Understanding and measuring customer retention is crucial. One key metric that businesses track to gauge customer loyalty is churn.
But what exactly is churn, and why is it so important?
In this blog post, we'll delve into the concept of churn, explain the formula used to calculate it, and provide practical examples.
What Does Churn Mean in Business?
Churn is a term used to quantify a percentage of people who leave a group, organization, or company within a given time period.
It most commonly relates to customers, as in defining the percentage of customers who leave a company within a given year. But, churn can also relate to employee turnover, as in the number of employees who leave an organization in a set amount of time.
How to Calculate Churn Rate [With Formula]
Churn Rate Calculation = (Lost customers) / (Total customers at the start of the period) X (100)
- Identify the Period: Determine the time period over which you want to calculate the churn rate (e.g., a month, a quarter, a year).
- Count Lost Customers: Count the number of customers who stopped using the service or product during that period.
- Determine Total Customers at Start: Find out how many customers were using the service or product at the beginning of the period.
- Apply the Formula: Use the formula to calculate the churn rate.
What is an Example of Churn?
Let’s use Netflix as an example.
In May Netflix had 1,000,000 subscribers at the beginning of the month and 950,000 at the end, meaning 50,000 subscribers left during the month.
- Lost customers: 50,000
- Total customers at the start of the period: 1,000,000
Now, let's plug these values into the formula:
Churn Rate Calculation = (Lost customers) / (Total customers at the start of the period) X (100)
Churn Rate = (50,000) / (1,000,000) X (100)
To simplify, (50,000) / (1,000,000) is 0.05
Churn Rate = (0.05) X (100)
Now, calculate:
Churn Rate = 5%
The Best Way to Improve Customer Churn
There are several strategies your organization can try and implement to improve customer churn. Common practices include improving customer support, offering incentives or rewards, and improving the quality of products/services.
But, who’s to say these general best practices are a good fit for your unique business? And what will drive the most impact?
For this reason, we recommend conducting regular customer attrition surveys to provide direct insights into the customer experience, revealing both satisfaction levels and specific ways for improvement.
Why Customer Surveys?
In our experience, customer surveys are the best way for businesses to identify specific pain points and reasons why customers might be considering leaving.
This actionable information allows companies to make targeted improvements to their products, services, or customer support, directly addressing the issues that matter most to their customers.
Additionally, surveys can help in understanding evolving customer needs and preferences, enabling businesses to stay ahead of potential churn triggers by proactively adapting their offerings.
Example of Customer Churn Study
A simple example of a churn study is when a bank or credit union commissions a market research company to conduct a survey on those who recently closed their accounts.
The survey addresses…
- Why they closed the account
- If they went to a competitor, what competitor they went to
- Why they chose the competitor
Now let's say you find out 36% of customers closed their accounts because they are unhappy with the fees.
With this insight, you can create a strategy for tellers to address this as customers come in to close their account.
Your bank can train tellers to highlight other products which offer lower fees or no fees at all, or offer the customer an opportunity to discuss their account with an advisor on-site.
These simple strategies may not prevent all churn at your financial institution, but will certainly help lower it.
Contact Our Customer Survey Company
Drive Research is a full-service market research company, specializing in customer satisfaction. Our team of industry experts works with B2B and B2C companies to measure, understand, and improve key customer satisfaction metrics such as churn.
To learn more about our services, contact us today.
- Message us on our website
- Email us at [email protected]
- Call us at 888-725-DATA
- Text us at 315-303-2040
Emily Rodgers
A SUNY Cortland graduate, Emily has taken her passion for social and content marketing to Drive Research as the Senior Marketing Manager. She has earned certificates for both Google Analytics and Google AdWords.
Learn more about Emily, here.
