce churn and grow loyalty for small businesses. But how do you create a loyalty program that’s actually effective? Here’s your answer.

Firstly, don’t just give everyone the same rewards. Instead, tailor the incentives to your customers’ interests. For example, if you own a coffee shop, you’ll have an audience that likes to read in your cozy environment. Offering them a free book for each loyalty program level would attract them more.

Secondly, make your program easy to understand and participate in. Customers should be able to understand how your loyalty program works and how they can earn rewards. Moreover, the program should have clear instructions and simple steps.

Thirdly, add a gamified element to your loyalty program to make it more fun and engaging. This can include offering levels, badges, or challenges.

And lastly, offer referral rewards. These are great for getting new customers and encouraging existing ones to spread the word about your business.

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What Is Customer Churn And How To Reduce It Method #3: Communicate With Them Like a Friend

Moving further with our discussion about “What is customer churn,” here’s another method to reduce it. Engage with your customers and listen to them. The results of taking customer feedback seriously will surprise you. But for that, you have to be friendly, approachable, and helpful.

Use a warm and welcoming tone to ensure your customers feel comfortable contacting you. Being impersonal is a common email marketing mistake but applies to other areas of customer interactions.

Moreover, when customers take the time to give you feedback, don’t let it go to waste. Look closely at survey responses to improve your products or services. This, in return, will give you operational insights, build a good rapport with your customers, and help reduce churn.

If customers have a problem, be proactive in helping them resolve it. What’s better to retain customers than to make them feel valued? Additionally, use the customers’ names to communicate and tailor your messages to their specific needs.

But how would you know what your customers think about your business? Yes, by asking for feedback.

One of the best ways to do this is WiFi marketing. Offer free WiFi during the visit. When the customers leave, prompt them to leave a review. However, provide them with an option to skip if they want to. Forcing the customer might do the opposite of what you’re looking for.

Also, remember that a good survey response rate is 5 to 30%. Customer sentiment analysis is another noteworthy strategy to befriend your customer. This process lets you dig deeper into what your customers think.

What Is Customer Churn And How To Reduce It Method #4: Don’t Try To Attract Everyone

Have you ever wondered what motivates your customers to do business with you? They want your product to solve their problem. It can be anything. For example, if you own a skincare brand, your customers want your products to improve their skin.

Or if you’re a SaaS business, they want your products to meet their technological needs. Therefore, focusing on the right customers is crucial when you advertise.

From the beginning, create your ideal customer profile and spend time and effort on them. Understand what they need and want. This way, wondering what is customer churn will be a thing of the past.

Furthermore, when customers see that your product is just what they were looking for, they’ll keep using it. They’ll like what you offer and feel connected to your company.

When your product meets the audience’s needs, they feel happy with their purchase. Satisfied customers are more likely to stick around hence reducing customer churn.

What Is Customer Churn And How To Reduce It Method #5: Keep the Journey Simple

Wrapping up our discussion of what is customer churn and how to reduce it, we have a straightforward solution. Make your customers’ purchasing journey easy. Customers get frustrated when the journey isn’t simple and might leave without buying anything. But what does a simple journey mean?

It means the steps to buy something are clear and easy to follow. A confusing website, too many steps, or asking for too much information is inconvenient.

Additionally, reduce the steps in the checkout process, and ask only for essential information. By making these simple changes, you can make your customers’ lives easier, prompting them to become loyal.

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The Sweet Spot: What Is a Good Customer Churn Rate?

As mentioned earlier, you cannot avoid all churn. It’s natural for some customers to leave, even if you’re doing everything right. Sometimes, there are factors that you have no control over that can lead to high customer churn. Therefore, knowing the answer to “What is a good customer churn rate” becomes inevitable.

However, it’s not as simple as you might think because an acceptable churn rate depends on the industry. The best way to judge this rate is to go through the industry averages. If we take SaaS companies, the monthly churn rate is 3 to 8%.

Moving forward, the annual churn rate for these companies lies between 32 to 50%. If your churn rate is above the upper limit of these averages, it’s time to take the question, “What is customer churn” seriously.

But if we look at the hospitality industry, the customer retention rate is just 55%. This means the churn rate for this industry is a massive 45%.

B2B businesses are in the safe zone with average churn rates of just 5%. That said, you’re good if you manage to keep your numbers in the sweet spot of these averages.

However, you might want to invest in customer retention software if you’re struggling with churn rates. These automated systems help you calculate your churn rate and keep customers engaged to reduce it.

But which software should you opt for? Some of the best options are Zendesk, Hotjar, and Hubspot.

By now, you must have a good understanding of customer churn. Simply put, it is the number of customers you lose over a period.

While you cannot avoid all churn, you can take measures to reduce it. However, learning “What is customer churn” and calculating it is only a part of the game. The other part is to leverage data to improve your offering. With Beambox’s WiFi marketing platform, you can gather data from your customers and streamline your marketing campaigns. Moreover, you can secure and manage your WiFi for maximum efficiency. Start your free trial now!

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