A complete guide on Churn Rate [Definition + Calculation + Steps to Improve]

Churn rate

As a business owner, you must understand how many customers you lose monthly and yearly. In a given period, the number of customers you lose directly impacts your overall revenue and business health.

If you don't know about this churn metric or how many customers do not renew their subscriptions in a given period, you would be unable to take the right actions to create improvement plans to improve the lifetime value of each customer. In this article, we will cover every aspect of the churn metric so that you have a better grasp and control over your finances.

What is the churn rate, and how to calculate it?

Churn Rate Calculation

The churn rate also referred to as the attrition rate metric, helps you understand how many customers stop doing business with your company, renew their subscriptions, and re-purchase the products in a given time frame. The lower churn you have, the more customers you can retain.

Formula: (Lost Customers / Total Customers at the Start of Period) x 100 is the formula for calculating the churn rate

Please take all of your monthly recurring revenue (MRR) at the beginning of the month and divide it by the regular monthly payment you lost that month, minus any upgrades or additional income from existing customers, to get the percentage of revenue that has churned. Since you want to know how much total revenue you lost during the month, omit new sales from the calculation that you have gained income from recent sales to current clients.

We estimated the churn rate as a percentage of lost customers in the instance above, but there are other ways to measure churn. You can also calculate churn using the following criteria:

- The number of customers

- The value of recurring business lost

- The percent of recurring value lost 

Tracking your attrition rate, regardless of how you show it, is critical to your business. Customer retention is almost always less expensive and more accessible than acquiring new ones. Monitoring churn is the first step in determining how effectively you retain clients and what activities you can take to improve your retention rate.

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How do we improve the overall churn rate to improve the business financials?

Improve the onboarding process to have a better first impression

Customer Onboarding Process

Credit: HubSpot

To improve the experience, focus on tailoring the onboarding process. The onboarding process's first few days should be about adding values.

If you're in the B2B marketing area, you may assign dedicated salespeople to your new customers who would help personalize the onboarding process. You might also seek UX design concepts to make your client persona's visual experience more appealing.

The onboarding process in the B2B world entails more than merely learning how to use the product. Because a company's strategy involves multiple steps and multiple employees, it's often a good idea to provide choices for your clients to input data, combine your tool with other tools to automate and optimize the workflow and invite other members to collaborate on a project.

Take Cohort Analysis seriously to increase engagement which could strengthen relationship.

cohort analysis

Cohort analysis is behavioral analytics that divides data into related groups before analyzing it. Cohorts are groups of people who share common qualities or experiences, rather than looking across all customers blindly without accounting for the natural cycle a customer goes through. Cohort analysis allows a corporation to detect patterns clearly across a customer's life cycle (or user). A corporation can modify and customize its service to those specific cohorts by observing the time patterns.

You can utilize cohort analysis to determine where to focus your retention efforts once you've chosen your baseline rates. 

Cohort analysis divides your users into similar groups rather than looking at them all at once. 

By comparing and trending cohorts, you may discover the particular reasons people leave and which actions boost retention.

Leverage push notifications

push notification

Push notifications allow you to alert a user to a new message or event even if he isn't using your app or visiting your website. They aren't only a way to promote something but also to engage with people and actively prevent churn. 

According to a Localytics survey, users who received push notifications launched an app or visited a website 14.7 times per month on average. Those who did not, landed on the website or app merely 5.4 times. Users who accepted push alerts interacted three times more than those who did not. 

Push notifications are now an essential aspect of consumer retention and engagement.

Provide improved customer service

 

improved customer service

Didn't you see this coming a mile away? 

It is, without a doubt, the most obvious way to retain clients on your side. Poor customer service is, in fact, the most common cause of client churn. Incompetent and rude employees, as well as prolonged service, are the two biggest reasons why customers leave a company, according to an Oracle Customer Experience Impact Report. 

According to Forum Corporation's research, 70 percent of churn is due to lousy service. 

Do not, under any circumstances, underestimate the negative impact of poor customer service! According to studies, 58 percent of individuals will never use a firm again after having a bad experience, and 48 percent of those who have had a bad experience will tell ten or more people about it.

Assign your finest personnel to handle cancellations. 

best customer team

Saving a customer on the verge of churn is not impossible. 

However, to maintain them, you'll need to enlist the help of your most excellent salespeople. 

Determine who your best, most vocal, and persuasive B2B sales agents are, and assign them the responsibility of speaking with individuals who have opted to leave, thereby preventing client churn. 

You can undoubtedly benefit from their charisma and expertise in dealing with difficult situations and unsatisfied consumers at this stage. 

Sometimes all it takes is a good listener eager to put themselves in the consumer's shoes to turn things around.

What other indicators are essential in addition to the churn rate? 

KPIs

Gross MRR Churn: Measures revenue lost due to customer churn. It might assist you in figuring out whether you're losing high-value clients or your churn is primarily due to small accounts. 

Net MRR Churn: Accounts for new revenue from upgrades or expansions to show overall revenue changes from current customers. 

Net Client Change: Considers new and churning consumers to see whether your customer base is increasing. 

Revenue Growth Rate: Indicates how much your revenue is increasing month over month and how churn is hurting your business's growth.

Activation Rate: This metric measures whether new users complete an essential first step in your product. A low activation rate could indicate that your app's functionality is one of the reasons users are leaving, or it lacks the features they expected. 

DAU/MAU Ratio: This indicator of customer satisfaction measures how frequently people use your product. 

The Net Promoter Score (NPS) measures how likely individuals are to suggest your product to others. NPS, like churn rate, is used to determine total customer happiness. 

Client lifetime value (LTV): Indicates how much income the organization makes from an individual customer throughout their relationship. This might help determine if a high churn rate is affecting your capacity to recoup your customer acquisition costs.

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Feel free to contact us to see the unprecedented growth of your business.

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