What is a churn rate?
A churn rate is the rate at which customers or subscribers stop doing business with a company during a specified period. Your churn rate helps you gauge the effectiveness of your customer retention practices and understand how business changes affect customers.
A high churn rate may indicate issues such as:
- Irrelevant or low-quality content
- Poor targeting
- Lack of engagement
- Failure to meet audience expectations
Conversely, a low churn rate suggests content that resonates well with the audience, retains their interest, and keeps them engaged over time.
For most companies, churn rate is a critical metric to track. Even if you seem to be on solid financial footing, if you’re losing customers, you could be headed toward trouble. At a minimum, you need your customers to stick around long enough to recover the money you spent to acquire them (known as customer acquisition cost).
Companies typically calculate churn rates annually, although quarterly or monthly calculations are often valuable. Since different customer groups defect at different rates, you may also need to calculate churn for various customer segments.
Why is monitoring your churn rate so important?
The churn rate directly reflects the number of customers or subscribers you lose over a specific period. By monitoring the churn rate, you can identify trends and patterns, allowing you to take proactive measures to retain customers and reduce attrition.
Acquiring new customers also costs more than retaining existing ones. By reducing churn, you can be more cost-effective by focusing on customer retention instead of allocating resources to customer acquisition.
Tracking your churn rate leads to a better understanding of your customers, which may give you the competitive edge you need in a crowded market. Maintaining a lower churn rate than your competitors demonstrates your ability to provide value, engage your audience, and build a loyal customer base.
How to calculate your churn rate
The most straightforward way to calculate the churn rate is by dividing the number of customers who churned during a period by the number of customers you gained. Multiply the result by 100 to get your churn rate.
Imagine you offer subscription-based software and acquired 200 new users in the past month. However, you also lost 15 existing subscribers.
Here’s how to calculate your churn rate:
Churn Rate = (Churned Customers ÷ New Customers) x 100%
Churn Rate = (15 ÷ 200) x 100%
Churn Rate = (0.075) x 100%
Churn Rate = 7.5%
Other churn rate formulas should be considered if appropriate for your business needs. No matter the formula you choose, tracking your churn rate helps you know if you must accelerate customer acquisition or retention to meet your growth targets.
How can you improve your churn rate?
Having a high churn rate is not the end of the world. You can do a lot to improve audience retention and keep your customers returning for more.
Understand your audience
Understanding your audience has to be your first step. If you don’t know their needs, preferences, and pain points, there is no way they will stick around. Invest in analytics tools and CRM to better tailor your content, products, and services to meet their expectations.
Enhance customer experience
Ensure you are providing an exceptional customer experience at every touchpoint. Streamline your processes, make it easy for customers to access, and promptly address any customer issues or concerns.
Proactive customer support
Implement proactive customer support measures to anticipate and address customer issues before they become significant problems. By demonstrating your responsiveness to their pain points, you show your audience you care about their business, and they don’t feel like just another number.
Offer incentives for loyalty
Rewarding customer loyalty is a great way to get them to stick around. Loyalty programs, exclusive offers, discounts, or early access to new content make your customers feel valued and appreciated.
Conduct customer surveys and feedback
By regularly gathering customer feedback through surveys, polls, or direct communication, you can be on top of making improvements before they become crucial.
Case Study Examples
Improving a high churn rate has been done in the past with some wonderfully creative solutions.
Most of us are subscribers of some streaming service and have likely experienced their customer retention efforts firsthand. Streaming companies like Netflix have copious amounts of user data and an algorithm that personalizes their platform to every individual user. Netflix continues to adjust its algorithm to compensate during periods of losing subscribers. Netflix also double-downed on producing high-quality original content to keep subscribers engaged and continually expands its library to offer a wide range of options.
Adobe successfully reduced churn for its Creative Cloud subscription service by implementing a proactive customer support and engagement campaign. Their dedicated customer success team reaches out to customers before their subscription renewal, offering personalized assistance and addressing any issues or concerns. This proactive approach built long-term relationships with customers who rely on their large suite of software services working to retain their own business.
The popular music streaming platform Spotify reduced churn by leveraging data analytics and personalization. By analyzing user listening patterns, they could curate personalized playlists and recommendations. Spotify also employed a series of creative social media benchmarks that led to some serious FOMO for those who canceled their subscription. The end-of-year review that Spotify offers is an easily sharable social media post that has trended exponentially more every year since its creation and is only accessible to current subscribers.
Despite Amazon continuing to receive controversial press, Amazon has successfully reduced churn for its Prime membership program by continuously adding new features and benefits. They provide fast shipping, exclusive access to deals and discounts, and make it impossibly easy to use their services. This continuous expansion of the value proposition helps retain customers and encourages ongoing membership.
So don’t let your customers slip away! Easily reduce your churn rate and elevate your customer retention game by connecting with a ClearVoice content specialist today.