A Beginner's Guide to Churn Rates and How to Improve Them

What is Churn Rate??

Irrespective of how good your business is, not all your customers are going to dawdle forever, and you will lose a few of them for sure. This is because competitors emerge now and then, or budgets dry up. For the long-term growth of the business, you have to keep an eye on the lost customers. This is where the churn rate comes into play.

Churn is the number of subscribers or customers who have stopped using the service you provide during a specific period.

For instance, the annual churn rate of your business is the percentage at which you are losing customers every year. Churned users are customers who aren’t active anymore. Churn enables you to keep a pulse on the growth of the company. Even a small churn rate might have a significant impact on your company’s revenue over time.

For instance, you have a company with a steady $20,000 as MRR (Monthly Recurring Revenue). In case you experience a churn rate of 5%, you will be losing a minimum of $1000 every month. So, if your business is experiencing a churn rate of 10% or 15%, it is not a good sign.

A churned customer is painful for new companies that are grappling to scale the user base. In case you just have a handful of customers, any amount of churn can be devastating. However, churn is a crucial aspect of SaaS businesses. It is not possible to avoid churn rates outright. But you can work on it to reduce the churn rate.

Accurately Tracking and Calculating the Churn Rate is Critical to Success

How to Calculate Churn Rates

If you have to calculate the churn rate, you have to designate a time period and then tally it with the total customer you have acquired and the total customers who have left during that period. Thereafter, you will have to divide the total churned customers by the total customers you have acquired and multiply it by 100.

In case it is too difficult for you to calculate or the formula seems too intimidating, you can use the online tools available over the internet. Here are the steps to calculate the churn rate.

  • Decide on the time period
  • Find out the number of customers you have acquired during this period
  • Find out the number of customers you have lost during this period
  • Divide the number of churned customers by the acquired customers
  • Multiply the result with 100

After you learn how to calculate the churn rate, you might be wondering how you can reduce it. Various strategies will help in reducing the churn rate. We have provided a few strategies in the below section.

Engaging Customers to Improve Retention

How to Reduce Churn Rate

Keeping your customers is profitable for your business. So, you need to reduce the churn rate. Take a look at the few things that you can do to reduce it.

Reach Out to Customers

A great way to prevent churn is to engage with your customers actively. This is also known as relationship marketing. It gives your customers the reason to keep coming back to your business as you show them the day-to-day value of using your products.

To do it, you can offer different types of content about the benefits of the products. Also, give regular updates like announcing a deal or special offer. Make sure you are engaging with the customers on all channels.

A recent study has shown that the best way to engage with customers for B2B companies is through email marketing. 79% of the time email marketing is successful in initiating customer engagement. Email marketing forms an important aspect of marketing. Also, it is one of the most affordable ways to promote your products and business.

Learn About Who is at Risk

One of the best ways to reduce churn is to prevent it from happening at all. Every business has a group of customers that have a higher chance of leaving than others. Thus, you should know who is on the edge to leave. After you find out, you can reach out to them in time. This can help you make them stay.

Identifying customers at-risk is one of the best churn tactics. About 35% of the B2B businesses have used it for reducing customer churn.

What’s good is you can easily spot at-risk groups. Seek out the customers that haven’t been contacted for a while. Or find who asked for details about the product, and you didn’t follow it up. All these make you proactive and prevents churn.

Educate the Customers

You need to provide enough good quality materials to the customers that they can refer to if they need to know about the product. It reduces churn and increases retention. You can give free training, tutorials, or product demos. All these help in making your customers feel comfortable.

In simple words, you do not only have to provide them with the tools to work but also give training on how they have to use the tools for maximum profit. Thus, you can demonstrate the products and services to their full potential and make sure that the customers have a seamless experience.

Offer Incentives

Another great tip is to give out incentives to the customers like special offers or discounts, especially to the ones who have been identified to leave early. This is an effective tactic when it comes to reducing churn. However, you have to check if providing an incentive is advantageous for you. So, you need to ensure that the cost of retention doesn’t outweigh the profit you will make from the customer you retain.

You need to focus on keeping your customers. So, your customers need to see why they should stick to you and not leave. It is necessary to be proactive and create conditions where the customers will be able to see and use the benefits that the product offers. Remember, the primary reason behind churn isn’t the product but poor customer service.