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What Is Customer Churn And Why Is It Important To Monitor It?

2 Mins read

Investopedia defines churn rate as “the rate at which customers stop doing business with an entity.” As every good business knows, acquiring a new customer is more expensive than retention, so most companies try their best to reduce their churn rate. Customer churn can break your business. Hence, it is essential to understand the concept of this phenomenon and find solutions.

Understanding Customer Churn

While most businesses will gladly tell you their growth rate, the real kicker is if their growth rate exceeds their churn rate. Let’s say you have an app, and every month 100 new customers sign up for your app, but during the same time, if your app consistently loses 90 customers, then essentially, you only have ten new customers monthly. The main goal is to identify how many customers you lose within a given timeframe.

To understand the loss of customers, you must identify your active customers and their purchase cycle. The purchase cycle is how often your customers need your product/service. However, this cycle varies because everyone has different needs. Once you’ve identified your active customers, those who keep coming back at the end of the purchase cycle, the rest can be assumed to be gone.

To calculate this churn rate, you can divide the total customers lost by the total customers acquired in the same time frame and multiply by 100. Compare this with your industry’s average churn rate to know your relative market position.

Churn rate is essentially how good your business is at customer retention; it reflects the quality of your product/service. It points out fundamental flaws in your business, and identifying this is the first step in improving.

Importance Of Hiring Professionals To Curb Churn Rate

Monitoring churn rate is how organizations can assess their customer retention and identify areas of improvement. In any market, “Customer is the king”, so a customer’s response should be prioritized. To avoid customer churn, communication is essential with the customer. Moreover, hiring an efficient service provider can leave the worry to the professionals.

The professionals will help you understand the expectations of the customer and help improve the delivery quality, which will build customer loyalty. You can include these loyal customers in later stages, too, via beta testing, support and even feedback. Having their input in the processes will distinguish the product/service from your competitors, and being well-liked in a market means being well bought. This wave can make you an industry leader even if you’ve just recently entered the market.

More money can be made through customer retention strategies. Bain & Company and Earl Sasser of Harvard Business School conducted studies showing that a 25%-95%increase in earnings is possible from just a 5% improvement in client retention. This is why many businesses place a higher value on their senior clientele. Many companies offer discounts or freebies to repeat customers to keep their business, while major corporations like Google actively seek feedback and beta testers among its most ardent users.

Conclusion

The major problem is to detect customer churn before it happens because only in that scenario can you do something about it. Communicate with your customer, and offer discounts/special prices, extended contracts, etc., to ensure they don’t leave your business. Moreover, if you are looking for instant results, hiring professionals is the best route.

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