Churn Baby Churn
There are different types of churn to think about and your strategy should be dependent on the type of churn you are facing. Gaining a deeper understanding and being able to calculate your churn will enable you to get a better idea of how your business is doing. Churned customers aren't all necessarily lost forever, it all depends on what type of churn you're facing. Here are the main types of churn to think about.
Voluntary (active) churn
They’ve chosen to leave. E.g: cancelling a subscription, returning a product or simply stopping spending with you.
There’s a reason you need to disengage with a customer. E.g: invalid transactions, fraud, system failures or credit risks.
A reduction in the amount that is spent with you, they still spend (just not as much), so do not meet your typical churn definition. E.g: fewer items or smaller value products purchased or downgrades on subscription packages.
Customers are spending more money, so this is another view on growth in your existing customer base. E.g: more expensive subscriptions, bigger baskets, higher value products or upgraded experiences.
The typical Churn definition, voluntary churn where customers leave you, is calculated by dividing the number of churned customers (the people who left your business) by the total number of customers you had during that time period then times by 100.
Here’s a quick example:
So, if you wanted to work out your customer churn between September and October. Imagine you had 500 people associated with your business at the start of September and the number of people who left your business by the end of October was 150. So, 150 ÷ 500 = 0.3 x 100 = 30%. So, between September and October your churn was 30%.
If your churn rate is high, it means you’re losing a lot of people who associate themselves with your business. Your target churn rate should be based on a full analysis of your customer spend and engagement data, along with understanding more about their motivations. There are usually legitimate reasons for churn existing in your business and this is not always a bad thing, but it should be understood.
There are a few different ways to tackle churn and there will be some contributing factors to consider when reducing your churn, such as what type of churn you’re dealing with.
For example, you’re faced with a situation where your customers subscription ran out and they weren’t aware (involuntary churn). You could tackle this by simply letting them know in advance that their subscription will be ending soon and giving them the opportunity to renew. If you can’t convince then to renew, you could offer an alternative option, like a down grade (revenue churn). Technically It is still churn but you’re not losing a customer completely, moving them from Voluntary churn to Revenue churn.