Why is your churn rate so important?

What is the big deal about Customer Churn?

If your business revolves around subscription-based services, you’ve probably known the pain of people dropping out after that ‘free month trial’ or suddenly ghosting from their memberships when you least expect it. Your customers will come and go if you don’t keep them engaged. This is known as customer churn. Churning = the percentage of accounts that cancel or choose not to renew their subscription. Customer churn comes in different forms: switching to a competitor or downgrading to a cheaper subscription package you offer, complete closure of account and most commonly - cancellation of subscriptions.

A high churn rate can negatively impact your monthly revenue and it is a strong indicator that your product or service is not up to standards. There is no question about it, churn can flip your business upside down, if you let it. Understanding how to predict churn can help you foresee and prevent potential losses. Churn prediction means being able to detect if and which customer is likely to choose a cheaper pack and/or cancel the subscription. Being able to take a step ahead of customers who are about to cancel using the right tool, you would be able to proactively retain more customers.

Why is dealing with customer churn so valuable?

Firstly, if you want your company to grow, you must invest in acquiring new customers. However, every time you lose a customer - you lose a significant amount of that investment. It takes even more effort and money to replace them with new customers. In fact, an increase of customer retention by 5% can lead to a 25% increase in profit; This is because returning customers will likely spend 67% more. So being able to predict customer churn and offer the right solution to keep them engaging - can flourish your business more than if you just give up and try to find new customers. Learning what keeps your customers engaged can help you significantly improve your retention strategies and execute more effective marketing actions.

An investor's favourite question to ask is ‘What is your churn?’. If you’re looking for investors, beware that churn rate is the single most critical metric that determines the success of your business. Investors look at this because it is impossible to scale a business if your churn rate is too high (even if you acquire a lot of new customers).

B2B vs B2C Churn

B2C companies experience a higher churn rate than B2B does. This is because the B2B purchasing process is a bit more complex. To be more specific,  a lot of factors are involved in the decision-making process. A B2B business has on average a churn rate of 6% - 18% per year whereas B2C baseline is around 12% - 36% (which is why there is less investment in a B2C business).

Ok, so now you get the basics of customer churn, but how exactly do you measure it? For more information, check out the post on ‘3 Churn Measurements you should already know’