One of the first rules of business is to build a loyal customer base, and build a great relationship with them. The best indicator of your brand loyalty is your customer retention vs your customer churn.
Although we all know that retaining customers costs less than attracting new ones, for some reason this isn’t being translated into business strategy. Increasing customer retention rates by 5% leads to on average an increase to profits by 25%, even as much as 95%! According to research done by Frederick Reichheld of Bain & Company.
Given the fact that on average it costs 5 times more to attract a new customer to your brand then nurturing the customers you already have, its very surprising that 44% of companies have a greater focus on customer acquisition vs. 18% that focus on retention.
Understanding and limiting churn is critical to business success. The most simplest explanation, churn is when a customer decides to stop using your product or service.
With the aid of big data and analysis we can now highlight the possible reasons why a churn happened, allowing visibility into early indicators that a customer might churn soon, allowing you time to rectify if there is an issue before the churn actually happens.
A high churn rate will decrease profit margins and if left unchecked might complete stop your ability to achieve profits. Even if you have a big churn rate but are currently achieving profits, unfortunately this is not sustainable.
Don’t worry, there are no complicated algebraic formulas that take pages to solve. Measuring churn rate is relatively simply, which is one of the reasons why it’s so important for all companies to do. Keeping a close eye on your churn lets you attach value to sales and marketing strategies and allows you to use researches more efficiently.
Churn calculation example;
Take a time period – lets say a yearly quarter.
How many customer did you have at the start of the quarter VS how many customers you had at the end of the quarter;
Start of quarter = 100
End of quarter = 85
100-85 = 15
15/100 x 100/1 = 15%
You have a 15% churn rate.
There are more advanced and complicated churn rate calculations you can do however get the basics right first and then look further if you wish.
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