Customer churn, also known as customer attrition, refers to the percentage of customers who stop doing business with a company over a specific period.
In industries such as eCommerce, subscription services, and SaaS (Software as a Service), churn is a key metric in key performance indications (KPI) dashboards for assessing customer retention.
When a customer discontinues their subscription, service, or purchasing behaviour, they are considered "churned."
Why is Customer Churn Important?
Customer churn is a critical metric for businesses because it directly affects revenue growth and long-term sustainability. High churn rates can indicate dissatisfaction with products, services, or customer support, and signal that the company is struggling to retain its customer base. By tracking churn, businesses can identify patterns and underlying issues that need to be addressed.
Reducing churn is often more cost-effective than acquiring new customers. Loyal customers tend to make repeat purchases, advocate for the brand, and cost less to service, making them a valuable asset to the business. Understanding and managing churn enables companies to improve customer experience, refine retention strategies, and enhance profitability.
How to Calculate Customer Churn
To calculate customer churn, use the following formula:
𝐶ℎ𝑢𝑟𝑛 𝑅𝑎𝑡𝑒 = 𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝐶𝑢𝑠𝑡𝑜𝑚𝑒𝑟𝑠 𝐿𝑜𝑠𝑡𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝐶𝑢𝑠𝑡𝑜𝑚𝑒𝑟𝑠 𝑋 100Churn Rate = Number of Customers LostNumber of Customers X 100
For example, if a company starts with 500 customers and loses 50 over the course of a month, the churn rate would be:
𝐶ℎ𝑢𝑟𝑛 𝑅𝑎𝑡𝑒 = 50500 𝑋 100 = 10%Churn Rate = 50500 X 100 = 10%
This means that 10% of the company's customers were lost in that month.
While this basic formula provides a general overview, more advanced methods can factor in variables such as customer segmentation or the financial impact of lost customers, allowing for deeper insights into churn dynamics.
By regularly calculating churn, businesses can track improvements in customer retention strategies and proactively address the factors driving customer loss.
How the Data Refinery Can Help
The Data Refinery connects to most eCommerce systems and can automatically calculate customer churn as part of it’s standard offering of KPIs. We have also implemented multiple complex custom applications of churn reporting for businesses who require business specific reporting or want to level up in customer retention.
