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