In e-commerce, customer churn — often also called customer attrition — is usually thought of as customer loss, but it does also factor in new customers gained. If you’re attracting more customers than you’re losing, then you can relax. If, on the other hand, you are losing customers at such a rate that your sales and overall profits are dropping, then customer churn is a real issue that you need to address.
Thankfully, with the right data, you can quantify churn and begin to identify ways to lessen the problem. Here’s what you should know about customer churn and what you can do about it.
What Is Customer Churn?
“Churn represents the percentage of customers or subscribers who stop using your service over a given period,” says Geoffrey Toffetti, CEO of Frontline Performance Group. “It means clients that opt not to renew, or continue making regular purchases. Churn is a key indicator of customer satisfaction and business health: If a company has a high churn rate, it means they’re constantly replacing lost revenue rather than growing it.”
Just replacing customers is not enough, and in fact, it can be easy to be misled by the data here. If you pick up, say, 100 new customers in a given month, that might seem like a great win for your business. But what if you also lost 101 customers? Or even just 90 customers who used to be quite loyal? You want to consistently acquire many more customers than you lose, and you want them to be regular customers, too, not just one-and-done buyers.
Why Do Customers Churn?
Customer churn can occur for different reasons, and some of them are beyond what even the savviest e-commerce sales and marketing teams can control. This is especially true during times of economic uncertainty — or outright recession — but taken on the whole, much customer attrition can be understood, even predicted, and can ideally be prevented. Here are a few of the most common causes of customer churn:
A Poor Site or App Experience
If a company’s website or app is not well optimized for easy navigation, then customers will grow tired of the user experience, and are likely to seek out alternatives. You need to ensure that the customer experience is a pleasant and easy one, or even an inventory of great products or top-notch services will fail to keep people coming back.
A Complex Checkout Process
One of the most common points of bounce during the sales process is at the checkout itself. You can count on an elevated rate of cart abandonment — and eventually complete abandonment by customers — if there is an onerous and involved process of making purchases. You need to remove requirements for a sign-up, offer guest checkout options, accept multiple forms of payment, and overall make the process of converting from browsing to buying as easy as possible, or you can count on increased customer attrition.
Inferior or Degraded Inventory or Services and Elevated Prices
If the products or services you’re offering are simply not as good as those offered by competitors, you can count on customers leaving your business for those competitors as soon as they catch on. Even more to the point, if the quality of your products goes down over time, or if your prices go up compared to the competition, you will lose people and will struggle to gain new customers.
What Does Churn Mean for Businesses?
To put it simply, a high rate of customer churn likely translates into lost revenue. Over time, it can be a slow-moving but catastrophic problem.
Churn Means a Loss of Steady Revenue
“Churn is a huge challenge because it means losing paying customers, and when you lose customers, you have to work harder to replace them,” says Umair Hussain, a digital marketing manager for Cloudways. “For instance, if a customer stops using your service, not only are you losing revenue, but you’re also losing the lifetime value they could have brought. It’s like a leaky bucket — no matter how much you try to fill it, if it keeps leaking, growth becomes much harder.”
Churn Can Damage Brand Reputation
“If a company is losing subscribers or clients, then they are losing a steady stream of revenue, but the damage goes deeper,” says Tofetti. “For starters, lost revenue compounds quickly: Acquiring new customers costs more than retaining existing ones, and every departure erodes profitability. The damage extends beyond finances, too — unhappy customers may share negative experiences, tarnishing a brand’s reputation and making future acquisition harder. Worst of all, high churn traps teams in a reactive cycle, wasting resources on replacing defectors instead of optimizing growth or scaling efficiently.”
Customer Churn Can Indicate Systemic Problems
“Churn means people are leaving and often it’s because something in their online experience wasn’t working,” says Belinda Conde, SVP of marketing at Datos. Be it poor site or app functionality, an inferior selection of products or services, or a bad checkout experience, churn shows there are problems with your website, but at least these can usually be fixed if you can identify them.
How is Churn Measured?
Will Bachman, managing partner at Umbrex, has devoted a significant portion of his professional life to studying customer churn, including looking at how it can be measured. “The goal of Umbrex’s churn rate analysis is to measure the rate at which customers or revenue are being lost over a specific period of time,” he says. “This analysis helps SaaS (software as a service) companies understand customer retention, identify potential issues with customer satisfaction, and assess the financial impact of lost customers or revenue.”
Drilling down deeper into these numbers is essential. “Both customer churn (the number of customers lost) and revenue churn (revenue lost due to cancellations, downgrades, or churned customers) are critical metrics for a SaaS company’s growth and sustainability,” he says.
The data required to study churn includes the number of customers at the start of a given period, the number of customers lost during said period, the total revenue at the start of the period, and the total revenue lost due to churned customers or downgrades during the period, Bachman says. With that data collected, you can use a formula to calculate customer churn rate. That formula is:
Customer Churn Rate (%) = (Number of Customers Lost During the Period ÷ Number of Customers at the Start of the Period) x 100
“For example,” Bachman says, “If you started the month with 1,000 customers and lost 50, the churn rate would be: (50 / 1,000) x 100 = 5%.”
Customer Churn Metrics
Knowing your churn rate is important, but the data can provide additional insights. You need to dig deeper and consider the following aspects of a customer’s overall value:
Customer Acquisition Cost
Customer acquisition cost (or CAC) refers to the amount of money you need to spend to acquire a customer who goes all the way through the marketing funnel, from awareness to interest to conversion to, ideally, loyalty. For every customer lost, that money is sunk.
Customer Lifetime Value
Don’t think in terms of single sales, but rather in terms of repeat business. Work to calculate the lifetime (or at least long-term) value of a customer, and then consider the real-term losses you face from each customer who leaves your site for good.
Types of Churn
Customer attrition happens for many reasons, including a poor shopping experience, economic downturns, social trends, and also involuntary churn, such as when a method of payment fails and a customer chooses not to re-up their patronage.
How to Reduce Churn
By now, we have sufficiently established that customer churn is a bad thing, despite it being a fact of life, and no matter how well you run a business. That said, the more you can reduce churn, the better, and it’s worth it to spend some money in the short term to curtail the attrition over time.
Focus On Authentic Customer Relationships
“To reduce churn, businesses need to focus less on gimmicky win-back campaigns and more on proactive relationship building,” says Mark Ainsworth, director at Maxweb Solutions. “That means clearer communication, an emphasis on personalized experiences, and also ensuring your value proposition doesn’t just shine during a sale. Loyalty isn’t a given — there’s too much saturation now across the board in e-commerce markets for that. It’s earned through consistency, trust, and relevance.”
Create a Pleasing User Experience
“Creating a real sense of community around your products and services can be a great way to keep customers coming back, especially for online and e-commerce businesses,” says Shuai Guan, CEO of Thunderbit. “Customers are much less likely to break up with a brand if they have a strong emotional connection to it and feel like they’re part of a larger group of users. To build this community, you might need to make interesting content, hold events or forums, and encourage people to talk to each other. Customers will be loyal to your business for a long time if you make them feel like they are important and part of something bigger than just a transaction. Customers who are invested in the overall experience and identity your brand represents are more likely to stick with you even if their needs or tastes change over time.”
Offer Great Products and Services at Competitive Prices
It might seem obvious to state this, but without products and services that people genuinely want and need, you really don’t stand a chance of retaining customers in the long term. Make sure your inventory is always stocked and ready to ship, and that the products you offer are of genuine quality. The same goes for paid services: They must be of true value and quality if you are going to retain a customer base.
Incentive Loyalty
Loyalty programs, as long as they are optional (for example, a subscription is not required for purchases) can be great ways to retain customers, especially when you offer deals, discounts, special promotions, and other incentives to people who maintain long-term loyalty to the brand. Offering bonuses like points or credits that accrue can greatly increase customer loyalty.
Also, ironically, making it very easy to quit your brand is a great way to maintain loyalty: If you make it simple to cancel a service, a customer will be left with a good impression. When they are approached later on with a text or email from your brand offering them a great incentive to return, they are much more likely to do so, and they might even be more loyal upon return than they were the first time around.
For some numbers on that front, Traci Crites, CMO at Heavy Equipment Appraisal, offers data from her own company. “The implementation of reward systems for consumers who continue buying and using products generates significant decline prevention,” she says. “Loyalty programs motivate customers to return and we have observed that businesses boost their customer lifetime value by 20.3% through little loyalty-based rewards.”
Key Takeaways
“Customer churn is an unavoidable stat in any business,” says Kirsten Hopstaken, owner of GYBO Marketing. “Clients come and go, it’s the nature of business. However, we also realize that customer churn needs to be as low as possible for a healthy brand.”
Keeping churn — a.k.a. customer attrition — low is critical because it costs more to acquire a new customer than it does to retain a current customer. Also, the loss of a customer isn’t just about missing one sale, it means the loss of potential long-term revenue, often referred to as customer lifetime value.
To reduce churn, brands need to ensure a smooth and enjoyable site or app navigation process and that making a purchase is as easy as possible. Loyalty programs, regular and curated communication, and great products and services at competitive pricing can all reduce customer churn.
To monitor churn, dig deep into the numbers. “Data is your best friend here,” says Ainsworth. “Track behavior patterns and listen to feedback, then act on it.“
Frequently Asked Questions (FAQs)
What is churn in startups?
As with any company, churn refers to the rate at which customers stop regularly buying a product (or products) or stop subscribing to a service. It’s a crucial metric for startups to track, as it indicates how well they are retaining new customers and developing their revenue streams. A high churn rate suggests potential issues with the products or services, with one or more aspects of the customer experience, with marketing efforts, or with brand reputation.
What is churn in SaaS?
SaaS refers to software as a service, or accessing software applications like a subscription service over the internet, instead of buying and installing it on your own computer. Examples include Dropbox, Zendesk, QuickBooks, and more. In the SaaS context, churn refers to the rate at which customers stop using a software service or product. It’s a critical metric for subscription-based businesses that indicates the percentage of customers lost over a specific period.
How do you track customer churn?
To track customer churn, you have to calculate the churn rate, which is the percentage of customers who stop buying your products or paying for your services during a specific period. This involves identifying the amount of lost customers and dividing that figure by the total number of customers at the start of the period, then multiplying that by 100 to get a percentage. You can also analyze revenue churn by dividing revenue lost to churn by the total revenue at the start of the period.
