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Customer Churn: Formula & Why It’s Important To Track

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Customer Churn: Formula & Why It’s Important To Track

Customer churn is an oft-discussed metric that’s extremely important when creating or optimizing a marketing strategy. However, some people don’t understand how churn is different from customer retention or how to calculate churn in a given time period.

Put simply, churn measures the amount of customers you are losing over a given time. Churn is a common phenomenon across all shopping verticals, as no company can retain every customer they acquire. 

Even some of the most profitable brands deal with churn. Netflix and HBO Max, for example, face serious difficulties when it comes to losing customers, so retention strategies and reducing churn are important for their business.

In this post, we’ll outline the key details you need to know about customer churn alongside strategies for decreasing your churn rates.

How Do You Calculate Customer Churn?

To calculate your customer churn, you’ll first have to decide which time period you want to consider in your measurement. 

Are you trying to compare customers year over year? Or quarter over quarter? Did you introduce a new product this quarter that may be slowing sales? 

Once you’ve determined your period of time, divide the total number of customers you’ve lost by the total customers at the start of that same time period. You’ll get a decimal point, which you can multiply by 100 for a percentage. 

That is your average churn rate for that given time period.

Why Does Your Churn Rate Matter? 

Churn rate is important because it gives you a sense of what offers, products, and messaging are resonating best with customers. Depending on the performance of your ads, you can make pivots in strategy to circumvent potential loss and even identify opportunities for growth.

Customer Churn Can Stunt Your Brand’s Growth

A brand is only as strong as its customer base, so if you’re losing more customers than you are acquiring, your business is essentially at a standstill. 

There tends to be a “shiny new object” effect when it comes to customer acquisition, but the reality is that existing customers are far more valuable.

Acquiring New Customers Costs More Than Retaining Existing Customers

It’s true: Customer retention is less expensive than customer acquisition. Existing customers are also more likely to spend more than new customers. 

By decreasing your churn rate and improving customer loyalty, you’re safeguarding the performance of your sales and, by extension, your business.

Unsatisfied Customers Impact Your Reputation

A high churn rate can also reflect poorly on your brand. You know the saying — “Nothing kills a bad product faster than good advertising.”

If your product’s quality, pricing, or customer experience leads to high levels of customer dissatisfaction, then you can expect shoppers to voice it in the form of testimonials and reviews, which will greatly impact retention rates. 

How Can You Prevent Customer Churn?

Customer churn is an expected part of any business, but that doesn’t mean you shouldn’t try to improve it. Customer retention can be essential to your brand’s long-term growth and success. One study found that a mere 5% increase in customer retention can increase profits by 25 to 95%.

Now, let’s talk about some strategies to improve your churn rates.

Use Your Customer Churn Data To Optimize Campaigns To Reduce Churn 

There are a number of advertising tactics you can implement to reduce churn. Email marketing and social media advertising can help bring your brand back to the forefront of a current customer’s mind when they’re at risk of churning and nurturing existing customers.

Nurturing tactics and incentives like competitive promotional offers can be effective at winning back your most valuable customers — and prevent them from jumping ship again.  

Get Feedback From All Customers, Including Those Who Are Churning

On the other hand, it’s important to listen to the shoppers who are leaving. Customer feedback is one of the most valuable pieces of data you can collect, even at the point when they no longer want to be a customer.

At scale, you can look for patterns to help you improve customer satisfaction. Maybe your website needs more robust conversion rate optimization or your customer service is unreliable. Net Promoter Score (NPS) surveys can also help you predict churn risk and catch dissatisfied customers in real-time.

If you can figure out why churn is happening with this type of customer churn analysis — outside of the expected losses, that is — then you can take steps toward addressing those problems and hopefully lose fewer hard-earned customers.

Optimize Your Strategy

MuteSix is the real-time performance marketing agency, using the most advanced data measurement solutions to accelerate growth for disruptor brands. We do this by leveraging real-time data to optimize creative and media buying strategies to solve for customer, market and brand needs. 

That means meeting customers at all points of the customer journey so as to ensure their needs are met and their dollars continue being spent. 

Important Consideration: Focus on the Most Valuable Customers

It can be a little overwhelming to leverage your customer churn rate to optimize strategy. 

After all, you won’t win back or retain every customer — you just need to focus on the most valuable customers. 

Look at buying history, customer engagement, competitors, and loss cycles in a given time frame, and identify the customers you most want to keep.

That will help streamline your paid media efforts and optimize them for a higher-intent target audience, allowing for more profitable and efficient scaling. 

Prevent Churn To Grow Your Business

Customer churn is a normal and expected part of any business, but with a well-oiled and data-backed omnichannel advertising strategy in place, you can decrease your rates and drive success. 

Interested in lowering those churn rates? Our team of experienced creative, paid media, and marketing science experts can create a strategy that meets your budget and goals to help your brand win. 


Not Even Netflix Can Avoid This Growing Problem for the Streaming Business | The Motley Fool

How to Calculate Churn Rate in 5 Easy Steps [Definition + Formula] | HubSpot

The Economics of E-Loyalty | Harvard Business School

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