Depending on your industry, acquiring a new customer is between 5 to 25 times more expensive than keeping an existing one! In addition, a study by Bain & Company found out that increasing your customer retention rate by only 5% leads to an increase in profits by 25% to 95%! And this is where churn rates come into play! But what is it and how can you does it affect your company? Read below to find out more:
1. What is a customer churn rate?
Customer churn rate is a metric commonly used in the feedback management industry. It shows the percentage of clients who leave your company over a period of time. This period depends on the industry and the product and can range from monthly or quarterly to yearly. For example, mobile phone service providers or gyms might use a monthly churn rate, while other companies might focus on an annual churn rate.
Churn rate is not only used by managers and marketers, but also by many investors in order to evaluate the company. The lower the churn rate is, the more legitimate does the company look.
2. How to use customer churn rate?
Churn rates are extremely useful when it comes to judging if a company is performing well or not. They are an indication of how many customers are leaving your company. If the rate is going up after you have launched a new product or made some changes, this might be an indication that your customers are not fans of those. Use your churn rate as an indicator when you need to adjust your marketing strategy or improve customer support.
In addition, you can break down the churn rate per demographic group or customer segment. In this way, you can see which customers are at risk and prevent them from leaving your company. Churn rates can therefore not only be used to understand what exactly happened. They can also be used to predict what actions should you, as a company, take in the next period. For example, you can target customers you suspect might leave with lower priced offers, extra services, more training, etc.
3. How do you calculate it?
Churn rate is very easy to calculate, as it is the percentage of customers who leave your company over a certain period of time. Therefore, simply take the total number of customers who left the company during the period. Then divide it by the total number of clients you had at the beginning of the period. As the number you get does not give you any insights into why your customers left, it is a good idea to include an exit feedback form. Thus, your customers can share why exactly they have made this decision.
4. What are the most common mistakes managers make when using churn rates?
One of the biggest mistakes you can make with churn rates is to perceive them as something fixed and not as an opportunity. In addition, some managers take churn rates simply as a metric which they should track and not as an indicator of how their customers perceive them. Analyse the reasons behind your high churn levels. Then do your best to change those, even if this means taking a step back and redesigning or changing your product or service.
Furthermore, many managers don’t consider the fact that churn rates vary in different industries. Some companies might still be successful, even though their churn rates are high. Therefore, it helps to actually look at the development of the churn rates over time and to think about how to improve performance in order to lower them.
Finally, the reasons behind a high churn rate could be a result of having the wrong kind of customers. If your customers are focused on getting the lowest price possible, they might switch quickly to another company. Hence, invest more in your longer-term customers and reward their loyalty.
Are you interested in what other metrics are used in the customer feedback industry? Check out our article “What are the Customer Feedback Metrics?”