Churn rate – What it is and how to measure it

What is churn rate?

The churn rate is the annualized percentage of customers that have turned over during a specified period. Businesses usually want to keep their churn rate as low as possible to ensure consistent revenue throughout the product lifecycle. For example, I have 2 clients that have a monthly churn rate of 20% – 25%. Thus, this means that 20-25% of their customer base is leaving them each month. Higher churn rates are not good and indicative of more clients who stop buying. This is a metric that you should aim to reduce within your business.

Why is it important?

Every business owner wants his sales to increase every day, but business leaders should spend some time looking at their own churn rates. It is important to retain clients and stop them from leaving. It is much cheaper to retain clients than acquire new ones.

Why should businesses care about their customer attrition? The reason is because churn impacts sales, which in turn impacts profits. So, decreasing sales means a business has a decrease in its opportunity for reward, which directly translates into a decrease of rewards and benefits they can offer. Customers sign up? More money is paid out by the business with less clients paying it back.

Further, churn rates are indicative of how satisfied your clients are with your products. It could be a signal for you to look to improve your current service or product. Companies can use complex algorithms to make customer retention predictions, but it’s still important for marketers to understand why increasing customer churn should be avoided. If you can not, then you will not be able to offer suggestions that actually improve the financial situation.

How do you calculate churn rate?

To calculate the churn rate, you need to subtract your total customers from the end of the month by the customers at the beginning of the month and divide this by your total customers at the beginning of the month. You can use an online calculator for this.

What next?

You can reduce your churn rate by making sure you target the right prospects. Tools like Triggr can help you find lookalikes to your current clients or create a tailored prospecting list.