It is a fact that the churn rate has become an indicator of a company's success and longevity. This metric, which measures the customer churn rate, has a direct impact on the financial health and growth of organizations. Therefore, managing this data is essential for companies seeking to keep their databases active 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 the competition. The focus on customer experience, personalized communication, and the use of appropriate tools are essential to achieving these goals.
SecondMarcus Marques, business management specialist and founder of Grupo Acelerador, the churn or cancellation rate measures the percentage of clients who terminate their relationship with a company during a specific period. In other words, it is a certain amount of people who stop using the products or services of an organization. "A high rate may indicate issues with satisfaction, the quality of services offered, or the competitiveness of the prices charged. And this movement signals an alert that directly influences the company's long-term financial sustainability," he points out.
For this reason, constant 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 accurate analysis of churn rate and its causes," evaluates the specialist.
Marcus points out that there are various types of churn rate that must 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 voluntarily, and the involuntary, which occurs when the customer ends the relationship with the company 'unintentionally,' such as in the case of a recurring billing card that expires or when the customer forgets to renew the contract," he/she/they highlights.
Revenue churn indicates how much revenue the company has lost due to customer attrition. This modality can be divided into gross revenue churn and net revenue churn. Early churn focuses on customers who leave the company early in the relationship, which may indicate problems in the onboarding process or initial value delivery. Negative churn represents a favorable outcome, showing that revenue increased even after some customers left within a specific period, explains the business management expert.
How to calculate churn rate
The simplest and most widely used formula to calculate the churn rate is to divide the number of customers lost in a specific period by the total number of customers 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 customized reports and interactive dashboards, integration with other customer management systems (CRM), the ability to segment the data by different criteria (type of customer, subscription plan, etc.) and automatic alerts for significant rate variations.
It is important to emphasize 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.
Loss of revenue
The most direct and harmful effect of a high churn rate is the decrease in revenue. For companies that rely on subscription or recurring business models, such as software, streaming services, and subscription clubs, customer loss has a direct impact on monthly recurring revenue (MRR). This reduction in revenue may compromise the company's financial health and hinder investments in improvements and expansion.
Furthermore, customer loss also negatively affects the customer lifetime value (LTV). The higher the turnover or churn, the lower the LTV, as customers stay with the company for less time and generate less revenue over their lifetime.
Damage to brand reputation
When many customers break up with a company, it can be interpreted as a sign that something in the offer is not adequate. This negative perception can spread quickly, affecting not only current customers but also potential new clients.
To mitigate these negative impacts, companies need to identify the underlying causes of customer churn and implement proactive retention strategies. In this way, it is possible to reduce negative effects and create opportunities to improve your products, services, and customer experience, strengthening your market position 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 abandon a company is essential for developing 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 set during the sales process, the solution does not keep up with market developments, losing quality and functionalities, the customer cannot perceive the value of the product or service relative to the investment made, or there are recurring technical problems or usability difficulties that frustrate users," points out Marques.
To reduce the churn rate and keep customers engaged, companies need to adopt effective strategies that prioritize the consumer. Customer experience has a direct impact on the churn rate, and to ensure that the entire process is positive, it is essential to listen carefully to feedback to identify potential problems and areas for improvement, as well as to implement a customer-centric culture throughout the company, not just in the support team.
Investing in an efficient onboarding process that helps new clients understand and properly use the product or service, and providing agile and effective support at all touchpoints are ways to prioritize the satisfaction of everyone served by a particular service. "In this way, companies can increase satisfaction and reduce the likelihood of cancellations," advises the specialist.
A well-structured loyalty program can also be a powerful tool to reduce the churn rate. Some strategies include creating a rewards system that offers exclusive benefits for frequent customers, developing partnerships with other companies to provide additional advantages, implementing a points or levels system that encourages ongoing engagement, and offering discounts or special promotions for 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," he concludes.
