Churn rate: definition and tips to reduce customer churn
The churn rate, or attrition rate, is a crucial indicator for any company looking to assess its customer loyalty. It measures the proportion of customers who stop using a product or service over a given period.
Understanding and optimizing this rate can significantly influence your company's profitability and growth. Find everything you need to know in this guide to reduce your churn and build customer loyalty.
What is the churn rate (or attrition rate)?
Definition of churn
Churn measures the percentage of customers, users, or subscribers that you lose over a certain period. It is an essential metric for analyzing the effectiveness of retention strategies. It directly impacts the revenue and growth of companies, especially those based on subscriptions.
What are the different types of churn?
Churn, or customer attrition, can be categorized in several ways. Understanding these distinctions is crucial for developing effective retention strategies:
- Voluntary churn occurs when customers actively choose to leave. It is generally caused by dissatisfaction with the service, a better offer from a competitor, or a change in needs.
- Involuntary churn occurs without a deliberate decision from the customer. This can include billing issues, expired credit cards, or the customer's death.
- Contractual churn occurs at the end of a fixed-term contract. It is particularly common for B2B companies or subscription services such as SaaS software.
- Partial churn is when a customer reduces their engagement without completely leaving. This can include reducing the number of services or the amount spent.
- Seasonal churn is a predictable fluctuation in attrition linked to specific periods. This is common in certain sectors such as tourism or retail.
- Hidden churn occurs when customers remain but no longer actively use the product or service. This induces a high risk of future churn if not addressed.
By tailoring your efforts to each type of churn, you can significantly improve your customer retention rate, support your long-term growth, and optimize the customer lifetime value of your user base.
What is an anti-churn campaign?
An anti-churn campaign aims to reduce the number of customers who leave. This includes specific actions to increase loyalty, such as personalized offers or improved customer service.
The goal is to transform at-risk customers into active customers. In subscription-based models, these campaigns are essential to maintaining a good retention rate.
We will examine the different strategies for reducing churn in detail later in this article.
How to calculate customer churn rate?
Formula for calculating monthly and annual churn
The churn rate is often calculated on a monthly or annual basis, but it can be calculated over any desired period.
The formula involves dividing the number of customers lost during the given period by the total number of customers at the beginning of the period, and then multiplying the result by 100 to obtain a percentage.
In other words, monthly churn is calculated as follows:
(number of customers lost in the month / number of customers at the beginning of the month) * 100
For example, if you had 200 customers at the beginning of the month and you lose 25 during that month, your churn rate is 12.5%.
For annual churn, apply the same method, but over a period of twelve months.
For example, if you start the year with 1000 customers and lose 100 during the year, the annual churn rate would be 10%.
Calculating revenue loss related to churn
Revenue churn measures the loss of revenue due to customer attrition.
To calculate it, divide the monthly recurring revenue (MRR) lost due to churn over a given period (month or year) by the total MRR at the beginning of the period. Then, multiply the result by 100:
(MRR lost over the period / MRR at the beginning of the period) * 100
For example: if we lose 5,000€ of MRR on an initial MRR of 100,000€, the revenue churn is 5%.
What constitutes a good attrition rate?
What is considered a good churn rate across all industries
Although there is no definitive consensus, a good churn rate across all industries is generally considered to be between 2% and 8%.
These figures should be interpreted cautiously, as the average churn varies significantly depending on the industry, size, and stage of development of your company.
Your ability to minimize churn indicates good customer retention and effective management of your business, which directly impacts your long-term growth.
Examples of average churn rates by industry
To accurately evaluate your customer retention performance, you cannot rely on general figures. Each industry has its specific characteristics that cause the average benchmark churn rate to vary.
Here are a few examples:
- In telecommunications, the annual churn rate is generally between 12% and 24%.
- In banking services, annual rates are around 5% to 15% due to a more stable customer relationship.
- The SaaS sector generally aims for an annual attrition rate of 5%.
In what cases is a high attrition rate normal?
A high attrition rate can be considered normal or acceptable in certain specific contexts:
- Companies in the start-up phase: Start-ups and companies in the launch phase are still adjusting their product or service to better meet market needs. A SaaS start-up in its first year of operation may have a churn rate of 10-15% as the company is still adjusting its product to the market.
- Short-cycle services: Certain services or monthly subscriptions, such as streaming subscriptions or monthly product boxes, may naturally have higher attrition rates. Customers may sign up for a short period to take advantage of a special offer or test the service, and then decide not to renew.
- Seasonal variations: In some sectors, fluctuations in clientele may be normal at certain times of the year. For example, a home meal delivery service may see a higher churn rate in the summer, as customers cook more at home during the holidays.
- Highly competitive industries: In highly competitive sectors, customers may often switch providers to take advantage of better offers. As seen previously, a mobile telephone operator may have an annual churn rate of 12-24% without it being considered abnormal.
- Products for single or infrequent use: Some products or services are used on a one-off basis or for specific events. For example, a wedding planning application may have a high churn rate (up to 80-90% after use), as users no longer need the service once their wedding is planned.
- Companies in a pivot or major change phase: Companies undergoing significant transitions may experience a temporarily high attrition rate. A software company transitioning from a license model to a SaaS model may observe a temporarily high churn (15-25%) during the transition, as some customers prefer the old model.
In these cases, continuous monitoring and periodic adjustments are essential to understand the reasons behind a high attrition rate and to implement appropriate strategies.
What are the risk factors for attrition?
Customer dissatisfaction
Dissatisfaction often occurs when there is a negative gap between customer expectations and reality.
You must regularly measure customer satisfaction to identify problems quickly, as a dissatisfied customer is more likely to turn to the competition. In addition, negative online reviews can damage your reputation if they are not addressed quickly.
To reduce this dissatisfaction, personalize your communications and be attentive to the evolving needs of customers. Addressing complaints proactively can reverse negative perceptions and improve loyalty.
Poor customer service management
Customer service management is crucial for your company. If your customers feel neglected, they will look elsewhere.
Long waiting times and automated responses can frustrate customers. They prefer to be heard by a real person who understands their concerns rather than dealing with a scripted bot. Sometimes, simple empathy can make all the difference.
Failure to resolve customer issues on first contact is also a determining factor in churn. Indeed, according to a study by SQM Group, 40% of customers turn to a competitor because their issues were not resolved on first contact with their initial provider.
It is therefore essential to invest in the training of your staff and to provide them with all the necessary tools to ensure effective communication and rapid resolution of customer issues.
Poor product or service quality
The quality of the product or service directly impacts customer satisfaction. A defective product or a poor service encourages customers to seek better alternatives.
Customer loyalty is partly based on the perceived value of your offer, but it is mainly influenced by its actual value. Offering a product that meets customer expectations reduces the risk of customer churn.
Competition and the market
Competition is a major factor in customer attrition. Your competitors may offer more attractive or innovative offers. Analyzing the positioning of your product in relation to the market will help you identify your strengths and weaknesses.
It is therefore vital to stay informed of market trends and competitor strategies to adapt your strategy.
Our tips for reducing your churn rate
Identify the reasons for churn
To reduce churn rate, the first and most important step is to identify the reasons why your customers are leaving your company.
Use analysis tools and organize surveys and interviews to collect data on attrition behaviors and understand where the problem lies.
By understanding what motivates these departures, you can adjust your offers, your organization and thus improve the customer experience.
Predict customer churn risks
Predicting customers at risk of churn is essential to implement preventive measures.
Use churn prediction models based on the analysis of existing data to determine which customers are at risk.
This is precisely what Batvoice enables with its speech analytics technology which, by analyzing the calls from your contact centers, detects and alerts you in the event of a risk of attrition.
Thus, you can apply a proactive customer retention strategy and thus transform potential detractors into promoters of your brand.
Listen to the voice of the customer continuously
Your customer knowledge should not be taken for granted; you must update it. Constantly listening to your customers will help you adjust your services according to their evolving needs.
To do this, you can collect online feedback and analyze the information contained in your various customer interactions.
Also integrate regular customer feedback systems into your retention strategy, such as surveys or feedback sessions, to strengthen trust and improve the customer experience.
Improve your First Call Resolution (FCR) rate
Excellent customer service often results in a high first contact resolution rate.
To achieve this, you must first identify recurring issues in your customer journey. Then, you need to detect and prioritize high-churn-risk customer requests.
Remember to properly train your team on recurring customer issues so they can resolve them more quickly and effectively.
We discuss this further in our article sharing our tips for improving FCR.
Hire the right people
Recruit individuals who are passionate, competent, and capable of representing your brand positively within your sales, operational agent and customer relationship center teams.
Well-trained and motivated employees are more likely to provide excellent service, which improves customer loyalty.
How can speech analytics help you limit churn?
Speech analytics relies on artificial intelligence to analyze thousands of hours of telephone conversations in your call centers. This technology can even analyze emotions to detect anger and irritants.
Your customers may express frustrations or recurring problems over the phone that are impossible to identify and quantify manually. However, thanks to speech analytics software like Batvoice, you can accurately measure the reasons for churn and be alerted to at-risk customers.
By identifying recurring problems and being alerted to potential customer churn, you can make targeted improvements to your services and reduce churn by increasing customer satisfaction.
