Churn rate is a measurement of the number of items or individuals moving out of a collective group during a given period of time. In marketing, the churn rate is the number (typically a percentage) of customers or subscribers who cancel or do not renew their subscription during a given period of time. A high churn rate, also referred to as customer churn, could negatively affect a business’s profits and impede growth. Knowing the churn rate of a business is critical to evaluating the effectiveness of marketing efforts and overall customer satisfaction. In addition, it’s much easier and cheaper to keep existing customers than acquire new ones.
To calculate a business’s churn rate, a formula is needed. Churn rate is calculated by tallying up the total number of acquired customers and the number of customers who churned within a designated period of time. The total number of acquired customers is divided by the number of churned customers. The decimal produced is multiplied by 100 to output a churn rate percentage. Here are the steps in a list format:
As a simplified example, say a company starts the month with 500 customers. At the end of the month, they have 450 customers. So, the churn rate would be calculated as follows:
500 – 450 = 50
50 / 500 = 0.1 x 100 = 10%
Churn isn’t straightforward, but common sources of churn include the following:
The first step in reducing customer churn is to identify the cause. This can be done by sending existing customers a survey as to why they left, calling the customer, or sending a personalized email. Other ways to reduce churn include:
It’s also worth mentioning that many customer relationship management (CRM) systems on the market cater to companies wanting to improve and increase customer interaction to decrease customer churn.