What is Customer Churn? and how it affects your business

What is Customer Churn? and how it affects your business

Keeping track of your customer metrics is important.

This includes the not-so-good metrics too. Such as return rates, negative reviews and worst of all, customers who leave your business.

Today, we will focus on customer churn, what it is, some examples and how it affects your business.

What is Customer Churn?

Customer Churn refers to the rate at which your business loses customers. This number is quite easy to calculate.

For example, let’s say that at the beginning of the month, your business had 1,000 customers. By the end of the month, out of those 1,000 customers, 50 of them left your business.

That would represent a 5% customer churn for the month.

Customer Churn is an incredibly important metric to look at since it is more expensive to acquire a new customer than it is to retain one. Add that to the fact that every time you lose a customer, you’re also losing out on future recurring revenue.

Do not make this mistake when looking at customer churn

A mistake many new businesses make is to only look at their total number of customers and use that as a way to ignore customer churn.

For example, let’s assume that in the previous example, the same business also acquired 100 new customers during that month. So, at the end of the month, they would have 1,050 customers.

If you were to only look at the total number of customers, you’d assume the business is growing at a 5% rate and not losing any customers.

When in reality, the business is losing 1 customer for every 2 customers that they acquire.

Examples of customer churn

Customer churn can be quite easy to calculate for some business, especially ones that work on a subscription basis or recurring revenue structures.

For other businesses, such as retail it might be harder to calculate churn. In these cases, you might want to look at churn in areas such as newsletter subscriptions, loyalty programs or over a specific time frame. For example, if a customer does not return in a period of 6 months, you consider them a lost customer.

Reasons why customers leave

Knowing how many of your customers are leaving is just the first step in the process of improving your churn rate.

Next up, you will have to understand why your customers are leaving your business. After all, you cannot fix a problem you fully don’t understand.

There are several reasons why customers might be leaving your business. As a result, we’ve put together a guide on the top reasons why customers leave your business.

Closing Thoughts

Improving your customer churn can make or break your business.

In fact, a 5% improvement in your customer churn rate can increase your revenue for as much as 25%.

Have you calculated your business churn rate? What strategies will you put into play to improve your churn rate?