What is your Churn Rate? And what can be done to reduce it?
May 12, 2021
This article highlights three of the best tools to measure, understand and reduce customer churn.
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As Jeff Bezos says, ‘Focusing on the customer makes a company resilient.’ To this end, ScaleXP contains several tools to monitor, understand and reduce customer churn.
Report 1: Churn by cohort using duration of retention
Cohort analysis highlights the number or % of customers lost, by period.
The first image shows customer churn based simply on the month of acquisition. In this case, nothing profound appears at this point. Whereas the second image shows the same data based on the elapsed time. A quick review shows most customers churn in Month 2 or Month 3. Those who are active in Month 3 remain loyal for 12+ months. This data provides a clear action for the customer retention team; keep customers happy in the first three months! Toggling between ‘months’ and ‘elapsed time’ can reveal interesting behaviours.
Report 2: Churn by month – seeing in context
When assessing the number of customers lost by month as an absolute number, it is important to be aware of what this represents as a % of the overall customer base.
The absolute numbers show trends over time, whereas the percentage shows how threatening the trend is… is there time to take stock or is it a case of manning the barricades?
Consider Image 3 below. For an established business with 350+ regular customers, churn peaked in January at 7, which was 2.5% of the active customer base.
Contrast this with Image 4 where the number of churned customers reaches a peak of 3 in March 2021, which is a whopping 20% of the active customers for this tiny start-up.
Armed with this chart, any thoughtful manager can immediately create several initiatives to turn the tide… And yet, the first step is ensuring that the right data is consistently tracked, and when the new initiatives are actioned to then measure the impact on graphs such as these, each month.
It is worth highlighting that each business can select its own definition of churn, reflecting how often customers purchase. For the two example companies in this section, a customer is considered lost if they have not purchased in two months. In ScaleXP this assumption can be changed down to individual product level to reflect a purchase cycle of between 1 and 24 months.
Report 3: Churn by customer – catching reducing sales trends
In addition to understanding historical churn, keeping a watchful eye on trends in customer buying behaviour is critical.
Here we show all customers who have reduced their usage in the last month. For companies with churn cycles of more than one month, any customer who downgrades, can be proactively contacted, to forestall future issues.
Companies spend vast amounts of time compiling data and crunching numbers in order to create these breathtakingly obvious visual representations. ScaleXP eliminates this manual, error-prone and laborious work. ScaleXP focuses minds on the important task of pinpointing the clues in your data that can boost your understanding and prospects of success.
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