What is churn?
Customer churn, also known as customer attrition in some industries, is the rate at which you are losing your customer base.
While every business loses customers for various reasons, the higher your rate of churn the harder you'll have to work to keep the same amount of money coming into your business. Fighting to keep churn low and keep more customers improves your bottom line and is the sign of a healthy business.
How do you calculate churn?
There are a lot of ways that a business could calculate its churn rate, ranging from very simple to intensely accurate. But for our purposes on this page we are keeping it simple to let you get a handle on your churn rate right away.
The simple manner we're using here is to divide the number of customers lost during a given month against the number of customers present at the beginning of that month.
Customers Lost during Month
Customers at Beginning of Month
Or in other words, from the numbers you entered above:
You can get even fancier by dividing the number lost by the average number of customers you have in a month, or in other words, (Customers at BOM + Customers at EOM) / 2. Either approach will you give you your monthly churn rate as a percentage of your total customer base.
Watch out, because churn adds up fast! A churn rate of 5% may seem low, but over the course of the year it means you are turning over or losing more than half (60%) of your entire customer base. You'd be out of business in less than two years without growth.
What tools can I use to improve customer retention?
The best tools you have are your eyes and ears. The more you listen to your customers and read what they're telling you, the better. Nothing can replace these essential "tools."
To multiply the number of people your eyes and ears can hear from, we're a bit biased but we think our texting tool is the perfect thing. Automatically send out a super short, two-question text message to your customers after and interaction and connect with them as the feedback rolls in.
How can I reduce churn?
Avoiding churn is all about making people happy. Happy customers don't leave, but unhappy customers will.
Some churn is the inevitable result of customers moving away, lack of need, etc., but most churn arises from problems. The better you can solve your customers' problems the happier they will be, and the less likely they will be to churn out.
This means staying in touch with your customers. Pre- and post-service check-ins, follow-ups, quick response to inquiries, and more all go into creating a positive experience for your customer.
The more opportunities you create to have a real touchpoint with your customer the more they will be able to communicate back to you about issues that you might not otherwise have uncovered.
Here are some questions to ask yourself as you consider how you can improve your business's churn rate:
- How would I know if my customer had a good experience when they last interacted with me?
- How can I found out how particular employees are affecting my customers' experience?
- Am I making it easy enough for someone to let me know about a problem that's arisen?
- What are the most likely problems my customers might be having? How can I get ahead of those issues to make the experience even better for them?
The bottom line benefits of improving customer retention
You already know that you want to keep as many customers as you can, but how about one more piece of motivation?
Just like a churn rate can chip away at your customer base, chipping away at your churn rate dramatically recovers revenue. Using the figures you entered above, if you can bring churn from 5% down by 10% to a new rate of just 4.5%, you will gain back $8,520.00 dollars over the course of a year.
Little efforts each month make achievements like this possible. What could your business do with $8,520.00 more money in the bank? What's the fastest way you can start implementing changes to bring about that improvement?
At O3 we believe that all truly good business is one-on-one, person to person. The more in touch you can be with your customers, the more opportunities you will have to serve them, and the happier they will be.