Contents
- What is customer churn?
- How to calculate customer churn?
- Why is churn analysis important?
- Types of customer churn
- How to reduce customer churn?
What is customer churn?
Customer churn, or churn rate, is an important metric that reflects the percentage of customer loss over a specific period. This metric is particularly significant for sectors such as online services, mobile applications, banking institutions, telecommunications operators, and marketplaces. Understanding and monitoring this indicator allows companies to respond to issues promptly and improve their offerings.
How to calculate customer churn?
Calculating customer churn, despite its simplicity, can be complex in practice. It is important to accurately account for both new customers and to determine the period for analysis. The period may vary depending on the product and market specificity. For some companies, it is sufficient to analyze monthly or quarterly data.
The following formula is used to calculate churn:
CR = (Number of lost customers / Number of customers at the beginning of the period) * 100%
For example, if you had 100 customers at the beginning of the period, and after a month, you have 130, of which 40 are new customers. Then the number of lost users is calculated using the formula:
Lost users = Initial number of customers + New customers - Current number of customers
In our case: 100 + 40 - 130 = 10. Thus, the churn rate will be 10%.
Why is churn analysis important?
Churn analysis allows marketers and business analysts to respond promptly to changes in the customer base. For example, even if the number of subscribers has increased, as in our calculation, a churn rate of 10% may signal problems. This may indicate that some customers are dissatisfied with the product or service.
To assess the financial risks associated with churn, the following formula can be used:
Loss from churn = Number of lost customers * Average check * Number of payments for the period
For instance, if you lost 10 customers, and the monthly subscription costs 500 rubles, your monthly loss would be 500 * 10 = 5000 rubles. If this situation continues, the annual loss would amount to 60,000 rubles, which is a significant incentive to improve product quality.
Types of customer churn
Customer churn can be conditionally divided into three categories:
- Natural: Occurs due to changes in the user's life, such as moving or changes in needs.
- Motivated: The user consciously abandons the services, choosing competitors or other ways to solve their tasks.
- Hidden: The user continues to use the services, but their interaction becomes infrequent, indicating a likelihood of leaving.
Companies can manage motivated and hidden churn by analyzing user behavior and collecting feedback. Understanding customer needs helps retain them and improve the product.
How to reduce customer churn?
Reducing the churn rate requires a systematic approach. Here are several strategies that can help retain customers:
- Audience study: Analyze customer behavior and segment them to offer personalized products.
- Customer support: The quality of support services directly affects the churn rate. Training employees and creating convenient communication channels significantly improve interaction.
- Feedback collection: Regular surveys and feedback analysis help understand what can be improved in the product.
- Onboarding: Effective onboarding of new users into the product reduces the likelihood of them leaving.
- Retaining those leaving: Reminders and special offers for customers who haven’t used the services for a while can bring them back to active engagement.
By following these recommendations, companies can significantly improve their customer base and reduce churn levels.