What is churn rate? The Whycancel team answers.

2021-05-04

Today churn rate has become a popular expression, before most call-centers and telemarketing was using it more than the average companies. With all the reaction of Covid-19 and when more and more companies have to reinvent themselves, churn rate is more and more important.

So, what is churn rate, actually?

The churn rate also known as customer churn is the rate which customers stop doing business with a company, organization or any entities really. Churn rate is normally mapped onto a percentage scale but it can also be put into real numbers for smaller teams or companies. It is popular with subscription-based companies to use tools to calculate the churn rate. It is also important for bigger companies or organizations to use churn rate in their employee losses.

Understanding your churn rate.

A high churn rate could make it hard for your company to grow and later on get investors to feel that your company is a well-oiled machinery. When it comes to subscriptions like electrical companies, cellphone carriers or internet providers the churn rate is one of the most important tools available out there for knowing what their organization do correct or what your competitors do correct.

In the churn rate it does not only include switching operators but also customers stopping to use the service at all. A good example for this is consumers moving from ADSL and dialups to Broadband connections through 4G,5G or Fiber connections. Or a consumer moving to a another state or country where the local electric company do not have coverage for the new place.

Churn rate cannot be confused with Growth rate.

Growth rate is for most symbolize the amount of new signed subscriptions with the company in question. But that is not all, churn rate is the part of the new subscribers that close their account within a certain time-frame. For instance, a customer that cancel a subscription within the first 12 months are considered a bad customer churn. That means that should be removed from the Growth rate calculations of the company involved. Not everyone agrees with us on this but most asked company CEO’s agree that the bad churn rate should be excluded from the Growth rate.

So, what is the bad vs natural churn rate?

A natural churn rate is a for instance a customer as in the above example someone who move from the area and can no longer use the service that your company provides. That is a natural type of cancellation and therefor that is considered a natural churn rate.

A bad churn rate however is cancellations that are made within the contract period or just after the initial contract period because of cost of service, quality of the service or that they feel tricked by the company to subscribe in the first place. There is of course cancellations that after the contract times that are cancelled by bad representation of the company, normally these are not a big part of the cancellation flow and can be kept to a minimum. However, a big part of the cancellations that occur based on reasons like security breaches, bad publicity etc. can be counted into the bad part of the churn rate.

Advantages:

The advantage of calculating a company's churn rate is that it provides clarity on how well the company takes care of their customers. Churn rate can show a reflection of how vital the business really is.

When a companies churn rate is increasing during a certain time then the company can track the reasons for the cancellation spike and thereby work against the cause of the cancellation and minimize the cancellations to occur for these reasons.

The cost of acquiring new customers is much higher than it is to retain current customers, so as you ensure that the customers you worked hard to attract remain as paying customers, it makes sense to understand the quality of your business. Churn rate makes it clear to the company that it has to focus on their churn rate.

Disadvantages:

One of the big limitations of churn rate is that the numbers do not show details. Therefor it is important to use a service like Whycancel to know the reasons of the cancellations and also to know why you can avoid getting the same cancellations from similar customers in the future.

Perhaps your company had a recent promotion that attracted new customers. Once this promotion stopped there was no more USP (unique selling point) for them to use your company and therefor they cancel their account. It is important to know why they cancel and not only look the percentage of cancellations.

The impact of losing new customers versus long-term customers is one of the most important factors your company need to know. New customers are transient whereas old customers are loyal and have enjoyed your subscription for a while and there must be a more significant reason as to why they are leaving. A high churn rate in one period may be indicative of a high growth rate from the previous period rather than a judgment on the quality of the business.

Churn rate vs Whycancel

Churn rate is just a number, eighter a percentage or a amount. Whycancel is a tool to calculate number of cancellations and ask your customers to why they cancel. With the a few background data as a background factor, Whycancel gives you the real numbers and the reason to why the churn rate has been increased during a certain period. With monthly meetings between your company and Whycancels team in Examinare you get guidance to why the cancellation is occurring and make the internal changes to make the churn rate lower to a natural churn rate. For example: Netflix has between July 2018 and July 2020 a churn rate of 2-3%.

Contact Whycancels team at Examinare to get started. Fill in the quotation form below and then we will book in a meeting or a phone call for more information.

Contact Examinare