What is CHURN and how to improve it?

This metric is one of the most important KPI's to measure in your business. Online companies invest millions every year to improve their CHURN rate.

We’ve all lost clients once. You may even consider it normal to have some clients who are less loyal than others and that it’s just part of the game. What you can’t stop doing is quantifying the losses and understanding the true impact they have on your business. That’s why it’s important to measure your churn: the number of clients lost in a determined period. 

Thoroughly evaluating how many clients you lost in a determined period is important to then figure out the reasons why they stopped buying from you. The churn rate allows you to know the number of losses and it should be your starting point to know the reasons in each case. Some might have taken the decision based on a temporary personal situation (lack of money) and others for reasons related to your business (dissatisfaction with the quality of the product or service, bad customer service among others).

Establishing contact with them is the first step toward regaining their trust and avoiding new losses. It is important to know better your current clients (to increase their satisfaction and keep them) and your previous clients (to ask them the reasons why they unsubscribed and look for new ways to be chosen once again).

How to calculate your churn rate
Knowing your churn rate is essential for any business. It’s just a simple calculation that will allow you to measure the percentage of lost clients

One of the perks of the churn rate is that it can be applied in various examples. For instance, knowing the number of people who unsubscribed to a newsletter. Service companies such as telecommunications which aim at calculating the number of clients who decided to unsubscribe. It might also be used by a bank that wishes to know why certain accounts were closed. Also, companies that manufacture and/or sell products which had a revenue decrease as the number of consumers reduced. 

In any case, you must go over the following steps to know your churn rate:
  • Define a period of time to be analyzed (a month, a year, whatever you want)
  • Know the number of clients you counted at the beginning of the period
  • Calculate the number of clients lost at the end of the determined period
  • Divide the number of clients lost by the ones you had at the beginning
  • Multiply the result by 100
To make it simpler, we’re going to illustrate it with an example. Let’s suppose you have an online shop of organic fruits and vegetables. People order and pay directly online and then your company delivers them. At the beginning of the month, you had 200 clients, but by the end the number decreased to 195. So, you lost 5 clients, and your churn rate is 2.5. Let’s see the math:
5 (number of lost clients) + 200 (number you had at the beginning) = 0.025 x 100 = 2.5 %

Now, you might think that 5 is not that much. After all, you still have 195. Plus, you are confident and believe you will have new clients soon. Some arrive, others leave, so maybe you shouldn’t worry about little things. 

Not so fast. A churn rate of 2.5% isn’t precisely a low number. It’s true, it’s 5 clients and not 50, but... why did they leave? Did they change their mind because your fruits and vegetables didn’t live up to their expectations? Was your delivery service late? Are those loyal clients that vanished overnight? Are they an exception or the tip of the iceberg?

Focus on retaining clients and improving customer loyalty
A fundamental matter behind the calculation of the churn rate is the importance of retaining clients and improving their loyalty. It isn’t just a matter of doing the math. It’s a key performance indicator since it allows you to get access to important data for your business and put any changes into practice if necessary.  

It’s far easier (and cheaper) to keep a client than to get a new one. Besides, it’s much better for the business. According to what César Sánchez, digital consultant and strategist, explained in a recently published article in Portafolio.co, “historically, improving the client retention by 5% increases the profit between 25% and 95%”. 

How worthwhile is it to get a new client? Bear in mind, that we are not only referring to the monetary value in this question. In our everyday context, the competition is growing in several markets and it’s difficult to catch people’s attention. Keeping a client, conversely, implies less effort. Therefore, you should be careful at the time of relating with them to avoid losing them. 

Four pieces of advice to improve the churn rate
Reducing the number of lost clients should be the priority for any business. Knowing your churn rate will help you determine whether it’s necessary to make any changes in your customer’s attention service and improve the purchase and post-purchase experience paying special attention to details, even with those clients that have unsubscribed. Plus, to improve your churn rate, it’s useful to create online surveys and share them among your current and lost clients. 
Let’s see these matters in detail:

1. An excellent customer attention service
Devote time and effort to meeting the client's needs in due time and manner. An inconvenience that is not well solved might lead to a lost client. And, we’ve already said, recovering them is hard. Thus, you should make sure to provide excellent attention service and live up to the client's needs. 

Let’s go back to the fruits and vegetables online business. The moment when a client makes a purchase is just another step in a much more complex process. The delivery in due time and manner is essential to provide a consistent experience. 

Besides, the quality of the answer is as important as the purchase itself. If by mistake a client gets spoiled fruit, you must prepare a new delivery as soon as you receive the complaint in customer’s service. That’s why it is important to count on open channels to quickly solve any inconvenience as the client wishes to.

2. Attention to detail and anticipation of problems
Try going beyond a sale. Help and guide your customers to have a good experience. Maybe, this leads to fewer sales, but you assure their fidelity from then onwards. 

If you have loyal clients, who shop regularly, try to pay close attention to them. Occasionally offer them discounts or send them gifts with their order as proof that you value them and you are grateful for their loyalty. If they always order the same, for example, buying apples every week, perhaps you could send them two kilos for the price of one. 

Anticipating problems: it’s another way to avoid losing clients and, therefore, improving your churn rate. For instance, a business may suffer from a shortage of products. However, you can’t fail in managing this inconvenience. 

If there were problems with the harvest and you already know that during a certain period you won’t have good oranges for juice, it’s better to communicate it beforehand and avoid your clients from getting frustrated when searching for them. Make sure the message gets especially to regular orange buyers, as they are the ones who will be interested. Not buying what they were looking for won’t make them happy, but they will value the gesture of you communicating to them and being honest. 

Clients will be upset if there’s any inconvenience with your product or service. Here’s the good news: a conflict is also a chance to show how committed you are to them. The way in which you can solve problems will be, in fact, what matters the most, and anticipating or foreseeing them is the best solution. Of course, it’s also important to avoid the same problem from happening again, which will make your client almost desert, lowering your churn rate.  

3. Foster loyalty with your clients even though they cancel their subscription
Losing a client is no reason to get upset. We not only recommend opening channels to get in contact and knowing the reasons for their desertion, but you can also make the most of the situation to show that your good intentions go beyond the fact whether they are clients or not. 

For instance, Spotify, the digital music streaming platform leader, has a very particular and innovative technique focused on customers who have recently unsubscribed. Some users who decide to stop paying their subscription- due to the lack of use or whatever reason- are given a farewell message and Spotify invites them to listen to “Goodbye for Now”, a special playlist for people who stop using it. 

So, as you’ll see, you should make the most of any situation to be friendly and helpful. Don’t let any occasion pass by to strengthen your clients' bonds, even those who decided not to pay for your services any longer. 

4. Know and understand your clients
Even though offering a customized experience is important, getting to know all your clients tends to be hard. However, there are valuable resources that are easy to put into practice, such as online surveys, which lead to precise feedback from your clients and, thus, be more prepared to live up to the expectations. 

We recommend sending questionnaires on a daily basis so that clients can tell their experience with your shop or service, what they liked the most and the least, what features they value the most, what suggestions they have, what they would change, and any other relevant topic for your business. If you want to know the level of satisfaction and loyalty of your clients, you could also use NPS questions to know if your clients are promoters, neutrals, or detractors of your brand.

Analyzing the results of your online surveys will give you a precise outlook of your clients' image of your business, and it will help you be on alert in the case of desertion. Send them a questionnaire to discover the reasons for their decision. To begin with, you could include a question such as: “Why have you decided to unsubscribe from our service?” with multiple choice answers:
  1. The price is too high
  2. The products are not delivered on time
  3. Bad customer service
  4. The products/services are bad quality
  5. To switch to the competition
  6. Other
Try to include as many options as possible so that clients can find the most suitable answer for them. We recommend giving the chance of marking more than one option. For example, someone might have stopped being your client because the products didn’t arrive on time (answer B), and the quality is not the expected (answer E). Finally, we suggest including the option “Other” to give them the opportunity of describing their particular case. This is useful when none of the previous answers reflects their specific situation. 

Then, according to the answers received, you can ask more detailed questions. Online survey platforms tend to include features such as the Logic Jump, which allows you to design customized paths depending on each question. For instance, if somebody stated they unsubscribed because the price was too high, you can include on the end page of the survey a tempting discount which will make them reconsider their decision. 

In the case of the fruits and vegetables online business, it might be a phrase as: “Thank you for answering! We would like you to trust us again! Get access to a 50% discount on your next 5 purchases using your account and the code DISCOUNT50”.

Don’t forget to include open-ended questions in which the respondents can express themselves freely. If they have unsubscribed, something might bother them. Give them the chance of elaborating on and describing the reasons for their anger. In these cases, the online survey will provide key information for you to evaluate if there’s any way of mending the mistake and eventually getting the client back.

We hope these tips help you improve your churn rate. We invite you to download this free HubSpot calculator if you need further resources. It’s very easy to use and will help you identify metrics and key indicators of customer service performance. 

If you’ve never heard of the churn rate, it’s time you started using it! Compare your results from month to month or term to term to make decisions based on data and not just intuition. The reduction of lost clients will show your business is on the right track.  

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