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Customer churn — the percentage of customers who stop using your product or service within a certain time period — is an important metric for every business to measure. While measuring customer churn is a relatively simple calculator, there are many factors to consider. After all, you want to keep your valued customers as long as possible, and to do so you need to identify whether customers are leaving, at what point during the customer journey, and why.
Once you understand the why, you can take action to address the common triggers of churn (such as a poor interaction with your call center) and retain more customers at risk of churn. For example, if your customers are churning shortly after a negative experience with a call center agent, ensuring that your agents exhibit good listening skills and show empathy can help to create a better customer journey experience and reduce the likelihood of churn.
For customer churn rate to be a useful metric for your business, it’s crucial to avoid making common mistakes such as:
- Using inaccurate data
- Not comparing it to your industry’s average churn rate
- Not investigating customer pain points
- Not distinguishing between voluntary and involuntary churn
- Not considering customer lifetime value (CLV)
- Not distinguishing between different types of customers
- …and more
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To learn more about the biggest mistakes businesses commonly make when measuring customer churn, we reached out to a panel of customer experience professionals and business leaders and asked them to answer this question:
“What's the biggest mistake businesses make when measuring customer churn?”
Keep reading to learn what our panel had to say about the most serious mistakes you might be making when measuring customer churn — and what you should be doing instead.
John Cammidge
John Cammidge is the Managing Director of JTC Consultants.
“One of the biggest mistakes businesses make when measuring customer churn
Is…”
They do not get to the root of the problem.
Many businesses see that they are having problems and aim to try to resolve it, but do so in very generic ways. Rather than identifying the issue and resolving that, the things businesses do to reduce the churn are often too generic. Adding customer support or putting more funding into marketing may mean that you are getting new customers and existing ones are staying for longer, but if they are leaving because the website is difficult to navigate, then these solutions are not as beneficial as they should be. By identifying the issue and putting the right tools and measures in place, the churn analysis should be more accurate and the next steps will work better. This isn't to say that other generic solutions aren't helpful, but just that more can be done.
Jeff Mains
Jeff Mains is a 5x Entrepreneur and CEO of Champion Leadership Group LLC.
“Finding strategies to keep customers from leaving is challenging in and of
itself, but…”
Doing it with inaccurate data makes the task almost impossible. It is pointless for us to try to combat customer churn if we do not have a clear image of the number of customers who are leaving and of which of those customers we should make an effort to retain. That said, there is one significant mistake businesses make when measuring customer churn: disregarding seasonsonality.
When evaluating how successfully we have retained users, it seems sensible to look at how the churn rate has changed over time. We may, for instance, examine whether the rate fell in the months following the rollout of a new loyalty program and see if there was any correlation between the two.
However, most businesses that provide subscriptions have seasonalities in their customer attrition statistics. In light of this, when we look at the churn rate over the last several months, we should only be looking for swings that are caused by seasonal factors.
When analyzing the percentage of customers that stop using a service after a certain amount of time has passed, it is essential to make appropriate adjustments to the time frame being considered.
David Wurst
David Wurst is a Founder of WebCitz.
“The biggest mistake businesses make when measuring customer churn is…”
Not looking at the industry's average churn rate.
Doing this hurts their chances of rising among their competitors. They need to compare their rate to the industry's average churn rate to help them identify the aspects they need to improve in terms of customer experience. By doing this mistake, they can't guarantee customer loyalty, which can affect their revenue.
Sarah Jameson
Sarah Jameson is the Marketing Director of Green Building Elements.
“The biggest mistake businesses make when measuring customer churn is…”
Having no awareness of what the common customer pain points are.
Basically, understanding what the 'why' is in measuring customer churn helps you complete the picture you're trying to build in the first place. It's hard for the organization to take proactive steps in correcting their customer churn rates without actually knowing why customers are even turning away. Is it because of the complicated sales process? Was it an over delivering marketing campaign? A less than excellent customer service?
Understanding what made them walk away in the first place makes it easier to direct a path to fix it. It also helps marketing teams come up with better strategies around personalization and for sales teams to collect and utilize customer feedback.
Brandon Walsh
Brandon Walsh is the Founder of Interly.
“For many businesses, identifying churn is not as easy as it seems…”
Subscription-based companies have it easy. As they can classify non-subscribed customers as churn.
Let's take a look at business models such as Amazon, AirBnB and Instagram. A loyal customer base and then identifying churn is essential for every organization. These companies do not operate on a subscription model. Thus, they have to look at other ways to measure churn.
The mistake, in particular, is that most business owners cannot differentiate between segments. Using generic churn thresholds can lead to wrong conclusions and affect a company's decision-making. Adopt different deduction methods for all types of customers so a clear percentage of churn can be obtained.
Jessica Kats
Jessica Kats is an eCommerce and retail expert at Soxy.
“The biggest mistake businesses make when measuring churn rate is…”
Not tracking the actions of product champions.
They are the most influential buyers of your product. Apart from making their own buying decisions, they also influence other peoples’ buying patterns.
When organizations ignore to keep track of product champions, they get a false reading of the customer's health. This can lead to a missed chance of identifying a churn risk.
To avoid this mishap, organizations should separately track the behavior of the product champion from the overall account. You can use tools like Segment. It is a tool to create separate sections for champions and the rest of the pack.
Paul Mallory
Paul Mallory is the Co-Founder of ConsumerGravity.
“The biggest mistake businesses make is…”
A poor analysis of churn rates.
This problem stems from the fact that professionals set unrealistic expectations. We don’t live in a perfect world where it’s easy to attain 0% customer churn. Hence, you should check what’s a more suitable or achievable value for your business model.
Going over your past campaigns can help identify what churn rate is appropriate. That’s because 5-10% churn isn’t as bad as you may assume. However, it varies from company to company. So, conduct a thorough analysis for overcoming these issues.
Rahul Vij
Rahul Vij is the CEO of WebSpero Solutions.
“The biggest mistake businesses make when measuring customer churn is…”
Not tracking beforehand when integrations are disabled. An integration enabled by a user is cause for celebration. It implies that customers will receive more value from your offering.
What does it indicate when a client stops an integration, though? Disabling an integration can be viewed as a potential organizational churn indication.
For instance, a company has a Salesforce interface. If one of their clients stops that integration, it may indicate that they are testing a different customer success tool that interfaces with Salesforce. If anyone merely monitored integrations as they were turned on, companies wouldn't be able to see the churn signal.
The remedy: Make sure you keep note of when a customer enables and disables any new integrations you set up (which is hopefully never).
Monitor a product event when a connection is made or broken.
In your client service tool, create a dashboard that links the enabling and deactivating events together. Check to verify if the integration is currently active, inactive, or active but is now inactive.
Rodney Warner
Rodney Warner is the CEO of Connective.
“The biggest mistake businesses make when measuring churn rate is…”
Ignoring seasonalities.
When measuring success in retaining customers, determining the churn rate changes over time is important. It’s essential to determine the churn rate so your loyalty strategy can change accordingly. If you run a subscription-based business, seasonalities would be much more common.
For instance, some people prefer to buy subscriptions in the summer while others cancel in the winter. This becomes especially difficult for companies when calculating churn rates. Hence, it’s important to assess the time frame by taking into account seasonality. This will give you an overview so you can make decisions accordingly.
K.S. Shah
K.S. Shah is the CEO of World Consulting Group.
“Most businesses engage themselves in getting newer customers, often ignoring the negatives which come from customer churn rates…”
This is due, in large part, to not spotting the exact source of such results.
At times, it happens that companies merely focus on the product package values instead of accounting for a single customer. Knowing everything that caused such churns must be taken into consideration! Moreover, seasonal customers are a to and fro sales source for business; forgetting this would surely give you biased results.
Another common mistake observed is sticking to just a single calculation method. Since every method has its own benefits and limitations, it’s a good idea to use two or three methods. Knowing the implications and drop-off points is essential, ensuring maximum positive results over time. Leveraging AI-based solutions is a quite favored option these days.
Alex Milosh
Alex Milosh heads up Growth Marketing at Atera.
“The biggest mistake businesses make when measuring customer churn is…”
Not acting on the results.
Once you've measured customer churn, it's important to do something with the results. Too often, companies will measure customer churn and then do nothing with the data.
If you want to reduce customer churn, you need to take action based on what you've learned. That might mean changing your pricing strategy, improving your customer service, or making other changes to your business. Whatever it is, you need to take action if you want to reduce customer churn.
I see a lot of companies erroneously think that customer churn is something they can't do anything about. That's simply not true. There are a lot of things you can do to reduce customer churn. But you need to measure it first so you know where to start.
John Latimer
John Latimer is the Chief Content Strategist at Coach Hub.
“The biggest mistake businesses make when measuring customer churn is…”
Not measuring the right data.
When you're trying to measure customer churn, you need to make sure you're measuring the right data. A lot of times, people will look at things like the number of customers or revenue when they should be looking at other factors, like customer lifetime value (CLV) or customer acquisition costs (CAC).
CLV is the total value of a customer over the course of their time with your company. CAC is how much it costs to acquire a new customer. These are both important factors to take into account when trying to measure customer churn.
Sam Shepler
Sam Shepler is the CEO of Testimonial Hero.
“The biggest mistake businesses make when measuring customer churn is…”
Not defining churn correctly.
A lot of times, people think they know what customer churn is, but they really don't. There are two types of customer churn: voluntary and involuntary. Voluntary churn is when a customer cancels their service or subscription with you on their own accord. Involuntary churn is when a
customer is removed from your service against their will, usually because of non-payment.
Some people only focus on voluntary churn when they should be looking at both types. Others include involuntary churn in their definition, which can skew your results. It's important to be clear about which type of customer churn you're trying to measure.
Sebastian Schaeffer
Sebastian Schaeffer is the CTO and co-founder of Dofollow.io.
“The biggest mistake businesses make when measuring customer churn is…”
Not using the right metrics.
There are a lot of different metrics you can use to measure customer churn. But not all of them are created equal. Some metrics, like customer satisfaction (CSAT) or net promoter score (NPS), are better than others.
When choosing a metric to measure customer churn, you want to make sure it's something that is predictive of future behavior. CSAT and NPS are both good metrics for this because they measure how likely a customer is to recommend your product or service to someone else.
The bottom line is that you want to make sure you're using the right metrics to measure customer churn.
Linda Shaffer
Linda Shaffer is the chief people and operations officer (CPOO) at Checkr.
“One major mistake is to…”
Focus solely on financial measures of customer churn, such as the percentage of customers who cancel their subscriptions.
While this is certainly an important metric, it fails to take into account other factors that can contribute to customer attrition. For example, a customer might decide not to renew their subscription not because they are unhappy with the service, but because they are moving to a new city where the company doesn't offer service.
In this case, the customer churn rate would be artificially inflated by the inclusion of this customer, even though their decision to leave had nothing to do with the quality of the service.
Meyr Aviv
Meyr Aviv is the Founder & CEO of iMoving.
“The biggest mistake businesses make when measuring customer churn is…”
Not distinguishing between voluntary and involuntary churn.
Voluntary churn is when customers choose to leave, often for good reasons like being unhappy with the product or finding a better alternative. On the other hand, involuntary churn is when customers are forced to leave because they can no longer use the product (for example, if their credit card expires).
Not differentiating between these two types of churn can lead to inaccurate conclusions about why customers are leaving and what can be done to prevent it. This can, in turn, lead to ineffective strategies that could end up increasing churn rates or fail to address the real causes of customer attrition.
Voluntary churn can be measured by looking at customer satisfaction scores, customer support interactions, and other data points that indicate whether or not customers are happy with the product. You can conduct customer surveys to get this feedback directly from customers.
Involuntary churn is often due to technical reasons beyond the customer's control, so it might be a bit more difficult to measure. Some ways to track involuntary churn include looking at payment failures, inactive accounts, and canceled subscriptions.
Sasha Ramani
Sasha Ramani is the Associate Director of Corporate Strategy at MPOWER Financing.
“One of the biggest mistakes a business can make measuring customer churn is…”
Not distinguishing between market segments.
When a business defines their churn ratios, they need to include naturally occurring intervals to better understand the data.
For example, with an airline measuring churn rate, you would not segment business and leisure travelers in the same overall classes. Business and leisure travelers have entirely separate behavioral patterns, rebooking habits, etc. that need to be accounted for as intervals before being lumped into the same metric.
Paige Arnof-Fenn
Paige Arnof-Fenn is the founder & CEO of global marketing and branding firm Mavens & Moguls.
“Churn is a way to measure attrition/the number of customers who leave a…”
Product/service over a given period of time, and it is important to understand for the health, loyalty, and stickiness of a business. It sounds simple but can be tricky to calculate because how you define the customer, the time period, and the moment of churn affects the result. Is it only customers who arrive and leave in the same period, or do you include customers from before who are leaving now too? Is churn defined as the moment they cancel/return or when they stop renewing a subscription? Are you counting total customers at the beginning or end of the period? Looking at churn by segment or time frame may tell very different stories.
For simplicity I recommend dividing the total number of churned customers over the period by the number of customers you had on the first day of the period. It is quick and easy to do and understand, and it works well, especially when you have stable growth. If you have high growth though it can be deceiving so may require further investigation. Once you understand the logic you can do deeper analysis as needed.
I try to replicate my best clients, reduce churn, and learn what makes them happy. Knowing the value of repeat business helps you fine tune your marketing strategy and determine how much you should invest in customer retention and acquisition. It is critical to know what to keep doing and also what to stop doing to manage your budget most effectively and keep you on track.
It is impossible to time your outreach so that you are in front of customers/clients exactly when they need your help, so I just try to stay in regular communication with them so that when they have a problem I can help them solve, they will think of me first. We are all in the relationship business after all. Wasn’t it Woody Allen who said 80% of success is just showing up? It is a strategy that has worked for me.
Ty Wilson
Ty Wilson is the Co-Founder of CustomMade.
“The biggest mistake businesses make when measuring customer churn is…”
Not using the right data to measure churn.
Many businesses use things like total active customers or total number of orders to measure churn, but these data points are not actually indicators of churn. To accurately measure churn, you need to track things like customer lifetime value and customer attrition rates.
Customer lifetime value (CLV) is the total amount of money a customer spends with your business over the course of their relationship. To calculate CLV, you need to track things like customer acquisition costs, retention rates, and revenue per customer. Customer attrition rate is the percentage of customers who stop doing business with you over a certain period of time. Attrition rate is a good indicator of churn because it shows how many customers are leaving your business.
If you want to reduce churn, you need to focus on increasing CLV and reducing attrition rates. To do this, you need to create a great customer experience and offer value that keeps customers coming back. You also need to make it easy for customers to do business with you and resolve any issues they have.
Ben Rollins
Ben Rollins is a Co-Founder of Axon Optics.
“The biggest mistake you can make when measuring customer churn is that…”
You don't properly account for customer acquisition costs (CAC).
If your customer churn rate is higher than your CAC, you're losing more money in customers than you're bringing in. To correctly measure customer churn, take into account the total cost of acquiring a customer. This includes advertising, marketing, sales, and any other costs associated with getting a new customer.
Once you accurately measure your customer churn rate, you can start taking steps to reduce it. First, identify the root cause of your high churn rate. Is it due to poor product quality? Bad customer service? Or something else?
Then, address the issue. For example, if your customer service is terrible, you can train your team to be more responsive and helpful. Or, if your product quality is poor, find ways to improve it without passing on the costs to your customers. The key is to take action to reduce your customer churn rate. Otherwise, you'll continue losing money in the long run.
Chary Otinggey
Chary is the PR and Reputation Specialist of Thrive Agency.
“I'd say the biggest mistake when measuring customer churn is…”
Attending to their complaints by giving fast and easy solutions rather than knowing, understanding, and fixing the cause of the problem. This happens when businesses just want customer retention by pacifying the obvious issue.
Knowing the root cause helps in decreasing the rate of customer churn, as it helps in improving customer satisfaction and retention.
Farzad Rashidi
Farzad Rashidi is the Co-Founder of Respona.
“The biggest mistake businesses make when measuring customer churn is…”
Not taking into account the customer's lifetime value.
Churn is often measured as a percentage of customers who cancel their service within a certain period of time, but this doesn't take into account how much revenue those customers generated while they were active.
A more accurate measure of customer churn is the percentage of customers who cancel their service within a certain period of time relative to the customer's lifetime value.
This allows businesses to see not only how many customers are canceling, but also how much revenue they're losing due to churn.
Art Shaikh
Art Shaikh is the Founder & CEO of CircleIt.
“The biggest mistake businesses make in terms of analyzing their churn rate is…”
Choosing the wrong measurement method.
Churn rate can be expressed in different forms, and using the best method for your business is crucial. Some businesses, especially those with a subscription pricing model, might learn more by looking at their churn rate as a percentage of total accounts lost. Others, such as B2B service providers with contracts in place, would be best served by looking at the amount of revenue lost as a result of churn.
Ruben Gamez
Ruben is the CEO and founder of SignWell.
“Customer churn is a critical metric for businesses to measure if they want to ensure their long-term success…”
But, measuring churn alone is a little shortsighted because you’re only catching the losses after they happen — you’re measuring a customer at the point of loss rather than measuring their engagement along the way. In the case of new products or startups, churn often starts low and may make 10 to 12 months to rise as users who are “hanging by a thread” slowly stop using your products or services. Churn isn’t always an accurate measure and should be paired with engagement metrics for your most accurate results.
By measuring user engagement and customer churn, you can find the exact point in their experience causing them to disengage and move on to another product. It’s much easier to turn a user’s experience around and create a more enticing reason to stay than try to sell churned customers on returning to your brand. Use engagement metrics to measure customer satisfaction and prevent high churn before it becomes an even bigger issue.
John Li
John is the co-founder and CTO of Fig Loans.
“When businesses are measuring churn, tracking a singular customer churn rate doesn’t paint a complete picture…”
When businesses offer multiple levels of subscriptions or product enhancements, measuring churn across different pricing plans helps track churn rates at every level. Differences in churn rates between high and low spenders can indicate that a customer experience is lacking or features at a certain price point aren’t delivering sufficient value.
Tracking revenue churn along with customer churn helps you understand which customer segments contribute the most to your churn rate.
Will Yang
Will Yang leads Growth at Instrumentl.
“Businesses are always looking for ways to measure customer churn in order to improve retention…”
However, the biggest mistake businesses make is not correctly measuring customer churn.
One popular way to measure customer churn is by using cohort analysis. With cohort analysis, businesses compare the behavior of different groups of customers over time. This can help businesses identify which groups of customers are most likely to leave and what actions they can take to retain them.
However, cohort analysis has some limitations. It can be difficult to isolate the effect of a particular action on customer churn when there are so many other factors at play. In addition, cohort analysis can be time-consuming and expensive to implement.
Another common way to measure customer churn is through surveys. Surveys can help businesses understand why customers left and what could have been done differently to keep them around. However, surveys also have their drawbacks. They can be costly and time-consuming to administer, and they may not generate accurate results if customers do not respond accurately or honestly.
Philipp Wolf
Philipp Wolf is the CEO of Custify.
“Most founders make one mistake that can impact the way they analyze and measure churn…”
Tracking logins as the most important event. While taking into account the number of logins is a great start, this should not be your primary indicator. Instead, for customer churn, you should be focusing on the pain points of your customers, the features, and the pricing of your product. These indicators should give you a clear image of why customers churned in the first place.
Another thing you should be doing is talking to customers who have churned. An exit interview will give you a lot of insights that you can use to avoid unnecessary churn.
Jon Bartlett
Jon Bartlett is the Head of UK Operations for Capital on Tap.
“There are a few big mistakes you can make when measuring customer churn…”
- Avoid the urge to manipulate figures to make them look better than they actually are. This could be to make yourself feel better, or present a more pleasing view to stakeholders. This can lead to turning a blind eye to what is happening with your customer base and not taking actions to keep pace with true customer needs and wants.
- Ignoring the opportunity of a customer leaving to truly learn about your business and your product. There is always an opportunity to embrace the Voice of the Customer (VoC) and continually review and challenge your product and service offering.
- Being satisfied with what you already have, particularly if you see churn figures as a very low percentage of the overall customer base. Inertia is so dangerous and runs the risk of actions only being taken to challenge your product and service offering when it's too late and damage to your customer base and brand reputation has already been done.
From using the right data to measure customer churn, to digging deeper to discover the root cause, to taking action on your findings, avoiding the most common mistakes companies make when measuring customer churn will help you retain your most valued customers longer for a greater customer lifetime value.
