What is Churn Rate?

A churn rate refers to the percentage of customers or subscribers who discontinue their service. Digital subscriptions are usually things like newsletters and email offers, while traditional churn rates often refer to phone and telecommunications consumers changing brands. In order for any company to expand its growth rate and market share, they must consistently exceed established churn rates. Companies compare their churn and growth rates to determine if there was comprehensive loss or growth. Churn rates are for lost customers, but the growth rates are for new customers who begin a contractual relationship with the company.

Churning Attrition

Churn rates are extremely important in industries that exhibit high levels of competition, aggressive advertising and customer stealing. The traditional telephone industry used to revolve around churn rates, but now telecommunication companies offer bundled services include Internet, cable, cell phone and home security services. In certain areas, there may be several companies that continually compete for the same customers. In order to make it easy for people to transfer from one provider to another, they offer discounts and specials.

Churn rates do not include customers who move their service to a different provider, but they only count customers who terminate their relationship with their current provider. This measurement method is highly valued in subscriber-based businesses, such as cell phone service, that depends on contractual subscription fees for revenue. If one out of every 10 subscribers to a telecommunications company discontinued their service within one year, the annual rate would be 10 percent.

Customer Service and Onboarding

The primary cause of customer churn is poor customer service. Although many companies consider customer service as a cost that must be minimized, it is actually an investment that should be maximized. Companies that fail to prioritize customer support and engagement will not to deliver excellent service to their customers. This in turn will cost the company money and shrink their customer base. In order to deliver better customer support, managers should develop standard procedures and develop employees’ customer service problem solving skills.

Poor customer onboarding is the second biggest cause of customer churn. This occurs when customers fail to achieve anticipated and promised success with the product or service. Customers will abandon brands, reject products and disassociate with companies that fail to deliver what they promise with regards to value, functionality and performance. Poor onboarding practices will reduce retention rates and invalidate all the money and time that has gone into converting the customer in the first place.

Customer Issues and Natural Attrition

The lack of ongoing customer success and effective customer service solutions will eventually drive away customers.

Customer service reps must deal with hundreds of variables and problems, such as changing needs, confusing new features and ineffective technology updates. Customers who fail to receive support may focus on milking the value of a product until the life-cycle ends, and then simply switch brands. Customers who do not receive positive communication from companies may simply switch brands.

There are always natural reasons why customers discontinue their consumer relationship with a company. Sometimes, the B2B customers may go out of business, or the customer may move to a new area. Inefficient operations and high staff turnover levels will impact the quality and consistency of customer service. Some customers may naturally outgrow a product or service, such as when babies age out of diapers and formula.

Companies can minimize a high churn rate by understanding customers’ changing needs so they can shift customer service strategies to address them.