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Article 13 min read

How to calculate customer churn rate

Customer churn rate is one of the most important metrics for businesses to track. Find out what is is and why it matters.

By Kenza Moller, Contributing Writer

Last updated February 15, 2022

Illustration by Jo Zixuan Zhou

Customers can be a fickle bunch—happy one day, gone the next. That’s why it’s important for companies of all shapes and sizes to monitor when customers leave or “churn.”

While customer churn is often considered to be a measure of failure rather than success, it is one of the most important metrics to track. (After all, what’s a business without its customers?) Churn also impacts nearly every aspect of a company, from the product and revenue to customer loyalty and customer satisfaction.

In this guide to customer churn rate, you’ll learn:

What is customer churn rate?

Customer churn rate is the percentage of a company’s total customers that stop doing business with the company over a specified period of time.

When evaluated alongside other key customer retention metrics, churn rate is a powerful way to assess what a brand is doing well and where it needs to improve. Depending on the nature of the business, churn rate may be monitored on an annual, quarterly, monthly, or weekly basis. Fast-moving SaaS companies—with user bases that fluctuate rapidly and dramatically—might even look at this data daily.

While all companies strive to have a loyal customer base and a churn rate of zero, the reality is that customers come and go. But that doesn’t mean churn isn’t worth tracking. Once businesses determine their customer churn rate, they can determine why customers are leaving and identify customer retention strategies that could help.

When evaluated alongside a company’s other key metrics, a company’s churn rate is a powerful way to assess what a business is doing well, and where it needs to improve.

Depending on the nature of a company’s business, churn rate may be monitored annually, quarterly, monthly, weekly, or in the case of some SaaS companies, even daily. While all companies strive to have loyal customers and a churn rate of zero, the reality is that customers come and go. Therefore, it’s important for companies to come to grips with what is causing customers to cut ties with their business and consider customer retention strategies that could help.

Why is churn rate important?

Customer churn is an important metric to track because lost customers equal lost revenue. If a company loses enough customers, it can have a serious impact on its bottom line. Another reason it’s critical to improve customer retention and reduce churn is that it’s generally more expensive to find new customers than it is to keep existing ones. So, companies that lose customers aren’t just losing the revenue from those customers—they’re also stuck with the high cost of finding new customers.

No matter how good a company’s product or service may be, it’s essential that they monitor their customer churn rate. Once businesses know and understand their churn rate, they can work on finding ways to bring it down.

How to calculate churn rate

To determine your company’s churn rate, choose a period of time you want to measure and identify the following values:

  • Number of customers at the start of the time period (X)
  • Number of customers lost during that time period (Y)

Then, use the following formula to determine your customer churn rate (Z) as a percentage.

Customer churn rate formula: (Y/X) x 100 = Z

For example, if a business had 100 existing customers at the start of the month and lost 10 customers by the end of the month, then it would have a monthly churn rate of 10 percent.

customer churn rate formula

This simple formula can be used across any time period, whether that’s a year, a month, or even a day. But companies may face situations that require more complex churn rate formulas.

5 tips to reduce customer churn

Knowing your customer churn rate is an important first step, but it’s just that—the first step. Once you determine how many customers churn, you need to find ways to minimise churn and grow your business.

  1. Listen to customers

    Your average customer will generally have good reasons for leaving. It’s important for you to evaluate why this is happening by listening to your customers—often in the form of surveys, feedback forms, and other customer satisfaction indicators. You can also proactively monitor third-party review sites, community forums, and social media to understand where you might be failing customers.

    You should also look inward and consult metrics from all the different touchpoints in the customer journey to find ways to improve the customer experience. If you’re a SaaS business with a high churn rate, look at your customer onboarding process to see if new users are struggling to see the value of your product. Ecommerce startups might want to look at their products’ average shipping times or how successful customers are when searching for a product.

    To get started, here are a few avenues to guide your inquiry: At what point in the customer lifecycle are customers usually churning, and why? Does your customer onboarding process do a sufficient job of educating the customer? What are the most common pieces of feedback your customer success team receives?

  2. Identify at-risk customers

    If you want to focus on customer retention, it’s important for you to understand which customers are most likely to leave. Of course, that’s easier said than done, but you should consider the metrics you have available to you and look for patterns that could indicate a customer is at risk.

    These risk factors might be the amount of time since they’ve been in contact with sales, visited your website, or placed an order. Other factors could include negative feedback, product returns, or a poor interaction with customer service.

    Once you identify who may be at risk, target those customers with special offers or enhanced support to regain their trust and loyalty.

  3. Give customers a good reason to stay

    While giving at-risk customers special incentives to stick around is important, it’s equally important for companies to offer loyalty incentives to customers from the start.

    According to Harvard Business Review, companies with strong loyalty marketing programs tend to grow at a rate 2.5 times faster than those without loyalty programs. Consider building out (or improving) a customer loyalty program that encourages buyers to stay for the long term and increase their spending with you.

    There are many ways to structure a successful loyalty program: You can base your customer rewards on the amount of money they spend, how often they use your service, or how many people they refer. No matter what you choose, make sure you maintain a customer focus, and you’ll be well on your way to building a loyal fan base.

  4. Double down on your best customers

    Even with the best plans in place, it’s nearly impossible to get a customer churn rate down to zero. That’s why it’s also critical for your company to identify and take care of its best customers. When you maximise customer lifetime value through your brand champions, your business can grow in a way that helps offset the inevitable churn it experiences down the road.

    If you offer multiple tiers of service or a variety of products, consider how you can upsell your most loyal customers and increase their lifetime spend with your company. By bringing in extra money through upsells, you can increase customer loyalty and bring in more dollars to make up for revenue lost due to customer churn.

  5. Invest in service and support

    According to the Zendesk Customer Experience Trends Report 2021, about 50 percent of customers will stop doing business with a company after just one bad interaction with customer service. Eighty percent will leave after multiple negative experiences. So, companies that want to cultivate customer loyalty and maintain long-term relationships with their buyers can’t afford to deliver sub-par customer service and support.

    One way you can ensure your company delivers fast, personalised service is to use help desk software or customer relationship management software. These tools enable your agents to support customers across multiple channels, glean insights on customer issues, and proactively maintain customer relationships.

Turn the churn around

Customers are the lifeblood of any business, so companies need to understand churn if they want to grow and adapt to meet their buyers’ needs.

While it can be a scary metric to face, knowing your customer churn rate is the first step to improving your business and managing profitable long-term relationships with customers.

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