What is Customer Churn?

Customer churn refers to the phenomenon where customers stop doing business with a company or cancel their subscription to a service over a given period. It is an important metric for businesses to track as it directly impacts revenue and growth.

What’s the Definition of Churning?

Churning refers to the process of customers discontinuing their use of a company’s products or services. This can occur for various reasons, such as dissatisfaction, finding a better alternative, or changing needs.

What is Employee Churn?

Employee churn, also known as employee turnover, is the rate at which employees leave an organization and are replaced by new hires. High employee churn can indicate issues within the company such as poor work conditions, lack of career growth opportunities, or inadequate compensation.

What is Churn Analysis?

Churn analysis involves examining data to understand why customers or employees are leaving and identifying patterns or reasons behind their departure. This analysis helps businesses develop strategies to improve retention by addressing the underlying issues that lead to churn.

What Does 5% Churn Mean?

A 5% churn rate means that 5% of the customers or subscribers stop using the product or service within a specific period, typically a month or year. This percentage helps businesses understand the rate at which they are losing customers and the potential impact on their revenue.

What is a 3% Churn Rate?

A 3% churn rate indicates that 3% of the customer base is leaving over a given period. This lower rate is generally more favorable, suggesting better customer retention and satisfaction.

How Much Churn is Acceptable?

Acceptable churn rates vary by industry and business model. For example, SaaS companies often aim for a monthly churn rate below 5%, while industries with high customer acquisition costs and long sales cycles might tolerate lower churn rates. Generally, businesses strive to minimize churn as much as possible to maintain a stable customer base.

What is Churn vs Turnover?

While both terms refer to the loss of individuals from a company, “churn” is typically used in the context of customers or subscribers, whereas “turnover” refers to employees leaving an organization. Both metrics are crucial for understanding and managing retention.

What is a 1% Churn Rate?

A 1% churn rate signifies that only 1% of the customer base leaves within a specified period. This is generally considered very low and indicates strong customer retention and satisfaction.

What is Churn Rate? Meaning, Formula, and Calculator

by Mihovil Grguric, June 4, 2024

#glossary

#metrics

What Is Churn Rate?
Churn Rate vs. Retention Rate: What’s the Difference?
Churn Rate Formula
How to Calculate Churn Rate?
Churn Rate Calculator
What Is a Good Churn Rate?
Average Churn Rate by Industry
What Does a High Churn Rate Mean?
How to Lower Churn Rate?

Understanding the churn rate metric is essential for any business.

High churn rates indicate potential problems like poor customer satisfaction or strong competition, while low churn rates suggest strong customer loyalty.

This article explores what churn rate means, its impact on different industries, and effective strategies to reduce it. You can also calculate it by using our custom churn rate calculator!

What Is Churn Rate?

Churn rate is the percentage of customers who stop using a company’s product or service during a specific period. It indicates how many customers are leaving and helps businesses understand customer retention.

What Is Churn Rate in the Context of Mobile Apps?

In the context of mobile app metrics, churn rate refers to the percentage of users who stop using the app over a specific period of time. It helps app developers and companies understand how many users are abandoning the app, which can indicate issues with user satisfaction, engagement, or the overall app experience.

Churn Rate vs. Retention Rate: What’s the Difference?

Churn and retention rate are two sides of the same coin – they measure the opposite aspects of customer behavior.

The churn rate focuses on the percentage of customers who leave or stop using a product or service within a specific time frame. In contrast, retention rate measures the percentage of customers who continue to use the product or service during that period.

While churn rate highlights customer loss, retention rate emphasizes customer loyalty and ongoing engagement. Together, they provide a comprehensive picture of customer dynamics.

Churn Rate Formula

The formula for churn rate is:

Churn Rate=

Number of Customers Lost during a Period /

Total Number of Customers at the Start of the Period

×100

This formula calculates the percentage of customers who stop using a product or service over a given time period.

How to Calculate Churn Rate?

To calculate the churn rate, follow these steps:

Determine the Period: Choose the specific time period for which you want to calculate the churn rate (e.g., a month, quarter, or year).
Count the Customers Lost: Identify the number of customers who stopped using your product or service during that period.
Count the Customers at the Start: Determine the total number of customers you had at the beginning of the period.
Apply the Formula: Use the formula to calculate the churn rate

Example Calculation

Suppose you want to calculate the churn rate for a month.

At the start of the month, you had 1,000 customers. During the month, 50 customers stopped using your service.

Churn Rate = 50/1000×100 = 5%

So, the churn rate for that month is 5%.

Churn Rate Calculator

To make it easier, we’ve created a custom churn rate calculator – try it!

What Is a Good Churn Rate?

A good churn rate can vary significantly depending on the industry, type of business, and specific market conditions.

Ideally, a churn rate of zero would mean that no customers are leaving, which seems perfect.

However, in reality, achieving a zero churn rate is nearly impossible and might not even be desirable.

Here’s why:

Natural Customer Lifecycle: Customers’ needs and circumstances change over time, leading to some natural loss. Some churn is inevitable as people move, change preferences, or no longer need the service.
Quality of Customers: A low churn rate should come from retaining the right customers. If a company retains customers who are not a good fit for its product, it might lead to other issues like low engagement or negative feedback.
Cost of Retention: Efforts to achieve zero churn might lead to excessive spending on retention strategies that are not cost-effective in the long run.
Product Improvement and Innovation: A reasonable churn rate can provide valuable insights into areas for product improvement and innovation. It indicates what customers value and where there might be issues.

Average Churn Rate by Industry

Churn rates vary significantly by industry, reflecting different customer behaviors and business models.

Here are some average churn rates across various sectors:

Mobile Apps: Mobile apps have particularly high churn rates, with over 90% of users becoming inactive within 30 days. iOS apps see 96.3% churn by day 30, while Android apps see a slightly higher rate of 97.9%.
SaaS (Software as a Service): SaaS companies typically have an annual churn rate of around 5-7%, with a monthly churn rate considered good at around 4%.
Telecommunications: This sector generally sees a churn rate of about 1.89% annually due to long-term contracts and customer loyalty programs.
E-commerce: A good monthly churn rate is around 2-3%.
Media and Entertainment: Monthly churn rates here are around 5.2%.
Healthcare Subscription Services: These services have a slightly higher churn rate, averaging about 7.5% monthly.
Education and Consumer Goods: Both sectors see similar monthly churn rates of around 9.6%.
Subscription Boxes: This sector experiences the highest churn, with a monthly rate of about 10.54%.

What Does a High Churn Rate Mean?

High churn indicates several potential issues within a business:

Customer Dissatisfaction: High churn often reflects dissatisfaction with the product or service, whether due to quality, performance, pricing, or customer service issues.
Strong Competition: It can suggest that competitors are offering better alternatives, leading customers to switch.
Ineffective Onboarding: Inadequate onboarding processes can result in customers failing to see the value of a product quickly, leading to early drop-off.
Lack of Engagement: High churn may signal low user engagement, where customers don’t find the product compelling enough to continue using it.
Poor Product-Market Fit: It can indicate that the product does not meet the needs or preferences of the target market effectively.
Economic Factors: External economic conditions, such as a recession, can also lead to higher churn as customers cut back on expenses.

How to Lower Churn Rate?

Lowering churn requires a multifaceted approach focused on improving customer satisfaction, engagement, and loyalty.

Here are some strategies to reduce churn.

Improve Customer Onboarding

A smooth and comprehensive onboarding process helps new customers understand the value of your product quickly. Providing tutorials, guides, and personalized support during the initial stages can make a significant difference.

Offer Customer Support

High-quality, responsive customer service can address issues before they lead to churn. Offering multiple channels for support, such as live chat, phone, and email, ensures customers can reach out easily when they need help.

Collect and Act on Feedback

Regularly gather feedback from customers to understand their pain points and preferences. Use surveys, NPS scores, and direct feedback to make necessary improvements to your product and service.

Increase Engagement

Keep customers engaged with regular updates, new features, and personalized content. Email newsletters, in-app notifications, and exclusive offers can keep customers interested and invested in your product.

Offer Incentives and Loyalty Programs

Incentivize long-term use through loyalty programs, discounts for long-term commitments, and referral bonuses. These can make customers feel valued and less likely to switch to competitors.

Analyze Churn Data

Use data analytics to identify common traits among customers who churn. Understanding these patterns can help you address specific issues and predict potential churn before it happens.

Improve Product Quality

Continuously enhance your product based on user feedback and industry trends. Ensure that your product meets the evolving needs of your customers and remains competitive in the market.