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Churn Rate

Churn rate , or churn rate is the indicator that measures the turnover of customers in the company. In other words, it is the metric that tracks how many customers have stopped doing business with your company in a given period of time, for example, in the month, semester or year.

Your business must always seek to reduce the churn rate , reducing the number of customers who leave your company and increasing the number of loyal customers to the business.

It seems logical, but many companies are so focused on attracting new customers that they forget to keep them.

Look at your business and answer honestly: what are the effective actions you take to retain customers?

It is very common that companies do not have an effective process for customer loyalty , however, this mistake can be costly. Literally. 

Companies that reduce customer churn rates and improve their customer retention rates by 5% have increases of up to 30% in business profitability.

In addition, it is 5 to 25 times more expensive to acquire a new customer than to keep a current customer.

This is true for all businesses, from virtual stores to B2B businesses, SaaS companies and other industries.

However, recurring purchase businesses such as subscription clubs, B2B service providers (such as advertising agencies, consultancies etc) and SaaS model systems should pay even more attention to churn rate control.

In addition to spending more to gain a customer, by not worrying about keeping him, your company loses sales escalation power. After all, it gains customers but loses customers.

From the implementation of a retention strategy, your company starts to accumulate customers, increasing the “pot volume”.

How to calculate the churn rate?

To calculate the churn rate you should divide the number of clients who stopped working with your company within a specific period by the number of clients you had at the beginning of the period.

Multiply the result by 100 to get the percentage.

If your company had 500 customers at the beginning of a period and 40 customers discontinued service during the period analyzed, the calculation would look like this:

40 / 500 x 100 = 8%

In other words, in this scenario, the churn rate for the period is 8%.

One way to calculate if your company is improving customer retention strategies is to compare the current churn rate with the churn rate from other periods.

Historical analysis can help you measure how far you are progressing in this area and how well your actions are working.

Perhaps you are wondering if there is an ideal churn rate. Well, this will depend a lot on your market niche and on the business’ sales model, however, Bessemer Venture Partners defends that churn rates of 5 to 7% per year are good results.

While no company wants to lose customers, not all are dedicated to keeping them loyal.

If you want to change this scenario, you’re going to have to work hard to make your client want to stay.

The customer relationship is like any other. It takes dedication to make it long, healthy and happy.

How to reduce the churn rate?

To reduce your company’s churn rate, your company must implement strategies that are customer-centric, including:

  1. Make a quality consultative sale,
  2. Offer quality experiences,
  3. Care about the customer’s success,
  4. Offer omnichannel service
  5. Seek constant feedback

Below, we’ll provide more details about each of these steps. Check out!

1. Make a quality consultative sale

A consultative sale must have the customer at the center of the process.

In it, your salesperson must identify if the solution you offer is really aligned with the customer’s needs and the moment his business is experiencing.

Decreasing the churn rate is work that begins even before the sale, already in prospecting for new customers and qualifying the lead.

It is the salesperson’s role to ask the right questions and diagnose what is the best solution for the customer.

A consultative sale prevents a customer who won’t adapt to the business model or won’t feel that the solution is really helping to enter and leave your company, increasing churn rates.

That old practise of pushing a customer who has no profile, no longer fits the current sales model.

The consultative sales model helps the company to convert engaged customers who understand its proposition and will really succeed with it.

Learn more about the consultative selling process in the podcast below.

2. Offer quality experiences

There is an avalanche of data that proves the power of the quality of the experiences lived by customers for their loyalty and, consequently, a reduction in the churn rate. Between them:

  • 73% of companies with “above average” maturity in Customer Experience have a financial performance 44% better than their competitors,
  • 70% of shopping experiences are based on how the customer feels they are being treated,
  • 96% of consumers believe that customer service is important when choosing to become loyal to a brand,
  • 59% of customers will never again do business with this company with which they have had a negative customer service experience.

Understanding more about customer experience paths is undoubtedly the first step to achieving better churn rates.

3. Worry about customer success

After completing a sale or closing a contract, what level of support do you offer the customer to use and succeed with your solution?

The customer’s success with your product or service is what will ensure that they will continue to relate to your company.

After all, he won’t be paying for something that doesn’t show results or that he doesn’t use effectively.

Many companies are investing in the creation of a customer success sector that works as strategic support to the customer.

In this way, they provide consultancy helping clients to make the most of what was hired.

The goal is to provide so much value that the customer no longer knows what to do without your solution.

Check out more about this topic in the video below.

4. Offer omnichannel service

Companies with stronger omnichannel strategies have an 89% retention rate compared to just 33% retention rates for companies with weaker omnichannel strategies.

As the survey above points out, the creation of service, support and sales channels in the different platforms where the customer interacts, and the integration of these channels, is a fundamental element in reducing the churn rate.

Invest in omnichannel strategies and improve the customer experience.

5. Seek constant feedback

Does your solution offer everything the customer needs?

Is something missing?

How is he feeling about the service you provide?

The fastest way to understand what the customer needs and what he or she misses is to ask!

Seeking constant feedback shows that your company is interested in improving customer outcomes. In addition, the feedbacks gained help make your churn rate reduction actions more effective.

Check out the infographic below for a list of customer retention tips.

This article was written by Zendesk. We offer an integrated customer service system, such as the Zendesk Support Suite, which allows for an omnichannel, fully guided approach to the consumer journey. Discover our solution to help your company retain and delight customers.