It is a fact that the churn rate has become an indicator of the success and longevity of companies. This metric, which measures the rate of customer loss, directly impacts the financial health and growth of organizations. Therefore, managing this data is essential for companies looking to maintain their active bases and ensure a competitive position in the market.
By closely monitoring this indicator and implementing strategies to reduce it, organizations can improve customer retention, increase revenue, and strengthen their position against competitors. Focusing on customer experience, personalizing communication, and using appropriate tools are essential to achieve these goals.
According to Marcus Marques, a specialist in business management and founder of Grupo Acelerador, the churn or cancellation rate measures the percentage of customers who end their relationship with a company during a specific period. In other words, it is a certain amount that stops using an organization’s products or services. “A high rate may indicate satisfaction issues, quality of services offered, or competitiveness of prices practiced. And this movement indicates an alert, which directly influences the long-term financial sustainability of the company,” points out.
For this reason, ongoing monitoring allows managers to identify problematic areas and develop specific strategies to improve customer retention. “It is essential for organizations to implement efficient management systems, such as CRMs, to properly track purchase history and interactions, enabling a more precise analysis of the churn rate and its causes,” evaluates the specialist.
Marcus points out that there are several types of churn rates that should be analyzed to obtain a comprehensive view. “There is the voluntary, which is the most common type, referring to those who choose to cancel or abandon the service of their own free will, and the involuntary, which occurs when the customer ends the relationship with the company ‘unintentionally,’ as in the case of a recurring billing card that expires or when the customer forgets to renew the contract,” he emphasizes.
The revenue churn indicates how much revenue the company has lost due to customer churn. “This modality can be divided into gross revenue churn and net revenue churn. Early churn focuses on customers who leave the company right at the beginning of the relationship, which may indicate problems in the onboarding process or in the initial delivery of value. Negative churn represents a favorable result, showing that revenue increased even after the evasion of some customers within a specific period,” details the business management expert.
How to calculate the churn rate
The simplest and widely used formula to calculate the churn rate is to divide the number of lost customers in a specific period by the total number at the beginning of that same period, multiplying the result by 100 to obtain the percentage. Mathematically, the formula can be expressed as follows: churn rate = (number of lost customers / total number of customers at the beginning of the period) x 100.
Some of the main advantages of using specific tools to make this calculation include the automation of the data collection and analysis process, generation of custom reports and interactive dashboards, integration with other customer management systems (CRM), ability to segment data by different criteria (customer type, subscription plan, etc.), and automatic alerts for significant rate variations.
It is important to note that, regardless of the method or tool chosen, the most important thing is to maintain consistency in the approach over time. ‘This allows companies to compare results from different periods accurately and identify relevant trends for strategic decision-making,’ evaluates Marques.
Revenue Loss
The most direct and harmful effect of a high churn rate is the decrease in revenue. For companies that rely on subscription-based or recurring business models, such as software, streaming services, and subscription clubs, the loss of customers has a direct impact on Monthly Recurring Revenue (MRR). This revenue reduction can compromise the financial health of the company and make it difficult to invest in improvements and expansion.
Furthermore, the loss of customers also negatively affects the customer Lifetime Value (LTV). The higher the churn or attrition, the lower the LTV will be, as customers stay less time in the company and generate less revenue throughout their lifecycle.
Damage to Brand Reputation
When many customers break up with a company, this can be interpreted as a sign that something in the offering is not adequate. This negative perception can spread quickly, affecting not only current but also potential new customers.
To mitigate these negative impacts, companies need to identify the underlying causes of customer churn and implement proactive retention strategies. This way, it is possible to reduce the negative effects and create opportunities to improve their products, services, and customer experience, strengthening their position in the market and promoting sustainable growth.
Main causes of churn
Churn is a complex phenomenon that can be triggered by various factors. Understanding the main causes that lead customers to leave a company is essential to develop effective retention strategies. ‘One of the main causes is customer dissatisfaction with the product or service offered. This can occur when the product does not meet the expectations created during the sales process, the solution does not keep up with market developments, losing in quality and functionalities, the customer cannot perceive the value of the product or service in relation to the investment made, or there are recurrent technical problems or usability difficulties that frustrate users,’ points out Marques.
To reduce churn rate and keep customers engaged, companies need to adopt effective strategies that put the consumer first. Customer experience has a direct impact on the churn rate, and to ensure that the entire process is positive, it is essential to carefully listen to feedback to identify possible issues and areas for improvement, as well as to implement a customer-centric culture throughout the company, not just in the customer service team.
Investing in an efficient onboarding process that helps new customers understand and use the product or service properly, and providing agile and effective support at all touchpoints are ways to prioritize the satisfaction of all those served by a particular service. “In this way, companies can increase satisfaction and reduce the likelihood of cancellations,” advises the expert.
A well-structured loyalty program can also be a powerful tool to reduce churn rate. Some strategies include creating a rewards system that offers exclusive benefits to frequent customers, developing partnerships with other companies to provide additional advantages, implementing a points or levels system that encourages continuous engagement, and offering discounts or special promotions to loyal customers.
Personalizing communication can also be a powerful tool in this process. “Personalization has become a strategy to engage and win over consumers, and for that, it is necessary to collect data on preferences, behaviors, and purchase history and use this information to create targeted and relevant messages and offers. Implementing personalized email marketing strategies, considering the customer’s interaction history,” concludes.
