Skip to main content

What Is Customer Churn?

Customer churn can impact your company’s success. Learn more about customer churn and how to reduce it in this guide.

A loyal customer base says a lot about a business. Not only does it indicate that their customers enjoy their products or services, but that they also put in the effort to foster relationships with them. Loyal customers are more likely to continue to support a business and choose them over competitors, as well as recommend the business to their peers and colleagues.

It’s much easier to keep an existing customer than it is to get a new one. As a business owner, this means focusing more on nurturing customer relationships with your current customers rather than trying to expand your audience with new ones. This is also why it’s so important to be aware of your customer churn rate.

Customer churn is the rate at which a business loses customers. A high customer churn rate indicates that a large percentage of your customers no longer want to purchase your products or services for various reasons, which can be a sign that your business is lacking in certain departments.

As a business owner, it’s crucial that you understand what customer churn is and why it’s an important metric to look at. To learn more about the importance of customer churn rates and how to reduce customers from leaving, continue reading this article.

Cover of The Science of Loyalty Playbook by Mailchimp in partnership with Canvas8

The Science of Loyalty

Get the full report & adopt new strategies to engage your customers.

What is customer churn?

Customer churn is the percentage of customers who stopped purchasing your business’s products or services during a certain period of time. Your customer churn rate indicates how many of your existing customers are not likely to make another purchase from your business.

A high churn rate is something that all businesses want to avoid. A high churn rate indicates that your customers are not satisfied with the products or services you’re offering. Maybe you’re not marketing to the right audiences. Or perhaps you’re not taking into consideration your customers’ feedback. If you see that your business has a high customer churn rate, that means it’s time to make some changes so you can improve customer retention and lower your churn rate as quickly as possible.

Acquiring a new customer can cost a business 5x more than retaining an existing one. This is why understanding your customer churn is so crucial. Maintaining existing customers can save your business a lot of time and money, so it’s important to figure out how to reduce your customer churn rate so you can drive revenue, not decrease it.

How do you calculate customer churn rate?

Calculating customer churn rate can be done with a simple formula. To calculate your customer churn rate, divide the number of customers you lose during a certain time period by the number of customers you had at the beginning of that time period, and then multiply to find the percentage.

For example, say you had 200 customers at the start of the quarter and by the end of the quarter, you have 150. That means you lost 50 customers during that time period, so you’ll divide 50 by 200, and your customer churn rate will be 25%.

In this case, a customer churn rate of 25% is considered high, which means your business needs to focus more on customer retention. Ideally, you want your customer churn rate to be as close to 0% as possible, as this would indicate your business is not losing any customers and your customers are happy with your service. However, a customer churn rate of 0% is very hard to achieve, as losing customers is inevitable for any business.

It’s a good idea to look at your industry’s average churn rate so you can see how your rate compares. This is a good way to see how your business is performing compared to competitors. If your customer churn rate is close to the industry’s average, that means you’re doing something right.

Why is analyzing customer churn important?

Customer churn analysis helps businesses understand the percentage of customers who are no longer supporting them. It’s important to analyze your customer churn for various reasons, such as:

  • Boost profits: The more customers you have, the more money you’re going to make. But if you have to spend a lot of money on customer acquisition, they’re going to equal out and you won’t end up making any profit. That is why it’s important to focus on retaining your existing customers rather than acquiring new ones. If you have a loyal customer base that continues to support your business, you should see an increase in revenue and profits.
  • Improve brand identity: Your brand identity is essentially the personality of your business and how your customers perceive you. Having a strong brand identity is important because it helps you connect with your customers and differentiates your brand from competitors. Understanding your customer churn rate is a great way to improve your brand identity. If you are losing a large percentage of customers, that could be a sign that your brand identity is lacking because your customers can’t relate to you. Focus on building a stronger brand identity so your customers can understand your purpose.
  • Encourage growth: Knowing your customer churn rate is important for all businesses, big and small. A high customer churn rate indicates that your business is not growing at the rate it should be, which means you need to make some changes to your customer retention strategies. Your existing customers are also the people you’ll introduce new products or services to, so in order for your business to continue to grow, you need to maximize your customer lifetime.

What causes customer churn?

Even the most successful of businesses will experience customer churn from time to time. However, identifying exactly what’s causing your customers to leave can give you a better idea of what you need to fix. Various factors can cause customer churn, including:

  • Poor product fit: If your products aren’t a good fit for your target audience, they’re not going to keep purchasing, no matter how emotionally connected they are to your brand. A poor product fit can be detrimental to a brand and cause them to lose customers. This is why it’s so important to understand your target audience and create a buyer persona so you can figure out exactly what your customers need. When you can identify your customer’s pain points, you can tweak your products to be the solution they’re looking for.
  • Wrong pricing: If your products or services are too expensive, your customers are going to look elsewhere. Your customer’s pricing standards can also change over time. Maybe they were willing to pay a certain amount at the beginning of the year, but they can’t afford those same costs anymore. The reason your customers are leaving might be because your pricing is wrong, which means you need to make some changes to your pricing strategies.
  • Competition: It’s very unlikely that you’re the only business in your industry that sells the same products, so you always need to keep your competition in mind. If your competition offers better products or services at a lower price, your customers are most likely going to choose them over you. So if you’re trying to figure out ways to reduce customer churn, make sure you evaluate what your competitors are offering versus what you are.
  • Poor user experience: If your website is confusing and difficult to use, your customers can get frustrated, click the back button, and visit another site. Having a poor user experience can hinder the success of your business because customers want to choose a brand that is functional and easy to use. If you’re looking to improve customer retention, make sure your website or app is up to par.
  • Lack of support: Connecting with customers is important for any business because it helps you build brand loyalty. When your customers trust you, they’re going to continue to support you and will even recommend your brand to their peers. But if you don’t create relationships with your customers, they’re more likely to leave due to a lack of support. Creating a relationship with your customers is essential to having a low customer churn rate because when your customers are emotionally invested, they’re more likely to choose you over competitors.
  • Misunderstanding of target audience: If you don’t understand your target audience, you don't know what they want. Misunderstanding your target audience can cause customer churn because you could be creating products or services that aren’t what your customers need. You could also be selling your products to a completely wrong target audience altogether. The best way to understand your target audience is to track customer feedback so you can gain insight into exactly what they’re looking for.

How to reduce customer churn rate

If you’re finding yourself faced with a high customer churn rate, don’t panic. Losing customers is inevitable for any business, but fortunately, there are several ways you can reduce customer churn rate, which will be discussed below.

1. Improve customer experience

Customer experience is essential, so no matter your business or industry, make sure customers have a great experience throughout the sales cycle, whether that’s with an easy-to-navigate website or a better product than your competitors. Having a good user experience will make your customers happy to purchase from you, which means they’re more likely to continue to support you and choose you over competitors.

Make sure your website is functional, easy to navigate, and aesthetic, but also make sure your customer service is excellent. Aim to answer your customer’s inquiries as quickly as possible so you can deliver the best service possible. There are various customer service tools that your business can use to ensure you always provide great customer service in a more efficient manner.

2. Keep track of your churn rate

Your customer churn rate will change throughout the course of your business. Your churn rate at the beginning of the year can be very different from the rate at the end of the year, which is why it’s so important to continuously keep track of your rate.

Reviewing your customer churn rate once a year won’t provide the helpful insights you need to make informed business decisions. Your customers’ wants and needs will change over time and your business needs to reflect that. You should aim to monitor your churn rate on a monthly and annual basis so you can keep track of how your business is performing. Regularly tracking your churn rate can help you see if any new product launches or company changes affected your churn rate, which can help you resolve the problem sooner.

3. Focus on your loyal customers

Instead of putting all your resources into acquiring new customers, you should focus more on your loyal customers. As discussed previously in the article, acquiring a new customer can cost a business 5x more than retaining an existing one, which is why it’s so important to foster relationships with your loyal customers. Focusing on your loyal customers can improve retention, and loyal customers typically spend more and can refer your company to their network of friends, family, coworkers, etc.

Another good way to connect with your customers is to reward them for their loyalty, such as with a loyalty program or discounts. Not only does this incentivize your customers to keep coming back, but also it shows them that you appreciate their support. You should also make an effort to recognize your most loyal customers who have been supporting your business for a long time. This will make your customers feel more emotionally connected to you, which means they’ll continue to support you.

4. Boost customer service

Good customer service is important for any business, but especially for a business that’s facing high customer churn rates. The reason why your customer churn rate is high may be because you’re focusing too much on customer service with new customers and not enough with your existing customers. Your customer service should be at the same level regardless of the customer you’re dealing with.

Thankfully, there are many ways you can improve your customer service. Learn to empathize with your customers and understand their needs. Don’t just meet their expectations, but exceed them. Personalize your customer service so they feel special and cared for. A customer will choose a brand with excellent customer service over one with bad customer service any day.

5. Educate your customers

If your customers don’t understand how to use your products or services, they’re not going to continue to buy them. So, you need to educate your customers about the ins and outs of your business.

You can do this by offering them how-to guides with every purchase and including detailed explanations of how to use your products/services on your website. You should also provide tutorials and comprehensive brochures that your customers can reference when they have questions. Be sure to always answer their questions quickly and correctly and be active on social media so your customers can easily get in contact with you.

Wrapping up: Tracking customer churn?

A successful business is one that has a loyal customer base, but achieving that isn’t always so easy. It’s natural for a business to lose customers from time to time for a variety of reasons. Maybe your user experience isn’t up to standard or maybe you’re promoting your products to the wrong target audience. Whatever the reason may be, understanding your customer churn rate is critical for a business so you can figure out what you’re doing wrong and how you can fix it.

Having a high customer churn rate is something all businesses want to avoid, and fortunately, there are many ways you can reduce customer churn. You can reduce customer churn by improving your customer experience, boosting your customer service, and prioritizing your existing customers over new ones. Your customers are the reason your business exists– so you need to put them first and make sure their needs are being adequately met by what you offer.

If you need help with customer retention and managing your relationships with your current customers, consider using Mailchimp. Mailchimp is an all-in-one marketing platform that offers a variety of helpful resources and tools for business owners who are looking to launch or expand their brands. Mailchimp helps business owners with everything from developing customer retention strategies to improving customer service, so you can create effective marketing campaigns and build strong relationships with your customers.

2 men sit on a couch in an office, while one is holding a laptop happily discussing their marketing strategy.

Keep customers coming back for more with Mailchimp’s free Customer Retention Kit

Whether you’re looking to improve existing strategies or seeking fresh insights into who your customers are, this kit is a comprehensive collection of resources designed to cultivate lasting relationships with valued customers.

Fill out the form below to receive your free Customer Retention Kit

Share This Article