What is churn rate?
Churn rate, or the rate of attrition, is the frequency with which people leave a group they are associated with. This is a critical metric for most companies and small business owners, and refers to the rate at which customers leave a business. Churn is commonly used within the context of subscription services and represents the amount of users who do not renew membership during a given time period. It can also be used to refer to the percentage of employees that leave a company.
Understanding churn rate
Churn rate can impact your business growth. Ideally businesses want to minimize churn in order to retain customers and maximize profits. As a result, companies will work on both customer retention and the acquisition of new users so that they can grow. Without these two factors, it will be difficult for a business to succeed.
Since churn rate and growth rate can go hand-in-hand, it is essential that businesses consider new customers as well as how many clients leave. This allows companies to assess total growth. If the growth rate is larger than the churn rate, then the business has expanded its customer base.
It’s important to note, however, that not all customer subscriptions are created equal. Often businesses offer multiple tiers of their product at various price points. Therefore, the loss of many top spending customers cannot compare to the gain of users who choose cheaper tiers of your product. Because of this, it is crucial to consider total revenues as well.
Calculating churn rate
Churn rate can be calculated by taking the total number of users who left a business over a given period of time and dividing that number by the total users for that same time frame. It might look something like this:
Users who churned in Q1
Total users in Q1
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Churn rate benchmarks
All businesses will experience some churn. There will always be customers or employees who are unsatisfied or leave for various reasons. However, it is important to remember that your business can still succeed with some churn and to understand what the appropriate rate might be.
It is difficult to truly assess what a good or bad churn rate is as it differs greatly depending on the industry. Some of the most important factors that influence churn include the price of your offerings as well as what type of competitors exist on the market. In general, churn rates can fluctuate from around 5-15%, but, of course, can stray from those two extremes as well. No matter your business's churn rate, be wary of one thing: that the churn rate remains lower than your growth rate.
How to minimize churn
Since churn indicates customers leaving your business, you want to try to minimize the number as much as possible. One of the most effective ways to reduce churn for your business is by offering a user-friendly product or service that is honest in its offerings. To ensure that your business is easy to use and understandable, we recommend creating a website to show your products or services with a website builder like Wix. Using Wix helps you pay attention to details and gives you a great platform to display your business. Something as simple as providing an intuitive website experience can totally change the manner in which customers consider your business.
Another method to minimize churn is to always be doing competitor market research. Get a deep understanding of what your competitors present to the market and at what price point they offer it. Aim to always have a leg up on your competitors by offering either a unique product or a better price. This will not only help minimize churn, but can also assist in gaining new customers as more are attracted to your product.