![]() ![]() “I’ve seen a lot of firms use churn rate to not only understand what happened in the last period, but also to predict what’s going to happen in the next.”Īvery points to HubSpot, a Boston-based firm that provides “inbound marketing” software tools to small and medium-sized businesses to attract prospective customers to their websites, as one of the more “sophisticated churn managers”. In fact, the rise of big data is making it possible for firms to act more expediently and precisely on churn rates. But sophisticated, data-rich firms are also starting to look at the number on an individual customer level. Marketing managers will typically look at churn rate at a segment level - how many of our 18-25 year old customers left this month, for example. It’s a nice simple metric that tells us a lot about when and how to interact with customers,” says Avery. “Looking at churn rates by customer segment illuminates which types of customers are at risk and which may require an intervention. The idea is that when you know that more customers or subscribers are cutting ties with your firm, you can work to adjust your marketing strategy or customer service approach. Changes in a company’s churn rate could be a signal that something is working well (if the number goes down) or needs addressing (if the number goes up). “If I’m interested in keeping customers, I’m interested in understanding how many leave and the underlying reasons why they are ending their relationship with me,” says Avery. The higher the churn rate, the more they question the company’s viability. ![]() Many investors will use the metric to evaluate the underlying health of a firm. It’s not just marketers who look at churn, however. And Avery says she is seeing churn used more often these days. Whether you prefer to look on the bright side or mourn your losses doesn’t matter - both figures look at the same thing. Some other firms - those who have a faster churn rate or for whom losing customers is a big issue - will also look at it monthly.Īvery says that many executives prefer to monitor and report churn rate’s opposite: retention rate, or how many customers stay. An annual rate is the default for most companies but any company that prices product on a monthly basis - think mobile phone service providers, gyms, and software as a service companies - looks at customer churn rate by month. ![]() Typically the churn rate is measured by month, quarter, or year, depending on the industry and the product you’re selling. “Customer churn rate is a metric that measures the percentage of customers who end their relationship with a company in a particular period,” says Avery. ![]() To better understand this key marketing concept, I talked with Jill Avery, a senior lecturer at Harvard Business School and an author of HBR’s Go To Market Tools. But what exactly is that? And how to do companies use it? One of the key metrics in understanding whether your company is retaining customers is customer churn rate. The bottom line: keeping the right customers is valuable. If you’re not convinced that retaining customers is so valuable, consider research done by Frederick Reichheld of Bain & Company (the inventor of the net promoter score) that shows increasing customer retention rates by 5% increases profits by 25% to 95%. It makes sense: you don’t have to spend time and resources going out and finding a new client - you just have to keep the one you have happy. Depending on which study you believe, and what industry you’re in, acquiring a new customer is anywhere from five to 25 times more expensive than retaining an existing one. ![]()
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