What affects churn rate? If you’re trying to decrease your company’s churn rate, there are a few things you should take into consideration. We’ve been able to lower our churn rate by taking these factors into account:
- The type of product or service you offer
- How easy it is to use your product or service
- The level of customer support you provide
- How well your pricing fits the market landscape
What Affects Churn Rate
Several factors can impact what affects churn rate.
Nobody likes losing customers, but a high customer turnover rate can seriously affect a company’s bottom line. That’s why it’s important to monitor your company’s churn rate and take steps to lower it.
In most markets, many providers offer similar services, making it simple for customers to switch from one company to the next.
The churn rate is the percentage of customers that leave your business in a given period. This not only includes those who switch to a different carrier, but those who cancel their subscription altogether. Keeping track of this number is essential to growing your subscriber base.
What is considered to be a good or a bad churn rate for different industries can vary.
The churn rate has a profound impact on a company’s revenue.
When most people think about lost money, they’re usually thinking of the money they’ve spent on things, like marketing, that hasn’t produced any results.
Churn often goes unnoticed in these discussions about growth, but that’s precisely where it should be.
Let’s take a look at what your customer turnover rate means for your company, and acknowledge how detrimental it can be to your bottom line.
We will also discuss retention rate, and uncover the leading factors that impact both of these metrics.
What is Churn Rate?
Churn rate is the percentage of customers who stopped using your service within a period.
Let’s say you have 200 customers at the start of the month, then your team added 42 new users by the end of the month. However, you also lost 14 customers in the process.
Your churn rate for that month would be 14/242 = 5.785%.
The three biggest causes of high customer attrition rates include a lack of customer support, overpriced services, and the lack of any unique or beneficial features that competitors offer.
1. Average Subscription Length
How long is the average time a customer stays subscribed to your company? This varies depending on what type of product or service you offer.
While a gym membership may be offered every month, a software subscription for tax filing services should be renewed annually.
While a monthly subscription can be appealing to customers, it may also result in higher customer turnover, as almost half of monthly subscribers cancel their subscriptions within the first month.
Some companies don’t include customers in their initial month in their reports.
Businesses with a monthly pricing model can lower their customer turnover by incentivizing their customers to sign up for longer periods.
Several things can influence your company’s customer turnover rate. Monitoring these metrics can have a huge impact on your bottom line.
As shown below, two different companies with the same growth rate but with different customer lifetime values (CLVs) will diverge in trajectory over just 5 years.
2. Customer Acquisition Cost
Another factor in churning is how much it costs to acquire a new client. If it costs a lot to get new clients, then the company will need to retain them for a long time.
When companies have high acquisition costs and a high rate of customer turnover, they are essentially throwing money away. This can be avoided by taking steps to lower the costs, and by improving the customer experience.
Having both your acquisition and retention costs as low as possible is crucial for any long-term business.
Here are some strategies that companies can use to keep customers satisfied, thus reducing their chances of churning.
Improve onboarding experience
40 – 60% of customers stop using the product after only one use. This is because they either don’t see the value in using it or aren’t able to find it quickly.
It’s important to communicate well with your users during each step of the onboarding process. This will reduce customer turnover.
When users know what they’re getting themselves into, they are more likely to continue using the service.
Improve customer service
Customer retention should be a priority for any company that wants to keep its customers for the long haul.
Some businesses see customer service as an unnecessary expense, not an investment.
Happy customers are loyal customers, and happy customers are customers who will refer you to their friends. This will result in business growth.
Poor service can destroy your business. In fact, 9 out of 10 customers have walked out of businesses due to bad experiences.
86% of consumers are willing to spend more for a product or service if it means better service.
Free trials
If you want to attract new clients, one of the best ways to do this is to offer them a trial period or discount. This gives them the chance to try your product or service out without feeling like they’re being pressured into buying.
3. Customer Lifetime Value (CLV)
CLV, or customer lifetime value, is the total worth of a client to your business over the entirety of your relationship. This measurement can be compared to your acquisition cost, or how much you spend to acquire a new client.
If the cost of acquiring a new client exceeds their expected return, the business will wind up losing money. To prevent this from happening, companies try to increase a client’s long-term profitability.
Offering additional complementary services is a great way to keep current clients coming back to you. It shows that you’re always looking for ways to improve their experience with your brand.
Your company can provide valuable resources to your audience through webinars, reports, and videos. These resources can help educate your audience on your products or services while also providing valuable information that they can use.
Conclusion
What affects churn rate? Churn rate is an important metric for any business, and several factors can affect it. By taking into account the type of product or service you offer, how easy it is to use your product or service, the level of customer support you provide, and how well your pricing fits the market landscape, you can help lower your company’s churn rate.
