What is Customer Churn and How to Identify Its Source

If you’re a business that is starting out, scaling, growing, or even simply maintaining customer churn is something you need to look at and evaluating at every step. It’s something that is, in fact, so important to manage and look at that realistically you should keep an updated churn number in your monthly metrics.

Understanding Customer Churn

To put it simply, churn is when anything comes into the system and then leaves. Employee, customer, resources, anything can have a churn. Do you care about customer churn in the sales process or the retention process? Both are important. To understand churn you have to look at it as a percent of customer who leave your business. But before you can calculate it, you need to do one thing first.

Establish a meaningful time frame

What is a time frame that makes sense? This depends on your type of business. Subscription or recurring services can measure in terms of one month, three months, six months or a year. Retail businesses or restaurants can look at it in terms or weeks or days.

Get a Tally of Total Customers

This is the easy one. During your established time frame how many total customers did you have? It’s that simple. How many paying customers did you have? If you’re looking at sales or retail – how many potential customers contacted you or came through your doors?

Tally the Churn

How many customers left? Either stopped service or didn’t buy (for sales and retail). Simply put, how many people quit engagement with your business.

Customer Churn Rate Formula

(Churn / Total Customers) * 100.

This percentage is your churn rate.

No business likes customer churn. No business finds churn to be valuable. But to reduce your customer churn, you need to first understand your customer churn.

Identify the Source of the Customer Churn

1.) Dig into Data

It sounds daunting and complicated, but it doesn’t have to be. When faced with a arduous and daunting task, simply break it into manageable chunks. Look at the process a customer (or potential customer) goes through and divide it into common sense blocks.

For example, if you run a services that has recurring payment you could divide it into:

1. Onboarding (Month 0)
2. Month 1
3. Month 2
4. Etc

Look at the customers in/customers out numbers. Calculate the individual churn rate for each specific step. For other business it could be a lot trickier to identify. Businesses that rely on repeat business, businesses that aren’t as “direct path”, these are all more difficult, but the same principles apply.

For retail, isolate your stores into sections monitor customers into each section and customers out from each section. Which section isn’t getting sales? You could go more granular if you wish, or even less. It’s up to you, but the more specific you get – the better data you’ll have. The better data you have, the better you can identify the source of the churn.

2.) Customer Surveys

Ask and ye shall receive. Sometimes it’s as simple as asking why a customer is leaving. Or why a customer is staying. Using customer surveys and customer outreach, can let you know why customers stay, why they leave, why they consider leaving and what tips the scales in your favor and out of your favor.

Yes, some customers will lie, some will be wrong, some will misread situations and leave and sometimes things will happen that fall so outside of your control that you can’t help it. We’ve all had it happen at one time or another. A phone rings while a customer is in your store and it’s their kid’s principle saying they need an immediate meeting because their child was caught dressed up as a racoon with a garbage bag while running around demanding everyone’s sweet delicious trash. We won’t judge, we’ve all been there.

But knowing what you can and can’t control is the first step to controlling what you can control.

Survey customers when they come in, while they’re there and when they leave. Isolate with the goal to understand. Then it’s important to learn and take the lessons to heart.

3.) Monitor Your Reviews

Online reviews can be a double-edged sword. They’re insanely valuable to consumers. Especially when 84% trust online reviews as much as they review from a friend. (Inc.) Making sure you’re monitoring and responding to your online reviews will have an impact on churn.

How? If you have nothing but poor or tepid reviews, or even very few reviews, what kind of business will you attract? What if you have a wealth of glowing reviews (and a few negatives)?

Your reviews will be an indicator of how your business is performing. They will call out great services, great products, and great experiences, or they will let you know where you need to be doing work. They will let you engage one-to-one with customers to either add to a great experience or correct a bad one.

But more than just reading and responding to reviews, you need to take them to heart. The negative reviews can be some of the most valuable ones that you have if you know how to use them. Responding to them the right way is important, yes. But learning from them, finding the real problems in them and then correcting them internally become even more important.