Churn rate refers to the percentage of customers, users, or subscribers who disengage from an app or brand over a certain amount of time.
Churn rate is calculated for a specific time period by dividing the number of lost customers in that time by the number of customers at the beginning of the period. To convert that figure to a percentage, multiply by 100. For example, if a business has 500 customers at the beginning of a week and loses 5 of them, one would figure the churn rate by dividing 5 by 500 for a total of .01 or a churn rate of 1%.
The main reason customers churn is that they are no longer getting value out of their relationship with a brand. Either they are not using the service, dissatisfied with a product, or find an interface difficult to navigate. The best way to find out why customers churn would be to ask them, but getting qualitative feedback from users who have already disengaged can be difficult. Even better than understanding why customers churn is an understanding what makes them stay and what would make them leave before they churn with tools like interactive Stories.
Churn rate is easy to calculate but difficult to understand because most customers who choose to no longer do business with a company do not communicate their reasons for doing so. While it is generally assumed that the reasoning behind most churn is dissatisfaction, there are other, less addressable reasons a customer may discontinue using a product or service such as job loss, change of location, lifestyle changes, and more.
Churn rate is calculated by dividing the number of lost customers over the initial total customers during a specific time period. Take the number of lost customers, divide by number of total customers, then multiply the result by 100 to express it as a percentage.
To calculate the churn rate of an annual plan take the number of users who discontinued their subscription over the course of the year, and divide it by the number of subscribers at the beginning of the year. Then take that figure and multiply by 100 to express it as a percentage.
Different industries will have different best practices for how often churn rate should be analyzed but marketing teams should keep in mind that checking too frequently could lead to a false sense of success or unnecessary panic. Monthly, quarterly, and yearly are common intervals for calculating churn rate, but if there have been major changes to a brand’s strategy or if user feedback suddenly changes in volume or sentiment it may be wise to examine churn rate along with other metrics to see if actions need to be taken.
Average churn rates vary from industry to industry but the most successful companies generally aim for a churn rate below 2%.
Churn rate is an engagement metric that measures the rate at which customers are choosing to discontinue doing business with a company and can be an indication of overall customer sentiment. A high churn rate, especially a rising one, could be a red flag that users don’t feel their needs are being met, whereas a lower or declining churn rate can show the success of retention efforts.
Churn rate calculates the percentage of customers lost over a period of time while growth rate calculates the percentage of customers gained over a time period.
One of the main advantages of churn rate is that it is easy to calculate and can be measured at any time a company thinks it would be useful to do so. Another is that a rising or falling churn rate can be a clear indication that customer satisfaction is changing in the same way. One disadvantage however, is that churn rate alone cannot indicate why customers chose to leave the brand.
Reducing churn rate is often the product of many different efforts but all must focus on providing a high quality user experience, increasing engagement, and ensuring that users are able to access the full value of an app, service, or brand. In simplest terms, customers stay when they are satisfied and leave when they are dissatisfied so anything that keeps customers happy will reduce a company’s churn rate.