Key performance indicators (KPI) measure your company’s performance in several areas, including customer attrition and retention. The churn rate metric tracks how many customers terminate a software, app, or email subscription during a specified timeframe. It can also refer to revenue churn or employee turnover.
A low churn rate means more people are sticking around, whereas a high churn rate may suggest problems with your products or services. Therefore, regular customer attrition monitoring helps you catch minor issues before they snowball into a disaster. Here’s why and how your small business can use the churn rate.
Churn rate meaning and use cases
A churn rate, also known as customer attrition, can refer to customers unsubscribing from your email list, membership, or SaaS platform during a specific timeframe. Companies use the revenue churn metric to understand cash flow, whereas employee churn rate looks at worker turnover. You can track attrition company-wide or by department.
For instance, marketing teams monitor the churn rates for email subscriptions or Facebook groups. Human resource professionals track employee turnover in specific departments and the company as a whole, while business leaders analyze financial losses from subscription downgrades or churns. When combined with other KPIs, such as customer acquisition cost (CAC) and retention, you can develop insights into the health of your subscriber base.
Churn rate metrics monitor:
- Customers: Defining how many people end their relationship with your business, software, or marketing activities.
- Employees: Measuring the number of staff that leave your business, requiring a replacement.
- Revenue: Calculating the loss of income from canceled subscriptions and downgrades. It’s also known as the monthly recurring revenue (MRR) churn rate.
- Marketing: Revealing the percentage of people who unsubscribe or are removed from your email list or community group.
Use a consistent method for calculating your churn rate, as this helps you see trends over time and monitor how different actions affect your results.
The importance of understanding your churn rates
KPIs help you find problems, track goal progress, and enhance customer experiences. And attrition metrics highlight your successes and failures for subscription-based businesses and marketing activities. Since 53% of customer churn stems from poor onboarding, weak relationship building, or poor customer service, a higher attrition rate may suggest an issue in these areas.
Although churn rates are a snapshot in time, you can track them regularly to gain valuable insights into consumer behavior and your business health. For instance, if your churn rate was relatively stable and suddenly spiked upwards, it could signal a problem. Churn rate data and other KPIs can reveal where your product, service, or customer experience falls short. Then, you can perform an A/B test to see which actions reduce the churn rate.
Churn rates also reflect the amount of loyalty your brand receives. Loyal customers spend more money with your business and are more likely to recommend your products or services to a friend or family member. It’s also easier to upsell to a repeat customer. In short, improving your churn rate helps you accomplish high-level business goals.
[Read more: What Is ‘Customer Stickiness’ and How Can it Benefit Your Business?]
Ways to calculate your churn rate
Use a consistent method for calculating your churn rate, as this helps you see trends over time and monitor how different actions affect your results. With enough historical data, you can better predict future attrition and uncover the red flags that signal when someone is about to churn.
Measure your churn rate with:
- Customer churn rate formula: Divide the number of lost customers by the total clients at the start of the period and multiply the answer by 100 to get a percentage.
- Churn rate calculator: Use HubSpot’s Customer Service Metrics Calculator to measure your customer retention rate, revenue churn, and eight other KPIs.
- Revenue churn rate methods: Gross MRR looks at your lost revenue only, whereas net MMR refers to your revenue lost and gained.
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