What Is Customer Churn?

According to Forbes Magazine, over three-fourths of the customer service groups that are high-performers have at least an above-average understanding and use of predictive analytics. Medium calls the churn rate one of the most important measures of customer experience. What exactly is customer churn?

Churn Rate Definition

Investopedia defines the churn simply to be when a customer decides to stop doing business with a company. Churn rate can either be measured by customers lost in a given period of time or by customers lost divided by customers gained. The latter is a measure of growth.

How is it Measured?

For online presences, Medium states that churn occurs after a predetermined time period when the customer last used the service or purchased the product. This time period is dependent upon the type of business and the target customer pool.

What is really important is to compare the growth rate to the churn rate. If the churn rate is higher, the company is losing its customer base. Companies with higher growth rates to churn rates are taking on more customers than they are losing, so they are in a period of growth.

Why is Churn Rate Critical?

As reported in Medium:

  • When companies reduce their churn rates by 5 percent, their profits tend to increase by 25 to 125 percent.
  • Each new customer costs, on average, five times more to gain than it does to keep your existing customer base.
  • Churned out customers may give your company negative reviews in social media.
  • When a company’s churn rate is high, it is a sign that either a product or service is failing to provide value or meet expectations or that there is a customer service issue.

Things to Look for in Churn Rate

Are your customers switching to another provider or are they no longer purchasing that product or service at all? This is an important point in your steps to reduce customer churn.

Forbes suggests gathering data to find out why customers leave. This data can be a part of predictive analytics. In turn, that data can be used to carefully identify the customers who are at risk of churning out. Then, messages can be sent to help induce customers to decide to stay.

Other Means of Reducing Churn

Medium suggested a few other means of reducing churn:

  • Give your best customers a larger focus
  • Ensure you are targeting your ideal client
  • Give the best customer service
  • Identify your different market demographic segments and personalize your appeal to each segment
  • Fully and quickly resolve complaints to the customer’s satisfaction
  • Think of ways to get the customers back in the fold and satisfied

Don’t Forget to Upsell and Cross-Sell

Forbes suggests that upselling existing customers and finding new products to meet their needs are also an important part of customer satisfaction and retention.

Customer churn is a critical predictive analytic factor. The more your business knows about not only the churn rate but also about the reasons behind churn, you will be able to find effective means of retaining customers and preventing churn

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