What's your customer churn rate? 

If this question catches you off guard or makes you shrug in confusion, you're ready for a crash course on a topic that can significantly impact your bottom line.

Customer Churn Defined

According to Hubspot, customer churn is defined as 'the percentage of customers that stopped using your company's product or service during a certain time frame.' As an equation, it looks like this:

Customers at End of Time Frame/Customers at Beginning of Time Frame

Consider this: Let's say you started the quarter with 500 customers and will now end it with 460 customers. Here's how to calculate your churn rate for that quarter:

460 ÷ 500 = .92 or
.08 fewer customers (1.00 - .92) due to churn

Churn Rate for Quarter: 8%

As you might guess, your churn rate can go up or down over time due to various factors, like seasonal runoff or special promotions.

Understanding Churn and its Impact 

Churn impacts every aspect of your business. Knowing your rate can help you plan accordingly and allocate money and resources where they're needed most.

Customer Retention 

Monitoring churn is critical because it sets a benchmark for customer retention. Knowing your customer churn rate tells you where to focus since it costs more to attract new customers than keep existing ones.

If it's high, focusing on existing customers can stanch the runoff. And if your customer churn rate is low, you can spend more to attract new customers.

Sales and Profits

Changing your customer churn rate can have an immediate and significant impact on your bottom line.

According to Hubspot, reducing your churn rate by 5% can create a minimum 25% increase in profit. This is because returning customers are likely to spend 67% more on your company's products and services.

Therefore, you can spend less on the operating costs of acquiring new customers. Plus, you don't need to spend time and money convincing an existing customer to select your company over competitors because they've already made that decision.

Employee Retention

Managing customer churn may also help you reduce turnover in your organization, especially if your business has a strong sales support and follow-up culture.

Existing customers, especially long-term ones, get easier to serve as their needs become familiar, and your staff is more adept at handling them and predicting new products and services to sell to them.

A customer base that's continually churning makes this function more complex, giving staffers more incentive to search for employment where churn is minimal.

Reducing Churn

You can begin to bring your customer churn rate down to an acceptable level by asking yourself the simple question, 'why are my customers leaving in the first place?'

While a small amount of churn is expected, reducing your rate to something close to one or two percent is ideal.

Ask your employees for their input to gain insights into pricing or service issues that you can quickly address. You might also rely on online reviews, surveys, or other anecdotal evidence that comes straight from your customers.

Pay special attention to your best customers, since they're the ones who spend more and recommend you to others. Ensure they're getting the service they expect and aren't overlooked when new offers or new employees are added.

Beyond a customer service focus, look at ways you can hardwire customers into long-term relationships through loyalty and rewards programs that provide an ongoing incentive to stay.

Sometimes, making it hard to leave is the best way to keep customers. Banks, for instance, compete like crazy with each other for customer checking accounts knowing that once they have this relationship, things like automatic payments and overdraft protection make it difficult to switch.

Do you offer a product or service that can be structured this way? Can you work with other businesses to add incentives to your own products that make doing business with you long term acceptable? In most cases, the answer is yes, if you're willing to get creative and take chances.

Churn and Social Media

Engaging your customers, especially the best ones, through social media can help you minimize churn by keeping an ongoing dialogue with you.

Few mediums allow you to stay in touch, like Facebook, Instagram, Tik Tok, and others.

If you're not tapping the medium to its potential, consider learning more or taking on someone who understands how to cultivate customers for life