Understanding why consumers abandon products or services is essential for companies, and understanding churn (cancellation rate) makes it easier to obtain these tangible metrics and give new directions to strategies.
Churn is increasingly being used to measure business success and, like many other metrics available on the market, cannot be overlooked within organizations.
Regardless of your field, you can use it and gain important insights from this metric.
Do you know what churn is and how to measure it? Check out our post to learn more about this topic and see some tips on how to reduce it in your business!
What is churn?
In a simple definition, churn is an index that represents the rate of customers who abandon or cancel products or services in certain periods .
This rate is important for all industries, especially for subscription-based business models.
For a successful business expansion, the number of new customers must always be greater than those who have stopped using the product or service.
Customer Success teams , as they are the ones who work most actively with customer relationships
It is clear that whether or not a customer remains with a company is related to a huge range of factors, but it is the managers' responsibility to know what the churn rate has been and understand that, generally, the reason lies within the organization .
There are two types: churn and revenue churn (MRR Churn). The difference between them is simple and essential to understand.
Churn represents the number of consumers who cancel the product or service in a given period, while revenue churn represents how much budget is lost .
How to calculate churn?
After understanding what churn is and its importance, we move on to calculating this rate. The calculation is simple; just follow the formula:
Churn = customers who canceled the service during the period / customers at the beginning of the period x 100
To make it easier to understand, let's give an example: Suppose that, during a quarter, you had 100 customers and five of them canceled your service.
Following the formula, the account would look like this:
5 (customers who canceled) / 100 (initial number) = 0.05 x 100 = 5%
This way, your churn would be 5% .
The calculation of revenue churn
Revenue Churn = Total sum of monthly amount paid by customers who canceled
Imagine that the company charges a subscription of 100.00 reais for each customer, so with these five cancellations, we are left with 5 x 100 = R$ 500.00.
In other words, the company lost R$500.00 in profits due to the departure of these consumers.
It's also a good practice to measure this number as a percentage to know exactly how much of your monthly revenue was affected by cancellations. The calculation would look like this:
Revenue churn in % = total sum of monthly amount of those who canceled / total revenue of the last month
By performing the calculations presented, you can determine your churn rate. But is there an ideal churn rate? Clearly, the ideal churn rate should always be as low as possible .
It's nearly impossible to estimate a value, as there are so many factors in business, but a rate between 5% and 7% per year is generally suggested. It's worth researching churn benchmarks in your industry.
How to reduce churn?
Once you understand how this metric is performing within your company, you can take steps to improve the numbers in the coming periods. Check it out!
1. Understand why your customers cancel
The first step to reducing churn is understanding why customers are canceling.
the services.
Without knowing the reasons for the losses, it will be more difficult to outline improvements to reduce these errors, right?
Develop strategies and try to gather feedback from customers, who are generally open to satisfaction surveys . Whether by phone, email , or text, contact the customer immediately after the cancellation to find out why.
Customers often leave due to lack of money, the product not meeting their needs, or poor service from the company.
There are many reasons, so it is necessary to list them and know what is happening internally and externally .
2. Align expectations
More than just understanding churn, you need strategies to reduce it, right? Therefore, the best way to avoid problems is to align expectations with customers before closing sales .
It's important that they really see something relevant in your product and service and, therefore, want to continue using it.
Understand the client's needs and make it clear what you can truly offer. Don't lie or invent false alternatives that won't deliver in the long run.
Creating false expectations leads customers to cancel services as soon as possible. Have an aligned, honest sales team with realistic goals.
3. Deliver the best experience
Consumer experience is very important, especially at a time when consumers are increasingly demanding and informed, and competition is increasingly fierce.
From the first contact with the company, the consumer needs to be well served and feel comfortable to clarify any doubts.
In addition to the Sales team, the Customer Success and Support teams must put the customer first and ensure that every contact they have with the company is a unique and positive experience .
When a customer needs to get in touch and their request isn't resolved quickly, the frustration is high, leading to high churn rates.
Furthermore, rude and impolite service drives anyone away—after all, no one likes being poorly served, right? Putting yourself in the customer's shoes is essential in any business!
In addition to providing individual service, it's important to maintain a positive image through social media and customer service channels. After all, consumers are heavily influenced by what they see on these channels.
Conclusion
Churn rate is an excellent way to visualize customer losses and understand a little more about the problems within the company that are leading to these losses.
Using this metric is important for making important decisions and investing in different areas of the company in order to generate greater customer satisfaction, win new customers and, more importantly, retain and build loyalty among existing ones .
By better understanding what churn and how it is calculated, it becomes easier to see the company from different perspectives.
Have you been calculating churn in your organization? Now that you know what churn is, adopt this practice now! Take advantage of this topic and learn about some of our solutions that can improve your customer experience!
