Customer attrition, also known as customer churn, customer turnover, or customer defection, is the loss of clients or customers.
The primary goal of churn analysis is to identify those customers that are most likely to discontinue using your service or product. In this dynamic financial industry, companies are progressively providing products and services with similar features. Amidst this ever growing competition, the cost of acquiring a new customer typically exceeds the cost of retaining a current customer. Existing customers are a valuable asset. Furthermore, given the nature of the financial services industry, where customers generally tend to stay with a company for a longer term, churning could lead to substantial revenue loss.
is the amount of customers or subscribers who cut ties with your service or company during a given time period. These customers have “churned.”
Churn rate can be represented in a number of ways, including:
It is possible to have a negative churn rate. This happens when your existing customer base spends more in a given month than they did in the previous month. Businesses who “upsell” their customers to more expensive plans without losing existing business experience negative churn.
Keeping track of your churn rate is tantamount to success. Normally, it’s cheaper and easier to retain customers than it is to go through the process of acquiring new ones. Monitoring churn allows you to consider what you’re doing to keep customers, and see what actions might result in a higher retention rate.
Calculating Churn Rate
Let’s say you are a company that publishes a magazine. You have 100 subscribers. In the month of May, you have seven new customers sign up for subscription service and have 3 end their subscriptions.
Different practitioners may choose to calculate the “churn rate” for this month in different ways. The most traditional formula would be the number of customers lost divided by the number of customers at the start of the month.
Some businesses choose to base their churn rate off of the number of subscribers at the end of the period instead of the beginning of the period.
Churn Rate for eCommerce Businesses
Sometimes, an eCommerce business may wish to calculate its churn rate. However, most eCommerce businesses do not have a recurring revenue model or explicitly defined “subscribers” or “subscriptions.”
To resolve this, eCommerce companies must decide what characteristics constitute a “churn” event. For example, if a company knows that most of their customers who will make a repeat purchase do so within 90 days, they may choose to mark any customer who has not made a purchase in 90 days as “churned.”
Currently, in my job I am trying to conduct this churn analysis. As a business development and sales engineer, I have to know about my market. I have to identify customers that using my product and services. I do have same opinion like the article above that maintain customer in my case = accounts is much much more easier thank create / acquire another account. B2B is very different with B2C, but this churn analysis is very useful for both of them.
When the churn rate is increasing, I discover that something wrong happened with my company, product or services. We may have loss some business value. We should aware that the "relationship" with the customer is in danger. The other customers that used the same product or service may have been impacted as well. We should find the fix the root cause as soon as possible. I hope this article could be useful for you guys. Thank you.