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What is customer churn? The answer directly relates to your success at retaining customers and maintaining revenue levels. Read on to learn what you need to know about what customer churn is and how to calculate it.
What Is Customer Churn? A Definition
Customer churn is the percentage of customers lost over a given time frame, typically a month. It is sometimes called customer attrition, customer turnover or customer defection.
You can also think of customer churn as the opposite of customer retention. Customer retention is the percentage of customers who remain with you over a given period. Any customers you don’t retain contribute to churn. The higher your retention rate, the lower your churn. Strive for lower churn to increase customer retention and revenue.
Customer Churn Rate Equations
You can quantify what customer churn is by using mathematical equations. The simplest approach is to divide the number of churned customers over a given period by the initial number of total customers:
Churn rate = Churned Customers / Total initial customers
Multiply by 100 to convert to a percentage.
This formula provides an easy way to calculate churn. However, it can be difficult to interpret when churn changes rapidly due to accelerated customer growth. One way to deal with this is by modifying the basic formula by using the average number of customers over a given time period. Instead of dividing by total initial customers, you divide by total average customers, a number you can determine by taking the number of customers you had at the beginning of a period and the number you have at the end and dividing in half:
Churn rate = Churned customers / [(Total initial customers + Total final customers) / 2 ]
For even greater accuracy, companies such as Shopify have developed more advanced churn formulas which use average number of customers per day. Advanced formulas are also used to predict future churn.
What Is Customer Churn Rate: An Example
To illustrate the simplest churn formula (the first formula above), let’s say you had 100 customers at the beginning of the month. Over the course of the month you lost 10 customers. This gives you a churn rate of 10/100, or 10%.
What Is A Typical Churn Rate?
You might be wondering what a typical churn rate is. Is yours too high? The answer is, it all depends. Churn rates vary greatly from industry to industry as widely as they do from company to company. The average churn rate for subscription services, for example, is 6-8%, but you may find that rate to be detrimental to your business. Monitor your rates over time to discover what your ideal rate should be.
Understand Customer Churn to Reduce Client Turnover
The advantage of understanding and tracking customer churn is that you can use churn data to evaluate how well you’re retaining customers. You can then do a churn analysis to figure out why you’re losing customers. This lets you implement churn management strategies in order to prevent customer churn and increase retention.
The Totango Spark platform is designed to help you automate the implementation of customer retention best practices so you can reduce churn, promote repeat business and maximize your revenue. It is important to detect churn early so you can intervene before things go sideways. The Detect Risk SuccessBLOC is specifically designed to help your customer success team recognize customers who may be at risk to churn, allowing your team to be more proactive and reduce churn. Register to see a live demo, or try it free to see how we can help you retain more customers and reduce customer churn.