How to calculate churn rate and find out where to focus retention efforts
It’s good to have hundreds of new customers every month, but retaining loyal ones is much better (and also cheaper). Sounds rather easy if you know where to start. But if you don’t — let’s start with churn rate calculations.
Churn rate definition
Churn rate is a metric companies use to measure how much users dropped out of an app within a given time period. It’s crucial to understand why customers prefer to stop using your app and where your business needs to improve to decrease the number of turnovers.
Different ways of churn rate calculation
The churn rate can be annual, monthly or even daily. To calculate it use a formula
L = number of users lost at the end of the given time period
S = number of users at start of the given time period
N = number of new users adding during the given time period
For example, you want to calculate the monthly churn rate. At start your app had 3000 users, during the month there were 500 new ones and 326 were lost. So, the churn rate is 326/(3000+500)x100% = 9,3%.
A brilliant app promotion campaign can provide lots of new customers daily and that won’t be enough. According to Statista, the average mobile app lost nearly 95% of its daily active users within a month. That’s too much — to keep your business profitable, you’ll need to decrease the churn rate as low as possible.
Rapid growth can affect accuracy of that formula though. If your app is a fresh promising startup, it’s more likely that you need to calculate the probability churn rate to make the situation clear. Take total churns in a given time period and divide it by the number of user days in that time period to get the number of churns per user day. Then multiply by the number of days in the given time period to see the result. To calculate user days in the given time period, you’ll need the sum (Users at start x Days) + (0.5 x New users x Days).
In addition to the customer churn rate there is a revenue churn rate. It helps to see the revenue you miss with the current percent of churns. The formula is quite simple:
where churned revenue is the customer churn rate multiplied by total revenue in a given time period.
Use a churn rate calculator to get fast results
To find out whether your business is growing or not you can use one of the ready-made online churn rate calculators. For example, this one — it’s totally free and quite simple. It’s enough to get numbers to start from and find out whether your business needs to change right now or maybe, your churn rate is quite low and you need a long-term solution to decrease it in prospective.
Compare received data with average churn rate by industries
Ok, now you know the churn rate for your business/app. How do you know, whether it’s high, low or just an average number? According to Statista, there is an average churn rate by industries in 2020.
So, compare your results with the numbers above. If they’re higher, there are some ways to decrease them and make your app more friendly to loyal customers.
To reduce churn use cohort analysis
To find out where to focus your retention efforts, break your audience into several groups by mobile app user segmentation. Then let’s compare these cohorts looking at such factors as:
- How do most loyal customers get to know about your app? Social networks, search engines, paid ads etc.
- What actions users prefer to take in your app?
- Are there any difficulties with completing these actions?
- At what stage of the customer acquisition funnel there is a huge loss at all cohorts?
Cohort analysis defines users' behavioral patterns and makes it easier to understand what hooks new users and retain them. So you can concentrate on weak points of your app and improve the user journey.
Tips to decrease app churn rate
- Invest in service and support. App promotion is only one side of the coin — if your customer service is bad, about 50% of customers will stop using your app after just one bad interaction with the support team.
- Optimize the onboarding process to make sure customer can find app functions he/she needs and won’t be overloaded with information.
- Ask for feedback and respond promptly and appropriately to it.
- Send push notifications to encourage repeat visits and purchases in the app.
- Offer something exclusive to loyal customers — discount, free shipping, reward program etc.
More questions about churn rate you may have yet
What is a good churn rate?
The lower, the better. For B2C business a good churn rate is from 2% to 8%. For B2C it should be lower than 2%.
What is the difference between churn rate and retention rate?
Retention rate is the percentage of customers a business retains over a given period of time. Churn rate is the percentage of customers who dropped out.
What is a customer attrition rate?
Customer attrition, turnover and defection is the same as customer churn.
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