The Customer Churn Rate is the abandonment rate, which is the percentage of customers who stop using a product or service within a given period of time (for example, a year).
Churn Rate is a crucial metric for businesses operating in competitive markets, as the ability to accurately calculate, interpret, and reduce this parameter can make the difference between a company's growth and decline.
But what exactly is it? How can we evaluate it with the right awareness? Let's find out together.
Let's start with the basics by defining Churn Rate as the percentage of customers who stop doing business with a company. This rate can be versatile depending on the organization's evaluation goals, referring to either the number of subscribers who cancel or do not renew a subscription, or the rate at which a company loses its employees.
From this brief introduction, it's clear that a high customer churn rate can have a negative impact on profits and hinder a company's growth. It's therefore a particularly important indicator for businesses of every sector and business model, especially those based on a subscription model, such as SaaS (Software as a Service) companies.
Customer churn rate can be calculated using the following formula:
Churn Rate = (Lost customers / Total customers at the beginning of the period) x 100
So, for example, if a company starts the month with 250 customers and loses 10 by the end of the period, its monthly churn rate would be 4%.
It's important not to confuse this parameter with other types of metrics such as growth rate, which is the opposite. While Churn Rate measures customer loss, growth rate tracks new customer acquisition. If the growth rate exceeds the churn rate, the company is growing. If the churn rate is higher than the growth rate, the company is losing its customer base.
There are several strategies to reduce customer churn rate. Some of these strategies include:
Improve customer support: Use every opportunity to understand what drove the customer away and what can be done to prevent similar churn in the future.
Revisit the onboarding process for new customers, creating a solid process.
Invest in additional training for support and sales representatives: Sales representatives should sell the true value of the company's product or service, so customers don't feel deceived.
Solicit feedback at key moments and respond promptly: Make sure to ask for feedback from customers at key points in their journey with the company.
Proactively communicate with customers, building a proactive relationship with them.
Offer exclusive benefits to existing customers: To prevent further churn, evaluate how to offer benefits to existing customers.
Utilize customer feedback from free trials: If someone doesn't purchase the product after a free trial, it can be considered churn
Many companies, especially in the SaaS sector, publish their churn rates to show how effective they are at retaining customers. Here are some well-known examples:
Netflix: With a monthly rate of 3.3%, Netflix has one of the lowest rates in the video streaming industry.
Spotify: Popular music streaming service, Spotify has a rate of 3.9%.
Adobe: According to Rob Giglio, former Vice President of Adobe's Digital Media, Adobe has an annual rate below 10% and a customer retention rate above 90%.
But in general, when is a churn rate considered positive, and when should management be concerned? A "good" or "acceptable" churn rate ranges from 2% to 8%, especially for B2C SaaS companies offering self-service solutions.
The use of a CPQ (Configure, Price, Quote) software can help reduce customer churn rate in companies, making sales and customer management strategies more effective. A CPQ can help customize offers for customers, improve the accuracy of quotes, and make the sales process more efficient, thus reducing the risk of churn.
With the right approach, companies can turn churn rate from a growth threat into an opportunity to improve and thrive.
The Customer Churn Rate is the abandonment rate, which is the percentage of customers who stop using a product or service within a given period of time (for example, a year).
The rate is calculated as follows:
(Lost Customers / Total Customers at the Beginning of the Period) x 100
The term Retention means "conservation" or "maintenance." It indicates the company's ability to retain its customers.
