Is your business a revolving door of customers, with people breezing in and out, never to be seen again? Or maybe you’re convinced your customer retention is high, with most consumers becoming brand loyalists after only one purchase?
Thanks to modern tech tools, businesses can track exactly how fast consumers are coming and going. Churn rate is a metric that lets you monitor customer turnover so that you can identify ways to improve it. But how do you measure churn rate, and what can you do to reduce it?
What Is Churn Rate?
Also called customer attrition rate, churn rate is the percentage of customers who stop using your product during a specified timeframe. For example, if you begin a month with 1,000 customers and, at the end of the month, you have 950, you’ve lost 50 customers. In an era where performance marketing dominates, understanding churn is key to creating campaigns that match your most loyal customer base.
“You should try to limit both employee turnover and customer turnover, but you have to realize you can’t eliminate churn completely,” says Columbia College Chicago Professor Laurence Minsky. “Some will go away. It then comes down to determining why you’re losing your employees or your customers.”
Examples of Churn Rate
Churn rate affects businesses across all industry types. Below are some examples of industry-specific churn.
- Subscription-based SaaS (software as a service) business: You sell a project management tool that starts Q2 with 3,000 active users. At the end of the quarter, you realize you’ve lost 150 customers. That would give you a 5% churn rate.
- Auto-ship retail business: You have 100,000 customers who have signed up to have one or more of your products automatically shipped each month. At the end of last month, 10,000 canceled, giving you a 10% churn rate.
- Subscription retail box: With 8,000 customers, if 400 customers unsubscribe, you’re left with a 5% churn rate for that timeframe.
Why Is It Important for Marketers To Understand Churn Rate?
It Reflects Customer Satisfaction
High churn is often a sign that something’s off with the customer experience (more on that below). It could simply be that your marketing is attracting the wrong consumers. While click-through rates and impressions tell you how your ads are doing, churn rate tells you the long-term value of your products.
It Reduces Ad Spend
Advertising is expensive. For each customer you retain, that’s one less customer you’ll have to pay to bring in. Some performance advertising platforms build in artificial intelligence to deliver ads in real time based on current customer activities, known as behavioral signals. By targeting the customers most likely to engaged with your brand, you can improve retention.
Realize's advanced AI capabilities enable precise targeting, engagement optimization, and budget simulation, maximizing advertiser ROI.
It Helps You Build Smarter Funnels
If your ad campaigns work to build awareness, you could be missing something important. Solutions that focus on conversions are more likely to win over consumers who are already interested in what you’re offering, making them more likely to stick around.
How To Calculate Churn Rate
Churn rate is simply a percentage of customers who walked away during a specific timeframe. It’s calculated using this equation:
Churn Rate = (Number of Customers Lost ÷ Customers at Start of Period) x 100
Strategies To Reduce Churn Rate
Personalize Onboarding and Engagement
Often, churn is simply a byproduct of customers not fully understanding your product’s value. Tools like automated email sequences, behavior-triggered walkthroughs, and video tutorials can help new customers as they familiarize themselves with your product’s features.
Build Retention Campaigns
Too often, businesses focus heavily on bringing in new customers, but those same ad creatives can be used to target your existing customers. Tools that allow for easy social asset imports and customization across channels can help power those efforts.
Leverage Predictive Targeting for Win-Back Campaigns
Certain activities are clear signs a customer is on the way out. Declining usage and dropped cart activity can be hints you’re about to see a customer leave. Today’s AI-powered tools build in predictive targeting that can identify these customers so that you can win them back.
How to Track Churn Rate
Track Behaviors Across Channels
The right tools can follow user behavior across devices, channels, and sessions. Put those tools in place and monitor results, paying particular attention to usage drop-off, declining session time, and low engagement. Platforms with built-in event tracking can combine that information with predictive analytics to detect churn risks in advance.
Segment Your Churn Data
Not all customers leave for the same reason. For best results, segment your churn data by:
- Acquisition source.
- Time since onboarding.
- Product tier or plan.
- Customer support interactions.
Build Behavioral-Based Campaign Loops
Your automations can specifically target churn signals. If a customer doesn’t log in for seven days, for instance, this could trigger an email with a special offer or some helpful tips. AI-assisted campaign builders can help you test those triggers to make sure they’re being delivered at precisely the right time.
Key Takeaways
Churn rate is a metric that identifies how many customers you’re losing during a specific timeframe. To calculate it, you’ll divide the number of customers you lost by the customers you had at the start of the calculator period, and multiply that number by 100. Performance-focused marketing, AI-powered analytics, and predictive targeting can help keep customers coming back for more.
Frequently Asked Questions (FAQs)
What is a good churn rate?
Churn rates can vary by industry. Wholesale businesses have a significantly higher churn rate than energy/utility companies. If you specialize in computer software, the industry median churn rate is 11%, while logistics businesses see median churn rates of 40%.
“While it’s true that a very general rule of thumb would be to keep churn rate below 5%, in my 12+ years of digital marketing experience, I’ve only seen this type of percentage become true for highly niche B2B industries with long-term commitment contracts,” says Belinda Conde, senior vice president of marketing at Datos. “At the end of the day, brands should really assess their own benchmarks according to their industry and aim for a steady 1-2% decrease in churn rate quarter-over-quarter or even year-over-year against their own metrics, as long as it’s feasible.”
What does 5 churn mean?
Five churn means a company has lost 5% of its customers during a given timeframe. That means for every 100 customers, five have left.
“Generically, to me, 5 churn indicates the brand has a very low churn rate,” Minsky says. “But in reality, what makes a low churn rate depends on the category. And are we talking monthly churn or yearly churn? Five churn per month can add up to be quite substantial.”
What is a churn rate in business terms?
In business terms, churn is one of the key performance indicators that help a business understand its own retention rates. A high churn rate may indicate poor customer targeting, a disappointing customer interface, bad customer service, or ineffective marketing.
“If customers are ‘the lifeblood of the business,’ churn is how much blood you’re losing,” says Scott Robertson, founder at Robertson Communications. “Just like in human bodies, you can only lose so much before the patient dies.”
