What is Customer Churn Analysis?

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What is Customer Churn Analysis

A lot of companies talk about customer retention. There’s a good reason for that. Research shows that it costs at least five times more to gain a new customer than it costs to keep a current one. Beyond that, increasing your retention rates by just 5% can boost your ROI, or return on investment, by anywhere from 25%-95%.

An essential part of customer retention lies in identifying what you’re doing right. However, an important part of that equation is customer loss. While we’d all like to talk about the areas we’re excelling in, sometimes it’s more essential to analyze the things we’re doing incorrectly.

Losing customers isn’t fun. There’s no way around it. Besides the loss in revenue, it’s also a blow to the ego. When customers leave without an apparent reason, you’re left shaking your head, wondering what happened.

This is where customer churn analysis comes into play. It’s about picking customer loss apart and making sense of it. So, what is customer churn analysis? Let’s break it down.

What is Customer Churn?

Customer churn is a number that represents the customers who stop buying your products or doing business with you. Unlike customer retention, which focuses on the customers who stay onboard, customer churn examines customer attrition.

There are several different ways to calculate customer churn. Generally, it’s the percentage of customers you lose over a specific time frame. For example, if you start your year with 50 customers and end your year with 25, your churn percentage rate would be 50%, because you lost 50% of your clients.

Churn isn’t always represented this way, though. Sometimes, it’s just looking at the flat number of lost customers or the revenue lost verses the actual customers lost. Either way, Customer churn is a metric that represents the number of people who stopped doing business with you over a period of time.

Analyzing the Churn

While there’s power in knowing the number, once you begin analyzing churn, there’s so much more you can do with it. The analysis is about looking at these numbers and identifying the reasons why it happened. What caused these customers to jump ship? Harnessing the power of this information requires that you’re collecting data on other areas of your business, too.

If you look at your customer churn for a certain period, you must also look at the other things you were doing during the same period. Perhaps you changed something about your product in Q4, and in that same quarter, you notice an increase in customer churn. It’s reasonable to assume that the product change didn’t resonate with customers.

Or, let’s say you hired a new salesperson, and simultaneously you notice an increase in customer churn, then the new salesperson might not be a fit. These are simple examples. However, comprehensive churn analysis allows you to recognize trends, isolate problems, and, ultimately, lose fewer customers.

Customer Churn Matters

If you aren’t already analyzing customer churn, it’s a good time to start. In the United States, companies lose billions of dollars every single year, thanks to lost customers. While you’ll inevitably lose some customers along the way for reasons that are outside of your control, you want to ensure that you’re doing everything that you can to mitigate that risk.

While it’s not fun to talk about losing customers, it’s a crucial part of being successful. In the end, analyzing the loss will result in a much more monetary gain in the future.