Churn Rate is the percentage of customers who have ended their collaboration with a company within a certain period of time. This is one of the important indicators for evaluating the effectiveness of a company's work, which depends on its regular customers. For example, when services are provided in a subscription format. To calculate the monthly Churn Rate, you need to take the number of customers who left during this period and divide it by the total number of customers at the beginning of the month. Then multiply the resulting number by 100% — this will be the churn coefficient.
Calculating Churn Rate makes sense for most subscription-related formats - push notifications, email newsletters, etc. But usually, more attention is paid to Churn Rate in SaaS companies because their viability depends on the number of customers. They calculate the Churn Rate in combination with the damage caused by the churn to understand the financial condition of the company. This allows them to understand what level of churn can be considered acceptable. For cloud platforms, a normal Churn Rate is considered to be around 6%.
To reduce customer churn, businesses need to:
- be customer-oriented and study user needs — by analyzing their own target audience, they can give customers what they want;
- improve the level of customer service — provide a better user experience that sets them apart from others;
- collect feedback — this will allow them to better understand the shortcomings of their own project and eliminate them;
- try to retain customers — contact departed customers and find out the reasons for their decision. Perhaps the customer did not understand the product or encountered another problem that can be solved;
- use a loyalty program — this will become an additional argument for customers about why they should stay with the company.
When evaluating Churn Rate, it is important to understand that churn is a completely natural thing. Customers come and go in every company, so it is impossible to completely get rid of churn. Businesses can only try to reduce Churn Rate and keep it within acceptable limits. If the company is new, the churn coefficient may reach high values, but again, this is normal. Firstly, the business has not yet had time to form a loyal customer audience, and secondly — many are just getting to know a new product that may be somewhat raw. As the company grows and the number of customers increases, the Churn Rate should decrease — this will be an indicator that the mechanism of operation is debugged and customers have become loyal.