“What is churn rate?” a lot of Ecommerce, SaaS and Mobile app business type workers ask when confronted with this unfamiliar yet so common nowadays term.
A churn rate is a marketing metric, which describes a number of customers leaving the business over a certain time period.
Although it is an important metric for every company, the churn rate calculation is extremely important for subscription-type businesses. If an enterprise, whose primary source of income comes from the number of monthly and/or yearly subscribers, has an increasing number of unsubscribers – a bigger churn rate – soon enough it will go out of business.
This is why knowing how to calculate churn rate, what is a good churn rate and how to reduce churn rate are the 3 most important aspects a subscription-based business can focus on. To help you figure out answers to all three of the questions we will review each of them below.
How to calculate churn rate
Luckily, the lead way on how to measure churn rate is quite simple.
All you have to do is find out two metrics:
- How many customers were with your business at the beginning of the period, say a month
- How many customers stayed with your business at the end of the same period
For example, say you have 1550 subscribers at the beginning of September. At the end of September, you have 1400.
Then all you have to do is:
(1550 – 1400) / 1550 *100% = 9,6%
This is the universal way to calculate app churn rate and customer churn rate over any given time period.
What is a good churn rate
Now that you know you’ve completed your churn rate calculation, and know what your business’s churn rate is, it’s important to figure out if it’s in a good condition, or not so much so.
We’ll be clear and start by stating that there is no universal number as this metric is different for every industry. What is okay for an e-commerce business that acquires new customers every single day, might be devastating for an app heavily depending on the loyalty of its subscription base.
Nevertheless, there is a wide-spread opinion that your monthly churn rate should be no more than 5%, although, obviously the smaller this number is – the better.
Some large enterprises estimate a churn rate of only 1-2,5%, with some companies reaching as little as 10% churn rate a year.
How to reduce churn rate
Okay, so now that we established what is customer churn rate, how to measure churn rate and what’s a churn rate you should strive for, it’s time to find out how to reduce it.
Well, first of all, let’s just say that reducing your churn rate is the most efficient Conversion Optimization tool to get more sales while spending less money. Why?
Well, it turns out bringing a new customer into the business is 5 to 25 times more expensive than simply retaining one. And not only that but according to the studies, improving your churn rate by just 5% of the total number can increase your profitability by up to 75%!
And since the advantages of these methods are indisputable, let’s look closer into how to reduce churn rate:
1) Сommunicate with the users
What’s the best way to satisfy your customers? Ask them! – Use webpage polls, email feedback forms, – anything that lets you get your users’ impression directly, and therefore, a lead way into how to improve it.
2) Make yourself available
The first place a dissatisfied customer is going to turn to is your contact page. Make sure it is easy to reach. Install an “online chat” plugin, clearly display the hotline number to reach you, allow a 24/7 hour support. Use every measure possible to ensure your customers can contact you easily with every concern they might have.
3) Improve the onboarding
If it’s too puzzling, complex or unintuitive – your users will leave the product. Be it software, a game or an app, users tend to live the items that are too hard to utilize. This is why your onboarding process – the way your customer first meets your product – is extremely important. Find all the useful tips you might need on onboarding in our special article here – Top 3 App CRO Onboarding Practices.
Use the advice we’ve listed here to really understand what is a churn rate and what is it used for, how to decrease it and why it’s important to work with your churn rate in the first place.
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