Customer churn is a measure for monitoring the rate of customer loss.
There are two common approaches to compute the customer churn.
The first approach, the most common one, is to divide the number of customers lost for a defined time period by the number of customers you start with at the beginning of that period.
The second approach is to compare revenues. You divide the revenue loss for a period of time by the revenue at the beginning of the same period. This revenue-based approach is often used by companies with a recurring, subscription revenue stream.
It is important to monitor customer churn. As we all know, it is more costly to acquire new customers than to retain existing customers.
To minimize customer churn, there are a couple of things you need to do regularly.
One is to keep your existing customers happy. By communicating regularly with your customers, you stay top-of-mind. It is also a great way to capture needs that you aren’t aware of.
The second thing is to detect potential churn early so that you can be proactive about it. You could monitor things such as satisfaction and purchase trends, for instance, to evaluate the probability of churn. When the probability reaches a threshold, say 80%, you will take action.
You want to keep churn as low as possible. The key is to understand how churn impacts revenue and you have a solid plan to minimize it.