Customers can come and go, but if too many go, business continuity can be threatened. That’s why paying attention to the churn rate is very important.
Churn rate is one indicator of whether a business is doing well. The concept of churn rate is simple and how to calculate it is easy.
Well, in this article, we will invite you to understand the churn rate formula, the causes of the churn rate, and how to overcome it!
Come on, see the full discussion…
What is Churn Rate?
Churn rate is the percentage of the number of consumers who unsubscribe or no longer buy the product.
Calculating the churn rate is very important because it can be a measure of whether a business is able to retain customers well. Especially, for the type of business that sells products with a subscription system.
With this business model, business revenue comes from every consumer who makes repeat purchases. If consumers stop buying, that’s where churn occurs that harms the business.
Churn rate should be calculated periodically, for example, every week, month, or year. The goal, to evaluate the state of the business more precisely.
Well, if the percentage of churn rate increases, it means that there needs to be an optimal business strategy so that the condition of losing consumers does not continue. Moreover, losing customers is very expensive, you know!
If you lose customers, you certainly need efforts to get new customers again. In fact, to do so costs 5 to 25 times more than retaining existing customers.
Is it proven that paying attention to the churn rate is important? But, what causes the churn rate, huh?
Causes of Churn Rate
Churn rate certainly does not just happen and is caused by several factors as follows:
1. Price Doesn’t Match
Price is one of the things that determine consumer decisions when buying products. If the price offered is not commensurate with the benefits obtained, customers may not want to buy again.
2. Product Quality Does Not Improve
Initially, consumers will buy your product because the quality is good. However, if that quality cannot be maintained, of course, they will not use it again.
Say. a consumer buys your application product, and is quite satisfied. Then, an update appeared which actually made the application unable to be used properly. Then, consumers will have a reason not to subscribe to your product again.
3. UX is not user-friendly
An online store website can be a business activity that helps consumers make purchase transactions easily. Unfortunately, many websites have a display that does not pay attention to ease of use (user experience).
Who is comfortable visiting websites or applications that are less user-friendly? In fact, 88% of consumers will not return to the site after experiencing a bad user experience.
UX problems such as complicated navigation, unattractive displays, and long site loading can be the cause of the churn rate.
4. Bad Customer Experience
If your churn rate is high, take another look at the customer experience in your business. It could be that a bad customer experience is the cause of the churn.
Customer experience is the customer experience when interacting with your business, regardless of the platform used, whenever the interaction occurs.
Customer experience is important. The proof, 73% of consumers will buy a product if they get a good experience from a business.
For example, consumers want to ask about the constraints of a product. However, did not immediately get an answer. Moreover, the service channel provided is limited to email. This can cause churn rates.
5. Competitors’ Products and Services are Superior
Before buying a product, consumers will compare the same product on several different brands.
Things that are compared are usually price, product quality, service quality, benefits, post-purchase service, to the existence of the brand itself.
If competitors have better product quality but offer the same or even lower prices, consumers will not hesitate to switch to competitors.
Churn Rate Formula and How to Calculate It
To calculate the churn rate, you can use the following formula:
First of all, you need to specify the period to be calculated in advance. Then, just divide the number of lost customers by the number of customers at the beginning of the period.
Say, at the beginning of the month you have 1000 subscribers. However, only 900 subscribers have re-subscribed until the end of the month. This means that there are 100 customers lost.
Churn Rate = (100 ÷ 1000) x 100 = 10%.
So, in that month you lose 10% of total customers.
Well, that’s roughly an example of how to calculate the churn rate. The higher the percentage, the more you will lose customers.
How to Reduce Churn Rate
Although the churn rate can be caused by many things, there are several ways to reduce the churn rate that you can do, namely:
1. Retain Loyal Customers
The first strategy to reduce the churn rate is to retain existing customers or customer retention.
The analogy is like you fill with water in a leaky container. If the leak is not immediately closed, over time all the water in the container may shrink and run out!
For that, you need to do some strategies so that loyal customers don’t run away too. For example, customer loyalty programs, providing purchase appreciation, providing after-sales services, and others.
Customer retention efforts need to be done because it has a huge impact on the business. Even research from Harvard Business School says that if customer retention increases by just 5%, it can increase profits by more than 25%!
So, in addition to you need to find new customers, you must retain old customers, as well as reduce the churn rate or lost customers.
2. Sell Products to the Right Target Consumers
It’s okay to make up for lost customers with new ones. However, your marketing efforts need to focus on the buyer persona or typical target customer.
If the product is sold to the right person, the churn rate can be reduced. That’s because consumer needs match your product.
No matter how hard your marketing efforts are, it will be in vain if it is not on target. For that, there is no need to waste energy, time, and money on promotions to people who are not potential.
3. Personalized Marketing
Already know your buyer persona? Now is the time for personal promotion to these potential customers. For example, by providing offers that suit consumer needs.
Say you have two different products. When consumers buy one product, you can offer other products with better quality that is actually more needed by these consumers.
So, when buying the products you offer, consumers can get better value or benefits.
It shows that your business understands the individual needs of the customer. As Salesforce research shows, 66% of consumers expect a business to understand what they need.
In addition to the product, you can also mention the “name” of the customer when making an offer. Or even analyze consumer interest according to historical activity on your site.
For example, a consumer adds a product to a shopping cart, you can share content, ebook or similar product recommendations with consumers.
4. Measure Customer Satisfaction Periodically
To reduce the churn rate, you also need to know how satisfied your customers are with your business.
You can ask for feedback from consumers, distribute questionnaires, and conduct surveys. So, you can map the advantages that must be maintained and the weaknesses of the business that you must improve.
5. Improve Product and Service Quality
To avoid consumers “running away” from your business, improvement in terms of products and services is also mandatory.
For example, when competitors only sell products without after-sales service, you can provide these facilities to make them appear more value-added.
Likewise, if your competitor only has one product, you can offer a wider variety of products. That way, making it easier for consumers to choose products freely.
One of the ways to improve product quality is through product development. Before releasing a product or service, make sure that the product is an innovative solution that can answer consumer problems.
6. Pricing Strategy
The term “there is a price, there is a way” in business you need to consider carefully. If you have to increase the price, make sure it is balanced with the quality of the product and service.
Also, avoid putting prices far below the market, but by cutting the function and quality of the product. Consumers may not buy again because the product does not match their needs.
For that, you need to keep the selling price in line with the quality of the product or service, commensurate with the benefits, and also still affordable for consumers.
7. Provide Educational Content
Providing educational content can be an effective way to reduce the churn rate. This method is often referred to as onboarding or good product introduction.
Customer education includes information relevant to the products used by consumers. For example, how to use the product, how to take care of the product, how to solve problems using the product, and others.
Let’s say a Niagahoster customer already has a portfolio website but wants to make it more unique.
Well, to help consumers, Niagahoster provides a media blog that contains articles about what a portfolio is, how to create a portfolio website, to provide recommendations for portfolio website templates.
This step will provide a fairly positive customer experience for all Niagahoster consumers who need the same information. If that’s the case, the level of engagement with consumers will also increase.
Interestingly, there are many types of content that you can take advantage of. Starting from blog posts, ebooks, events, to microblogs on social media.
8. Build a Community Marketing Strategy
The last way to reduce the churn rate is to launch a community marketing strategy to build and maintain good relationships with consumers.
If you enter the consumer community and interact with them, the business will be more trusted and brand awareness will increase. In addition, because they become closer to consumers, long-term relationships can be built.
If that is the case, consumers will not easily turn to competitors and the churn rate will decrease.
Calculate Churn Rate, Don’t Let You Lose Customers!
Churn rate is a metric to measure how much you are losing customers.
You’ve learned the formula to calculate it, haven’t you? The higher the churn rate percentage, the more effort you will make to immediately retain customers.
So, always monitor your business churn rate and follow the guide on how to reduce churn rate as discussed above. Starting from maintaining loyal customers, focusing on buyer personas, to building community marketing strategies.
Churn rate is required to keep existing customers (existing customers). Meanwhile, to get new consumers, a digital marketing strategy is what you need.
Well, want to know what kind of digital marketing strategy you can run? Don’t worry, we have provided a complete guide in the ebook that you can download for free below!