What is Customer Churn?

The churn rate, which is also called the rate of attrition or customer churn, is the rate at which customers stop doing business with a company. It is usually shown as the percentage of service subscribers who cancel their subscriptions within a certain amount of time. It is also the rate at which employees quit their jobs within a certain amount of time.

For a business to get more customers, its growth rate (measured by the number of new customers) must be higher than its churn rate.

Synonyms

• Customer Turnover
• Customer Attrition
• Customer Loss
• Client Defection
• Customer Cancellation

How Do You Calculate Customer Churn Rate?

The churn rate can be calculated by dividing the total number of customers you had at the start of the time period (let's say a quarter) by the total number of customers you lost. 

Customer churn rate is calculated as follows: (number of lost customers / total number of customers at start period) x 100

Let's take a look at an example where Business X has seen a decrease of 200 B2C customers in just one month. At the start of the month, there were 4,000 customers, but by the end, that number decreased to 3,800.

To figure out the churn rate, you can use this formula: (Lost Customers ÷ Total Customers at the Start of the Time Period) x 100. For Business X, that comes out to a monthly churn rate of 5%.

If you use a churn rate formula like this, it can help you create comparable data that lets you track your progress over time. If it makes sense, you can also look at your churn rate in dollar terms. This can help you figure out how much revenue you're losing on average when customers leave.

What Causes Customer Churn?

Companies that are very good at what they do will sometimes lose customers. However, figuring out what’s making your customers leave can really help you understand what needs fixing. There are various types of reasons why customers might leave, such as:

1. Poor product fit

If your products don’t resonate with your target audience, they’re not going to keep coming back, even if they feel a strong emotional connection to your brand. A bad product fit can really hurt a brand and make them lose customers.

Understanding your target audience and creating a buyer persona is very essential. It helps you figure out exactly what your customers need. If you can spot what’s bothering your customers, you can adjust your products to be just what they need.

2. Incorrect pricing

If your products or services cost too much, your customers will probably start searching for other options. Your customer's pricing standards can change over time, too. They might have been okay with paying a certain amount at the start of the year, but now those same costs just aren't doable for them anymore.

Your customers might be leaving because your pricing isn't quite right, so it could be time to rethink your pricing strategies.

3. Competition

Chances are, you’re not the only player in your industry selling those products, so it’s a good idea to keep an eye on your competition. If your competitors have better products or services at a lower price, chances are your customers will go with them instead of you.

If you’re looking to cut down on customer churn, it’s a good idea to check out what your competitors are providing compared to what you have on the table.

4. Poor user experience

If your website is a bit tricky to navigate, your customers might feel frustrated, hit that back button, and check out a different site instead. A bad user experience can hold your business back since customers prefer brands that are simple and user-friendly.

If you want to boost customer retention, it’s important to ensure your website or app is in good shape.

5. Insufficient support

Getting to know your customers is important for any business because it helps them love your brand. When your customers trust you, they'll keep supporting you and might even tell their friends about your brand. If you don't build relationships with your customers, they're probably going to leave because they feel unsupported.

Building a connection with your customers is important for keeping your churn rate low. When your customers feel emotionally invested, they’re more likely to stick with you instead of going for the competition.

6. Misunderstanding of the target audience

If you’re not clear on who your target audience is, you’re missing out on what they want. If you don’t really get your target audience, it can lead to customer churn. You might end up making products or services that just don’t meet what your customers are looking for.

You might be selling your products to the wrong target audience entirely. If you want to get to know your target audience, keeping an eye on customer feedback is key. It helps you figure out what they’re after.

How To Reduce Customer Churn Rate

If you’re unsure about who your target audience is, you might be overlooking what they truly desire. If you don’t quite understand your target audience, it might result in losing customers. There's a chance you could create products or services that miss the mark for what your customers want.

You might be selling your products to the wrong crowd altogether. If you want to truly understand your target audience, paying attention to customer feedback is very important. It helps you understand what they want.