What is Customer Churn? A Helpful Introduction

Savvy business owners always have a carefully planned customer acquisition strategy in place to boost operations and sales. However, attracting new customers does not guarantee they will stick around.

Businesses will lose customers. It’s inevitable. The cycle of new customers replacing lost customers is a phenomenon known as customer churn. Though not the most positive of developments, customer churn is nonetheless one of the most important metrics for your growing business. Below, we explain customer churn and how you can make the most of it.

What is customer churn?

Also known as customer attrition, customer churn occurs when a new customer is offset by the loss of an existing one. Customer churn can take the form of cancelled subscriptions, discontinued memberships, closed accounts, or customers leaving for a different business.

Why is customer churn important?

Customer churn is a business phenomenon that eventually affects all businesses. Even large corporations are not immune to this situation (in fact, the larger your customer base, the more likely customer churn becomes). Your customer churn rate is worth examining closely, as it offers insight into why you’re attracting new customers, why you’re losing old ones, and what’s happening in between to change their relationship with you.

What is a good customer churn rate?

Just like any other metric, you can calculate your customer churn rate. With a set formula, you can determine the number and percentage of customers lost within a time frame and the recurring business value lost to customer churn. These metrics are vital for accurate business forecasting.

For example:

If, at the end of the month, you have signed up 100 new service subscriptions and lost 5, you would have a 5% churn rate.

Ideally, your business would enjoy a 0% churn rate. However, this is not a realistic goal. No matter how great your products and services may be, your business will still lose customers. Some customers’ needs will change. Others will move to a different city or neighbourhood. Others will be on the receiving end of one of your employee’s rare mistakes. These things happen. What’s important is that you’re preparing for it by constantly rotating in new customers.

On average, banks have churn rates of 20-25% while Software-as-a-service (SaaS) companies have a churn rate of only 5-7%.

As you can see, some businesses may have significantly higher customer churn rates than others. As business models vary widely, so to do their optimal churn rates.

How can I reduce customer churn?

1. Study why churn occurs

If you find that your business has a high churn rate, start by evaluating your business and find out why customers are opting to leave. One of the ways you can do this is by asking customers directly via phone. Rather than just sending exit surveys, phone calls are a more immediate and personal form of customer feedback. You may even win a few back!

 2. Increase customer engagement

When you keep your customers engaged with relevant content about your products and services, you give them more reasons to come back. Effective customer engagement is a way for you to communicate special offers, upcoming developments, and other announcements that keep your brand on your customers’ minds.

3. Show customers you care

The process of customer acquisition doesn’t stop after making your first sale. You also need to meet customer expectations and consistently give them your attention. Come up with ways to improve your products and services, and offer the most value to your customers. Give your best customers incentives or create customer loyalty programmes that show customers how much you value and appreciate their business.

 Keep hold of your best customers with Bartercard!

Bartercard is a great way to acquire new clients and convert them into a loyal customer base. As an expansive online marketplace, Bartercard offers B2B networking solutions that will empower you to achieve a more promising customer churn rate, all while maximising profit opportunities. Ready to become a member? Contact Bartercard today!


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