October 28th, 2022

​Understanding your churn rate can help you understand 

1. Why users are abandoning your product or service, and perhaps why revenue is decreasing. Comparing the number of churned vs acquired users, may show the business’s overall performance.
2. User satisfaction, while presenting opportunities for improving it.
3. User churn shows whether or not customer retention has improved over a period of time (Source)

What is a healthy churn rate? And how is churn calculated 
The optimal monthly user churn rate is 2-5% and a 5-7% annual churn is considered healthy. Your goal should be to keep your user churn number as low as possible. Users can churn at any point in time, but a quick reduction of the user base is a red flag, and a sign that a business is incapable of retaining users. 

What is User Churn Rate:
User churn rate is the percentage of a company’s total customers that stop doing business with the company over a specified period of time (Source). An example of this would be cancelling a subscription, or closing an account. Knowing your user churn rate is integral to your understanding various factors about your business, its performance and its sales. 
When churn rate is evaluated alongside other key user metrics, it is a powerful tool to assess what your brand is doing well, and where it needs to improve. You can monitor your churn rate on an annual, quarterly, monthly or even weekly basis depending on the nature of your business. Once you determine your user churn rate, you can determine why users are leaving and implement user retention strategies to retain them.
To determine your company's churn rate, choose a period of time you want to measure and identify the following values:

• Number of users at the start of the time period (X)
• Number of users lost during that time period (Y)

Then, you can use the following formula to determine your user churn rate (Z) as a percentage.
User churn rate formula: (Y/X) x 100 = Z

Why are users leaving? 
Here are some examples of why users choose to leave;

1. Poor introduction and onboarding. Churn may happen upon registration if the user needs something else, or if the user is confused about the product or service that is being offered due to lack of proper instructions.
2. Weak or poor relationships. Maintaining strong relationships with your users should be a priority, and something you do often. Poor user connection can cause a user to churn very quickly, and this includes prioritizing business needs over the needs of the user. 
3. Poor customer service. According to Zendesk, 82% of user churn due to poor customer service. It is vital to any business to listen to customer feedback, and respond to any questions or queries.

How can you reduce customer churn?

1. Create Yearly Subscriptions & Incentives if Applicable to your Business: A yearly subscription is usually offered at a discount, which keeps users engaged for a longer period of time. This also results in higher revenue, and gives your product time to grow, and finessing the user experience along the way. According to ProfitWell, businesses without a yearly contract plan have an average annual churn rate of 9% while the ones with 75%-100% annual contracts have this rate down to 3%. Introduce special incentives to customers, especially those who are at risk of churn. However, it is equally important for companies to offer loyalty incentives to users from the start.
2. Create an FAQ page: This simple addition to your website or platform can help your users feel supported. An FAQ page is a good way to help users understand how to use the product/service and how to deal with any emerging issues. As your product/service grows and changes, this page should be updated on a regular basis to remain relevant. 
3. Collect Feedback & Listen to your Users: User dissatisfaction is one the highest contributors to user churn. Feedback allows users to feel empowered and heard, and is a great tool to determine changes and updates to your product/service. Providing a feedback platform for your users, gets them on your side.
4. Reward Your Best Users:   It Is vital for your company to identify not only the customers at highest risk of churn, but also nurture your best, and most loyal users. You can do this by offering multiple tiers of service or different   products.  It is also important to consider how to upsell your loyal users and increase their lifetime spend with the company. 

​It is important to understand that everything your business does, can affect user churn. Examining the various data points, and calculating your user churn rate, can help you establish ways to prevent or reduce user churn. This will empower you, and your team to concentrate on growing your business, while also adapting to user needs.

User churn impacts every aspect of your business, because lost users equal lost revenue. It is critical to improve user retention and reduce churn, as it is generally more expensive to find new users, than to keep existing ones. Companies that lose users aren't just losing the revenue from those users, they are also increasing their costs to find new ones. 
We are going to explore the various ways that user churn can impact your business, and how you can reduce churn and keep your business running smoothly, while increasing your return on investment. First, let’s look at what user churn is, and how you can measure it.

Connect with us today to understand how Predikat  can help you understand your users,   reduce user churn and  help you grow your business. 
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