December 28, 2022 5 min read

Churn rate is one of the issues that many businesses often face when doing business online. The higher the churn rate, the more customers will leave the brand. Any business wants to maintain a low churn rate, but how? This article will help you understand the importance of churn rate, how to calculate churn rate and the signs that it is increasing, and solutions to reduce churn rate.

ECommerce Churn rate - What it means and how to calculate it

Churn Rate Definition

Churn rate is simply understood as the percentage showing the level of user abandonment for your product/service in a specific period. Depending on the nature of your business, the churn rate can be calculated according to the percentage of customers unsubscribing, closing accounts, or customers not buying more of your product after the first purchase, etc.

Two types of customer churn can have a direct impact on an eCommerce business's bottom line: voluntary exits and involuntary departures.

When a customer decides to cease purchasing from you, this is known as voluntary abandonment. This could be because of unhappiness with the service. When something, such as a payment problem, causes a customer's transaction to fail, this is referred to as an unintentional interruption. Your abandonment rate is calculated by combining voluntary and involuntary abandonment rates.

How to calculate the Churn Rate?

There are multiple ways to calculate churn rate based on the type of business. Here are some examples to calculate this rate

How to calculate the Churn Rate?

Revenue churn rate

Revenue Churn Rate is the percentage of revenue that you have lost from existing customers over a certain period.

While the overall Revenue Churn Rate provides an overall view of a customer's health, it must be tracked on an individual basis. A primary goal with your customer group is to proactively ensure that customers don't have problems using your product or service, not to mention the moment they sign up.

Here is the way you calculate, this formula shows how much revenue you have lost since the beginning of the period

Net Revenue Churn Rate (per month) = [Churned MRR (Monthly Recurring Revenue) - Expansion MRR]: Beginning MRR

Gross Revenue Churn = Churned MRR ÷ MRR at Beginning of the Period

Customer Churn rate

Customer Churn Rate looks at user behavior and answers the question “How many users is your business losing (after a certain amount of time)?”. This index is especially important for B2C products, which directly reflect the quality of the product in the eyes of the user.

There are many formulas for calculating Customer Churn Rate, from simple to complex, depending on how closely you want to look at this metric. Here are 2 ways to calculate customer churn rate by Shopify

The first one:

The simplest formula to calculate the Customer Turn Rate in a month is to divide the number of users leaving that month by the number of users at the beginning of the month.

Customer Churn Rate (per month) = Number of customers churned at that month: Total users at beginning of the month

The second one:

Customer Churn Rate (per month) =  Number of customers churned in that month :

 (Total users at the beginning of that month + Total users at the end of that month)/2

What is a Good Churn Rate?

To maintain a low churn rate, businesses need to know what is within the acceptable range. According to Baremetrics, a good monthly churn rate is 3-5% for a SaaS company. But this percentage needs to be lower for some niche occupations.

The consumer goods industry will need to maintain an average annual churn rate of around 9.6%. The Internet of things industry is 5.88%.

Why Churn rate is an important metric?

  • The churn rate gives broad information about the company's commercial situation as well as any unusual changes that are occurring.
  • The churn rate allows the organization to have a better understanding of customer behavior, allowing it to analyze the customer's attitude and the reasons they cancel and cease using the service.
  • The churn rate also assists the organization in determining which customers to focus on and how to compute customer lifetime - value (CLV).
  • The churn rate provides the company with an overview of its consumers; retention is defined as customers continuing to use the product after each month.
  • The churn rate also assists the company in determining whether or not the advertising campaigns are truly effective, and the number of new - churns alters the process unusually.
  • Predicting the business situation shortly is also one of the effects of the Churn rate

How to reduce the Churn rate?

How to reduce the Churn rate?

Reducing the Churn Rate requires a process that businesses must study specifically and have a long-term orientation. Before learning the steps to reduce the Churn rate, businesses must identify customers who are using the service, have quit using the service, and the reasons for this change. For e-commerce businesses, methods to overcome the Churn rate include:

Automated Marketing

Keeping track of and supporting your customers is the first step that can affect your churn rate. Once a customer has used the product or interacted with the brand, it means that the brand has something to attract them and you should continue to build this competitive advantage.

Marketing automation is one of the best tools for you to introduce the right products to your customers, stimulate customer interaction with your brand, and arouse the desire to keep customers coming back to your brand. your brand.

Some examples of marketing automation are automated email systems, and SMS. You should also implement trigger-based email tactics to send emails based on customer actions, such as cart abandonment or wishlist creation. You can use Mailchimp, Klaviyo, Avada,... to activate these automation flows.

Establish customer loyalty for your brand

Customers who are used to using the services and products of a brand will rarely leave these brands. To reduce churn rate, businesses must maintain customer loyalty.

By establishing strong links with customers through marketing campaigns, discounts, and offers,... business owners can prevent them from stopping using their products.

Fast and effective customer support 

Today, customers can easily abandon a brand if they accidentally encounter an unpleasant experience. To avoid this situation, the best way is to provide a customer support program quickly and effectively.

In addition to live chat tools, offer an additional option of support via phone, email, or provide a quick-response support chatbot.

Provide high-quality products and services

Last but not least, to keep customers coming back to you, your business must provide high-quality products and services. This is the core of any business that wants to build a brand or maintain its reputation. 

If you are an online business focusing on personalized products, especially in print-on-demand,Printway is undoubtedly a seller-friendly place with low selling fees and supportive hubs. Contact Printway to find out more about our product and services.

You might want to read:

- Top eCommerce Search Engine Best engine you should know

- 15+ Customer service email templates for eCommerce sellers

- Effective Marketing Elements of eCommerce SEO for 2023

Hạnh Hoàng
Hạnh Hoàng

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