Churn Rate: How to Control the User Attrition Rate
You may be wondering why clients have stopped completing purchases and started leaving the site in droves? To find the answers to this question and prevent further errors, it’s essential to analyze the Churn Rate – the indicator of user attrition. In this article, we’ll take a closer look at what this product metric represents. We will also examine how to calculate it and discuss actions needed to retain users rather than lose them.
The client attrition coefficient is a crucial indicator that reflects not only on business metrics (especially financial ones) but also on the potential for growth when transitioning to a new market share. Notably, the Churn Rate can be calculated for any given time period.
Attracting new users to a product is a resource-intensive task. It’s far easier and cheaper to get existing users to return to use that or another product than it is to draw in new ones. Clients who have opted out of a company’s services still count as a targeted audience. They don’t need to be familiarized with the brand’s philosophy; they already know its main aspects. The main challenge lies in conducting a thorough informational campaign to re-engage past customers with renewed strength.
The Phenomenon of “User Attrition” – Why Does It Happen?
Reasons for leaving can be conditionally divided into those that can be avoided and those that cannot. For instance, if a person moves from City A to City B, it’s perfectly reasonable that they cancel their subscription to a newspaper published in City A. In this case, the editing of the print publication cannot influence the client’s behavior, which means that prevention of this particular subscriber’s cancellation is impossible. Accordingly, a company can only address those reasons which genuinely could be prevented in a future context:
- The user ceases collaboration with the company and seeks alternatives for its product because they are dissatisfied with certain criteria, such as product quality, communication order, or delivery time;
- Competitors propose more advantageous collaboration terms: they are offering lower prices, organizing enticing advertising campaigns.
How to Understand That Client Attrition Is Happening?
Experts believe that waiting for the situation to become critical while clients are leaving in large numbers is a failing logic. It’s better to implement preventative measures to avert the loss of those users who can feasibly be retained. Determining that user attrition will soon exceed the influx can be achieved in several basic ways:
Analyzing KPI Systems in a Given Segment
Key Performance Indicators are interpreted differently, both quantitatively and qualitatively. The significance of the indicator can vary, depending on the industry in which it’s applied. Taking fitness as an example – here, KPI includes attrition from subscriptions; in the gaming industry, a metric would be the reduction of time spent in the game.
Through the analysis of the main catalyst, one can track the evolution of behavior across the entire client base. Any non-standard measures on the part of the consumer can potentially signal its rapid departure. For example, if a subscriber does not read emails sent by the brand or in messengers. Furthermore, they regularly hold off on additional purchases from the site and ignore promotional offers, etc.
Analyzing Target Audience to Identify Priority Positions
Sift through data only partially; to attain maximum outcomes, one must act methodically, prioritizing specific tasks ahead. It’s not worth even attempting to bring back customers whose engagement levels have dipped to critical levels. For businesses with limited time and resources, it is best to turn toward qualified RFT-analysis tools immediately.
Based on the findings of the research, it will become clear which category of users to focus on and with whom to work to improve metrics. Among the primary advantages of such research are: accurate results, accessibility for understanding and structuring; clarity and representativeness; speed of realization.
During the analysis, special attention should be given to three variables:
- The time elapsed since the last purchase;
- The frequency of order placements within a defined time interval;
- The aggregate sum of orders placed over the same time interval.
Analysis of Feedback from the Target Audience
Poor or negative client feedback is the best source for evaluating the efficiency of the company’s performance, underscoring the main dangers “from the outside.” One must not just react to negative feedback but also thoroughly and swiftly address each mistake. It is crucial to convey to a customer who is dissatisfied with the service or product quality why his feedback was heard and learned.
Proper utilization of the feedback mechanism confirms the qualification of your company’s employees, demonstrating their professionalism and customer-centricity, even in a conflict situation. Sometimes, a dissatisfied user is not only thinking about leaving but also becomes an even louder promoter of the brand, recommending your company to acquaintances and friends.
Competitive Analysis
Competition in the internet sales market continues to intensify. This means that to retain leading positions, one must be aware of all the strengths and weaknesses of competitors in their niche. In this way, you can mitigate operational risks, establish a sustainable competitive advantage for your product, and enhance communication pathways with the audience.
Navigating the Nuances of Calculating Churn Rate
The customer attrition indicator is calculated for a specific period using the formula: Customer Losses / Total Customer Base x 100%.
At the same time, it’s important to determine the value of the variable “Customer Losses” correctly; this can be done in the following way: Total Customer Base (previous period) + New Customers – Total Customer Base (investigated period).
To obtain the most reliable results, ideally Churn Rate should be calculated not using extreme metrics (beginning/end of the period), but rather a medium time frame accompanied by certain corporate adjustments. For instance, interval when a new product line was launched or an advertising campaign was run. If these manipulations were successful, the Churn Rate will be negative.
Why is Churn Rate Important for Business?
The Churn Rate indicator is closely tied to other metrics, such as:
Retention Rate or the Retention Coefficient
This reflects the percentage of users “who remained loyal” to the brand. When the numerical value obtained during calculations achieves a positive value, the RR and CR metrics will be mutually exchanged; one rises to 100%, while the other strives toward 0%. If the result from the calculations shows a negative value – bingo! The business is successfully expanding as the user influx surpasses the churn.
The calculation formula: 1 – Attrition Coefficient.
Average Customer Lifetime
Average Customer Lifetime reflects the period during which an active user is engaged with the brand. The lower the Churn Rate, the higher the likelihood that the customer “lives” longer. Note that ACL and CR should be calculated in the same interval, as the formula looks as follows: 1 / Attrition Coefficient.
Customer Lifetime Value – LTV
LTV is measured in monetary equivalents; in fact, this reflects the profit gained by the company from a given customer throughout their cooperation.
Calculating LTV requires considering the field of activity of the business. A simplified formula would look as follows: Profit gained from a specific subscriber / Attrition Coefficient.
Overall Profit (total sum)
It is no secret that customer base attrition has a direct impact on the company’s revenue. The larger the target audience, the more profit flows into the company’s balance.
Total profit for a business can be calculated using the formula: Number of clients in the site x Revenue received by the company from a single user.
How to Ensure User Uptake Prevails Over Churn: General Recommendations
- Do not underestimate the tool of feedback: read client reviews, quickly and qualitatively build client support;
- Develop long-term growth strategies based on concepts that provide meaningful value and beneficial offerings to clients;
- Periodically analyze the derived data, as well as the external market environment;
- Differentiate from competitors, implementing effective marketing strategies and building your own customized approaches;
- Make content more personalized to demonstrate to the client its relevance to the company, but do not cross the boundaries of acceptability. Implement push technologies, configure trigger communications, etc.
