Churn vs retention are terms that are frequently used in the business world. Customer Churn and retention are actually the exact opposites of each other. Here’s a comparison guide between churn vs retention.
Customer retention is key to success in the B2B market. Many companies neglect to build a customer retention strategy, which can lead to decreased profits and growth. Customer success teams play an important role in keeping customers happy and engaged, which leads to increased retention rates and ultimately more profits.
The churn rate measures the percentage of customers a business loses, while the retention rate measures the percentage of customers a business keeps. A high churn rate is indicative of poor customer satisfaction, while a high retention rate is indicative of strong customer satisfaction. By tracking both rates, businesses can identify areas in need of improvement and strategies that are working well.
What is customer loyalty management?
Companies track their success in this area to determine if they are meeting customer needs and if their business is growing over time.
These are some of the customer retention metrics:
- Customer Churn
- Revenue Churn
- Current Customer Growth Rate.
- Repeat Purchase Ratio
- Product Return Rate
- Days Outstanding
- Net Promoter Score
- Time Between Purchases
- Loyal Customer Rate
- Customer Lifetime Value
What’s Customer Churn?
Customer Churn is one the easiest metrics for customer retention. Churn is the rate at which customers stop doing business. It can occur when your customer cancels a subscription or opts out of renewing it.
A customer who has been churned is one that your company has lost. A certain percentage of your customer base will experience churn. It could be that they no longer require your service, such as when they are acquired or go outof business, or they have hired an employee or don’t need your product/service anymore.
If your churn rate exceeds 5-7%, you should review your customer retention strategy to determine why. A high churn rate is a sign that your product or service is not meeting the needs of your clients.
Sometimes, churn rates are also called retention rates, but they are completely different metrics.
Churn vs retention rate
The retention rate is the percentage of customers who return to do business with your company. The retention rate is different from the churn rate. This refers to the number of customers that you have lost over time. A company with a high retention rate will have a lower churn rate.
The retention rate is the percentage of customers that you have retained over a given period. Attrition rate, also known as user churn, is the percentage of customers who unsubscribe or cancel your service within a given period.
If your retention rate is 90% for a period, your churn rate for the same period is 10%.
Why do they have to be related?
Customer retention, as mentioned before, is useful for showing stability in your marketing and customer service efforts. It doesn’t track customers who leave or join during the time period being tracked. To complement the retention rate, you should calculate the churn.
The percentage of separations that occur in the same time period is called a churn.
This example shows how retention and churn can sometimes be opposites of each other.
Two customers left a startup SaaS business that had eight customers during the measurement period.
- R (retention) = (6/8) x 100 = 75 percent.
- C (churn = (2/8) x100 = 25 percent.
But what if two slots become vacant during the measurement period?
- R = (6/8) x100 = 75 percent.
- T = (4/8) x100 = 50 percent.
Employers can track both metrics to get a complete picture of retained and churned customers. This allows them to create better strategies for increasing retention and decreasing unsubscribers.
How to Reduce Customer Churn Rate
Establishing a recurring billing system that is transparent and trustworthy is key to lower customer turnover rates. It is important to clearly define the subscription service or product that you offer. You should also be clear about what subscription service or product you are offering.
Avoiding friction and misunderstandings with customers is the biggest challenge for your business. This can lead to unwelcome payment churn. We have listed some strategies to help you avoid these problems and reduce your user churn rate.
Ask any consumer and they will all tell you that surprise charges on their accounts are a nightmare. Customers who don’t know how to handle recurring bills are more likely to cancel their subscription or dispute the charge. It is important for customers to know when they can expect a charge, what it will be, how often it will occur, and what the charge (for example, a billing statement) will look like.
This is a simple approach. You will need to be honest with your customers and be transparent. To ensure that they get paid, it is important to inform them about recurring billing.
Be useful to your customers
Your customers will be more likely to pay you recurring payments if you are available and helpful. Customers today are more sophisticated than ever, particularly when it comes to the products and services they use. If the product or service they are using is not suitable, they can switch to a competitor.
Your business must continue to evolve and adapt to the needs of your target audience. Customer satisfaction is key to increasing retention and reducing churn. To decrease churn, you must keep your customers loyal and committed to your business.
You can achieve this with recurring billing. Your customers will perceive your business as more valuable and relevant if you make it easy for them. You still get paid, however, because you bill them at the correct date and time they will expect your invoice.
How to Measure Customer Retention
1. Find out what success means for you.
First, define success for your business. This will depend on your market performance, industry size, and previous performance.
To improve something, you must first determine what needs improvement and how to do it. Here are some examples of questions that you might ask:
- Are customer lifecycles too short?
- Are there too many customers churning away?
- Is it too slow for them to buy again?
Once you have identified the problem, you will understand what success looks like.
- Our customer lifecycle should be X.
- Customers should churn at X% less.
- We should be able sell them X times faster.
What would this success mean for your business? These results could result in $X more revenue each year.
Knowing your focus areas will help you to measure the things that are important.
2. You can identify customer retention metrics that will help you to achieve your goals.
You already know what success looks like for you. Now you have to figure out how you can achieve it. Take a step back to examine the factors that influence success.
Different metrics can be used to achieve different goals. If you measure the wrong thing, it could distract from the right things. Click here to see the complete list of metrics.
You’re more likely than using too many variables to get precise results if you focus on the most important factors.
3. Get the data you need for your metrics calculations.
Once you have identified the metrics that are important, you can pull the data needed. If you use a customer relationship management software to track your customers’ buyer journeys, you should be able easily to extract the numbers from your recorded history.
We will use, for example, the customer retention rate in this section. This formula calculates the number of customers that you have at various times.
- Customers at the beginning.
- Customers purchased during this period.
- Customers at the end.
Only the data that relates to your customer number from these time periods should be taken and entered into the correlating formula.
4. Your benchmark.
A benchmark is a reference point or standard against which things can measured. Knowing your benchmark is important because it will help you compare your data to see where you stand and whether you’re improving.
We will, for example, refer back to the customer retention rate as a benchmark.
Customer Retention Ratio = (Customers at End of the Period) + (New Customers Acquired). / Customers at Start of the Period.
Your retention rate would be 85% if you had 100 customers at first, 90 customers at end, and 5 new clients. This 85% could be your new benchmark.
Ask yourself these questions:
- Do we have an improvement on the original benchmark?
- Is our performance better than the industry average?
To measure your progress against it, use your original benchmark to establish realistic goals for the next period.
5. Set a SMART goal.
Now it’s time for you to create your SMART goal. This provides guidelines for setting objectives in areas such as project management, employee performance management and personal development.
The acronym SMART stands to indicate the parameters required to achieve your goal.
- Specific – Make your goal specific or narrow.
- Measurable – Define how you will track and prove your progress.
- Attainable – Make your goal realistic for the time.
- Relevant – Align your goal with values or purpose.
- Time-based : Set a date for your goal to prioritize.
Remember that your SMART goal should be relative to your business. Don’t exaggerate or overshoot it to compare with your competitors.
Referring to the customer retention example, you now have a benchmark of at least 85% customers. Based on your business, your new SMART goal may be 90% by the end the year. This is measured in the CRM monthly and it will create a business that customers love returning to and advocating for.
6. Keep an eye on the data at a regular interval.
It’s important to keep track of the metrics you’re using to measure progress towards your goal. It’s not realistic to monitor the data every hour of every day.
Decide how often you will pull the numbers again. This could be correlated with a monthly meeting or a quarterly report, or any other time frame that works best for your business.
Also, you want your metrics to be precise. Check for any surprises in the numbers. Then see what conclusions you can draw as time goes by.
7. As needed, adjust.
You don’t have to stop at achieving your goal, no matter how far you fall short. You can adjust your goals to adapt to any changes in your business. This will keep your customers coming back to your business and even advocating for it.
Now that we know how to measure customer loyalty, let’s take it back and define customer metrics.
The churn rate gives the percentage of customers who stop using a product or service over a given period of time, while retention rate measures the percentage of customers who continue using a product or service over a given period of time.
By understanding both churn vs retention rates, businesses can develop more effective marketing strategies and improve overall growth.