Customer churn is an unavoidable challenge that all businesses and contact centers must face, but churn rates do not have to be completely uncontrollable. With the right strategies and tools, businesses and contact centers can efficiently reduce customer churn and maximize profits.
What Is Churn Rate?
Churn rate is a metric that allows businesses and contact centers to calculate the rate at which customers are ‘churning’ or terminating their relationship with a business. Customer churn is not the only rate to consider — revenue churn is also a key metric that businesses and contact centers should be watching; revenue churn refers to the percentage of revenue lost over a certain period of time.
Customer Churn = (Customers Beginning of Time x - Customers End of Time x)Customers Beginning of Time x 100
The customer churn rate formula will help you determine at what rate you are losing customers, while the revenue churn rate formula can help you determine the rate at which you are losing revenue.
Example of Churn Rate Calculation
A small streaming service provider wants to calculate its churn rate for the previous quarter.
At the beginning of the quarter, the streaming service had 10,000 customers and it ended the quarter with 9,570 customers.
10,000 customers - 9,570 customers = 430 customers
During the previous quarter, they lost a total of 430 customers.
430 customers 10,000 customers = 0 .043, 0.043 100 = 4.3%
The customer churn rate for the previous quarter is 4.3% - all companies experience some sort of churn and expected churn varies by industries. But, if you constantly lose that many customers, how can your sales and marketing teams hope to make real progress? Mitigating churn is absolutely integral to the long-term growth and success of any business.
Why Do Customers Churn?
Customer churn can occur as a result of many different factors including price, the customer experience, and rising competition:
Price
Many customers end their relationships with businesses due to changing prices. When businesses raise prices without an upgrade of their products or services to justify said increase, customer churn is likely to rise.
Customer experience
Churn often occurs as a result of poor customer experiences. When customers feel ignored, neglected, or disrespected by businesses, they are likely to take their business elsewhere despite the potential benefits of customer loyalty. In fact, according to a survey done by Khoros in 2022, 65% of customers reported switching to a different brand after a bad experience with customer service. This makes providing high-quality customer service through your contact centers absolutely crucial to maintaining customer relationships.
Competition
Customer churn can also be caused by increased competition. Customers are always looking for the best deals they can find, so if they come across a competitor that offers the same or similar services at a lower price, they will - in all likelihood - take their business to the competitor.
What Can I Learn From Churn?
After calculating the customer churn rate, you may be wondering how you can use this metric to improve your business and make your contact centers more efficient. Calculating your customer churn rate can help you to better understand customer retention, identify customer preferences and patterns, and determine your target customer.
Understanding customer retention
The customer churn rate during any time period can help you determine whether your customer retention strategies are up to snuff. If customer churn rates are high and increasing, it may be time to consider some new approaches to customer retention.
Identifying customer preferences and patterns
Calculating customer churn over a certain period of time can help you to determine patterns in customer preferences and behavior. For example, if a business raises its prices and notices that its customer churn rate increases after the increase in prices, the business can then infer that its customers value low prices. In a case like this, the revenue churn rate is also an important metric to consider because it is possible for the increase in price to make up for the loss of customers.
Determining the target customer
Reviewing customer churn data can also help you to determine exactly who your best customers are and find more customers with similar attributes. If you are wondering who your most valuable and loyal customers are, take some time to calculate the customer churn rate and compare the data on the customers you lost to the customers that you retained. You will likely find a common thread between the customers you lost that will help you draw informed decisions about what types of customers to avoid targeting in the future.
How to Reduce Churn Rate
Analyze why churn occurs
Before you can dive into reducing churn rate, you must first understand why it's occurring in the first place. It could be the result of poor customer service, price changes, rising competition, etc. After calculating your business’s customer churn rate, make sure you are working with your contact center to analyze why customers are churning and to find solutions to address the issue.
Provide excellent customer service
As mentioned above, 63% of customers reported terminating their relationship with a company after having a negative customer service experience. Providing quality customer service makes customers feel valued and increases brand loyalty. The same Khoros survey found that 83% of customers feel more loyal to brands that respond to and resolve their complaints with excellent, high-quality customer service.
Offer incentives
Offering incentives to loyal customers is a great way to reduce your customer churn rate. Customers like to know that they are not just another number in your books and that you appreciate their business. Offering incentives to customers through loyalty discounts, added services for discounted rates, or coupons for future purchases are all ways to keep your customers happy and reduce churn.
Offer long-term contracts
Many successful companies reduce churn rates by offering long-term contracts to customers. As long as this is done in a transparent manner, offering long-term contracts can help by locking customers in for an extended period of time. These contracts can also be beneficial for the customer because it gives them the option to lock in their current price over the term of the contract, avoiding potential price increases.
Connect with customers
Customers love to feel connected to the companies they do business with. Providing your customers with multiple touch points, engaging content, and good customer service will help to reduce churn and boost customer loyalty. Some popular tactics that many companies use to engage with their customers include social media advertising, email newsletters, customer loyalty programs, SMS marketing, and personalized phone calls.
FAQs
What is customer churn?
Customer churn, also known as customer attrition, refers to the process of losing customers.
What is a good churn rate?
Churn rates are highly dependent on the industry. A typical, acceptable monthly churn rate for a business that specializes in SaaS falls between 3%-5%.
What does a high churn rate mean?
If you have a high churn rate, this means that you're losing customers at a high rate. If your customer churn rate is high, you will want to work quickly to determine the cause of your rising churn rate and remedy the issue so your business does not lose too many customers.
Do you want the churn rate to be high or low?
Because churn rate typically refers to the rate at which you are losing customers, it is best to aim for a low churn rate; this can indicate that your business is growing and gaining new customers at a higher rate than it is losing customers.
Hiya's Branded Call helps to reach more customers by displaying your business’s name, logo, and call reason on your customer's caller ID. If you are unable to connect with customers, they are more likely to churn.
Understanding your customer churn rate is an absolutely crucial step in growing your business and maintaining efficient contact centers. Download the Call Center Metrics eBook to learn what other important business metrics you should be tracking and how Hiya Connect can help you improve them.
