Churn rate is defined as the rate at which customers stop doing business with a company over a given period of time. It is important for companies to know this information in order to best adjust their marketing efforts, and their goals for the quarter/year. If a company is looking to grow its clientele, then it needs to gain more subscribers or customers at a rate greater than its churn. Churn rate is a key performance indicator, measuring and tracking your churn rate is essential to the health of your business. Keeping your churn rate tracked on your CRM dashboard is best practice.
Companies can compare their churn rate to other entities in their industry in order to get a better understanding of their competitiveness. Churn rate, however, does not apply to all companies. It is best applied to companies that have returning clients who pay over the year for the services and goods of a company. This could be for a home cleaning service or video streaming services, but not for an entity such as a supermarket or clothing store. This type of churn rate is referred to as a customer churn rate.
There are two types of churn rates: the one I just described and employee churn rate. Employee churn rate is the rate at which employees leave the company. A high employee churn rate could indicate a serious problem within the firm or management that needs addressing.
This blog will be addressing the subscriber churn rate rather than the employee churn rate. To learn more about employee churn rate use these resources.
Consequences of a High Churn Rate.
HubSpot former VP of Growth, Brian Balfour once said “ If your retention is poor then nothing else matters.” A high churn rate that outpaces your growth rate could be a serious problem for your revenue and profits. A churn rate that is greater than your growth rate means that you are currently or will soon be losing more revenue that you are gaining. This could lead to a cumulative effect, where by losing customers your churn rate grows and your growth rate shrinks.
But there is good news if you spot a high churn rate, it means you know something in the way the business is running that is fundamentally flawed. It could be anything from a fault in your customer service system, or a product that needs to be fixed. Either way it gives you a starting point to take action!
How to Calculate Churn Rate
Finally, here is the formula for calculating customer Churn rate:
Here are the steps:
- Choose a period of time, think either annually or a quarter. You can even choose a shorter amount of time like a month or even a week.
- Find out how many customers you had at the beginning of the time period. If you use HubSpot as your CRM, this should be easy.
- Find out how many customers were lost by the end of your chosen time period.
- Now it's time to plug these numbers into the formula: divide the number of customers lost by the number of customers at the beginning of the time period. Then multiply that number by 100.
Take Action After Calculating Churn Rate
Now that you have calculated the churn rate, you're probably wondering what you need to do next, or if you need to do anything. You could have a very low churn rate that is well beneath your growth rate and is competitive in your industry. But if this is not the case for you, then you need to take action before this issue begins to spiral and have a cumulative effect on your business.
- Revamp your customer service model. Bad customer service is a big reason why customers become frustrated and move on to a competitor’s service. Even if your product is the best in the industry, if your customer service team is rude and unhelpful customers will quickly become turned off from your business.
- Here are some steps you can take: survey customers who recently left to find out why.
- Test your customer service experience by pretending to be a customer. Make sure the website is helpful for a wide range of common issues, and that your customer service team is well trained to manage service problems.
- Make a survey and ask for feedback from customers who were unsatisfied and have churned. This will inform you of a flaw in your business model, marketing, or product. Additionally, you could also survey those who you have identified as likely to churn due to lack of engagement. Asking them for feedback may even re-engage them! Remember it is also important to ask for feedback from customers when they should be the most satisfied with your product as well.
- Offer a product or service to existing loyal customers. This will provide incentive for customers to stay rather than churn and will let them know that you have not forgotten about them.
A high churn rate could be alarming but there are steps you can take in order to lower the churn rate. Remember, it is always cheaper and more valuable for a business to retain existing customers. While your business grows, it is best practice to let your existing customers know how much you value them and their feedback.