What is Churn Rate?

The Churn Rate o “Client dropout” is a marketing term which refers to the number of users that cancel a service. When this happens, clients get to the end of their LTV or lifetime value.

The classic example is that of telecommunication users –mobile phone, cable TV or any other similar service. If 200 users have a given plan and 20 of them cancel it within the first year, then that plan has a 10% annual churn rate.

The churn rate may be related to other aspects of digital marketing too. For instance, if the list of subscribers to a business newsletter has got 1,000 contacts, and 50 of them unsubscribe within a month, the newsletter churn rate is 5%.

It can also be applied to the number of followers on a social network. If a brand has 30,000 followers on its Fanpage, and 2,000 of them click “unfollow”, then it will be experiencing a churn rate of 6.6%.

This article may be helpful: Learn the metrics that a freelance social media expert should analyze about your business.

How is churn rate calculated?

The easiest way to calculate the churn rate is dividing the number of subscribers, followers, clients, etc, into the number of users who unsubscribe within a given period of time.

It is very important to take into account how many subscribers there are at the beginning of a period, and the total number who have unsubscribed at the end of the period. For example, a cable TV company which at the very beginning of January accounts for 20,000 subscribers experiences 300 cancellations by the end of the month. However, the total number of clients by then might be 20,100 because there have been 400 new users.

It is a mistake to calculate the churn rate considering the users at the beginning and at the end of the month, because the rate of new clients will alter the result and in this case it would show a negative figure of -0.5%. if the calculation is properly done, the churn rate will be of 1.5%.

The churn rate is a metric usually compared to the acquisition rate. Following the same example mentioned earlier, the new client acquisition rate of the company was 2%, slightly above the churn rate. This will result in a 0.5% net increase of client database.

How to reduce the churn rate

  • Identifying the user reasons for cancellation: To this purpose, it is always useful to ask directly the client or subscriber.
  • Orienting the value proposal to the neutralization of dropout reasons: For instance, if one of the most common reasons for churn rate is the cost of service in comparison to competitors, the value proposal should highlight that even when the cost is higher, the benefits are much more significant.
  • Resorting to loyalty campaigns: Giving more benefits, promotions and customization options for clients to increase their LTV.
  • Segmenting in a proper way: In order to avoid a high churn rate in an e-mail marketing database, it is necessary to send content that is as customized as possible according to the type of client and the stage of purchase or loyalty they are going through.
  • Analyzing the impact of changes: Changes in prices, in service policies, or in the tone of content might increase the rate of client acquisition but also the churn rate, so it is necessary to analyze very carefully the overall balance in terms of the profits left by each strategic change.

To learn more about churn rate

A successful enterprise can be defined according to its ability to retain its clients. If you want to learn more about this topic, check the learning resources we’ve selected for you:

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