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What Is Churn Rate, How To Calculate It & Reduce It

March 20, 2023

What Is Churn Rate and How To Calculate It & Reduce It 📊

At TalentPop, our team often says, “it costs more money to acquire new customers than it does to retain existing ones.” And it’s completely true. After all, we’re in the business of customer service, which is the foundation for retaining loyal customers and growing a successful brand.

When you emphasize improving your internal processes to strengthen and elevate your customer experience, new clients will naturally be drawn to your brand through referrals and stay because of the value you provide after their initial purchase.

We’re here to assure you that when you have the proper tools in place 
to provide an exceptional customer experience, your brand will see less churn and a higher ROI on your customer retention efforts.

What Is Churn & How Do You Calculate Your Churn Rate?

Customer churn rate is the percentage of customers who stop doing business with a brand over a specified period of time.

It’s a critical metric to monitor for subscription-based business in particular, and especially when compared to customer retention rates, as it can provide insight into where your brand is operating successfully and where it could stand to be improved.

Additionally, it will help you identify why customers are leaving so you can create better strategies for retaining loyal customers.
To calculate your churn rate, you can use the following formula:

Remember that to calculate churn rate, you’ll need first to determine the time period you wish to measure. This can be monthly, quarterly, or annually, depending on your needs.

A high churn rate (typically anything 10% or higher) indicates your business is losing customers – perhaps even more than you might be bringing in – and should be a sign that it’s time to rethink your customer retention strategies.

What Causes A High Churn Rate?

If your high churn rate is giving you pause, it may be because you’re not yet sure why customers are leaving in the first place.

Wrong audience — If your marketing efforts aren’t targeting the right audience, customers might leave because they’re not the right fit for your brand.

Price — Pricing is a huge factor in retaining customers and can cause customers to leave if they feel they can find a similar product for less from a competitor.

Your brand isn’t delivering — Customers buy because they expect some sort of value from your products or services. If this expectation isn’t met and the value they’re receiving isn’t aligning with what they envisioned, the frustration or disappointment may drive them away.

Product or service issues — There’s nothing quite as frustrating as buying a product only to find it defective, broken, or nothing like what we thought it would be upon delivery. If this is how your customers feel when they receive your product or service, they’ll instantly lose trust and faith in your brand.

Let’s get into a few reasons why customers decide to stop purchasing from or doing business with a brand after a period of time:

1. Keep An Open Line Of Communication With Your Customers 🗣

Connecting with your customers through open communication is key to earning their trust and establishing yourself as a valuable resource to them. To keep the lines of communication open, we suggest:

  • Creating helpful content to send customers periodically via email or SMS text
  • Engaging with your customers on social media platforms
  • Being transparent about potential issues or updates regarding your products or services
  • Asking customers for their feedback through surveys, questionnaires, or review opportunities placed at key points in their customer journey and having responses prepared to send them in return

2. Ensure That You Are Targeting The Correct Audiences 💁

If a customer isn’t the right fit for what your business has to offer, sooner or later they will leave your company and possibly even begin working with a competitor.

To prevent this from happening, ensure your marketing and customer service departments are aligning to target the right audience for your brand.

Without working together and sharing data to further refine your customer personas, the likelihood of your marketing efforts targeting the wrong customers will increase significantly.

3. Use Your Brand Voice To Convey Your Value + Expertise 📢

In any industry, there’s bound to be a level of saturation. After all, you’re likely not the first brand to create the products or services you offer, and standing out amongst a sea of competitors can be difficult.

Therefore, it’s important to develop and maintain a distinct brand voice that communicates your value to customers. Remember, though price certainly contributes to a purchasing decision, it’s not the only factor that sways a customer one way or another.

Becoming a brand that customers know, like, and trust through your messaging is the key to establishing yourself as the expert and defining what makes your brand unique compared to competitors.

4. Provide Customer Incentives To Reward Loyalty 🏆

Customers absolutely love incentives. Think about the number of people each day who take advantage of Starbucks’ Double Star Days to work towards a free specialty coffee or treat in the future (free brown sugar shaken espresso?? Heck YES).

Loyalty programs and incentives go a long way in increasing your CLTV by making your customers feel connected to and valued by your brand.

5. Invest In Customer Service 💰

If your team struggles to keep up with ticket volume spikes while still delivering a high-quality experience during each customer interaction, it may be time to grow your team and invest in customer service.

Onboarding qualified new team members who are trained in all the best practices for customer service, as well as the top E-Commerce tools and helpdesk software, will expand your team’s bandwidth and lead to an increase in revenue over time.

6. Offer Flexibility With Subscriptions 💪

Subscription-based brands are typically more susceptible to high churn rates, but it’s not always due to a dislike or dissatisfaction with a product or service. More often, customers will cancel their subscriptions because they don’t need their items as frequently anymore, they don’t want to pay for premium features, or they would simply rather make one-time purchases only.

Therefore, allowing your customers the flexibility to pause, downgrade, or adjust the interval of their subscription can help retain them and reduce churn. An example of this may be a customer who loves their foundation but doesn’t need a new bottle every single month.

If they can receive their makeup every 2 or 3 months instead, they may be less likely to cancel, knowing that they will still receive their products on a timeline that works better for their needs.

Reduce Churn By Improving Your Brand’s Customer Service Experience With TalentPop

A low churn rate is natural in a business, but when it begins to increase and affect your bottom line, it’s time to sit down and understand what is causing it to rise.

Though churn can happen due to various factors, we already know all too well that a poor customer service experience will drive away existing customers and deter new customers from working with a brand.

To keep customer satisfaction high without expelling all of your energy worrying about it, outsource customer service to TalentPop. Our experience working with 500+ top E-Commerce brands makes us the best possible partner to help your business improve customer service, increase revenue, and take more tasks off your plate. If you’re ready to learn more about how TalentPop’s dedicated customer service agents can help your brand reduce churn and retain more loyal customers, schedule a call with our team today.

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