According to a study by Flowtown they found that maintaining existing customers costs six to seven times less than acquiring new customers. A further study by Bain and Company reported that by improving your customer churn rate/ customer retention rate by just five percent can lead to an increase in profits between 25 and 95 percent.
So what is customer churn rate?
Very simply your customer churn rate is the number of customers who cut ties with your company over a certain period of time.
The calculation of churn can be straightforward. Take the number of customers that you lost in a period of time and divide that by the number of customers that you started with in that period of time. The resulting percentage is your churn rate. For example, a company that started last quarter with 100 customers and lost 3 over the course of the quarter would have a churn rate of 3%. You can also calculate churn as a number of customers lost, the value of recurring business lost, or the percent of recurring value lost.
Regardless of how you choose to represent churn, tracking your customer churn rate is key. As mentioned above its almost always cheaper and easier to keep customers than it is to go through the process of acquiring new ones. Monitoring your churn rate is the first step in understanding how good you are at this and identifying the actions that you need to put in place to gain greater loyalty e.g. enhanced customer service, loyalty programmes, incentives or discounts or just amazing products.
So what’s the impact? Why bother?
To help make the point here’s an example to show the impact of improving your churn rate on a business over five years:
If you have monthly recurring revenue of £15000 and that every month you add another £2000 to that. However, you have a churn rate of 3%. If all of that persists for the next 5 years, you’ll end up generating almost £2.6 million. If you’re able to decrease your churn rate by 10%, to 2.7%, that gives you an extra £100,000 in revenue. If you’re able to reduce your churn by 30%, that’s even better. Your revenue goes up to £3 million!
Make sense? Don’t wait, crack on and start calculating those customer churn rates.
About the author
Richard is founder of e-nexus ltd – a new Marketing, Performance and Measurement agency based in Bournemouth. He is a career long marketer, holding numerous senior marketing positions throughout his 20 years in the profession. Describing himself as a marketing strategist, performance and measurement specialist, Richard spends time working with business owners, managers and marketers to help them improve their marketing decisions, investments and impact by combining the power of creativity, data and insights alongside his strategic experience.
Richard’s biggest passion is to help marketers show the value of their efforts and give them the confidence and skills to be able to share the story with their senior managers. Richard helps organisations understand the importance of measurement and metrics as well as appreciate the breadth of data available to them in todays marketing world. He also helps marketers bring together and interpret data coming from many different environments to make it meaningful and digestible at all levels of an organisation.
Richard holds a Bachelors degree from Bournemouth University and the CIM Diploma in Marketing. Richard has been a Chartered Marketer for over a decade and was also the Dorset Chair of the Chartered Institute of Marketing in 2010 – 11.
You can read more from Richard at his measure4success blog at http://www.measure4success.wordpress.com
Based on an article published on http://www.churn-rate.com
