The Science of Predicting and Improving Your Customer Retention Rates

The Science of Predicting and Improving Your Customer Retention Rates

For some companies, churn is like cholesterol…

A silent killer without any visible symptoms.

You may not even realize you have a problem until your new customer acquisition flatlines, and suddenly it becomes obvious that your current customers are jumping ship at an alarming rate.

Now, I don’t want to scare you for no reason here. Your business is probably NOT about to have an unexpected heart attack.

But churn rate IS an important metric that you DO need to monitor over time. (Just like cholesterol.)

And when you understand how to measure and manipulate churn, you can use that data to do some really cool stuff.

In this post, you’ll learn some quick and easy methods you can use to get a handle on your business’s churn ratewithout hiring an expensive data analyst and without spending hours mired in math problems.

By the time you’re done the reading, you’ll know how to use easy “napkin math” to calculate vital business metrics like your churn rate, retention rate, average customer value, and more—data you can use to help you make smarter business decisions and improve customer retention rates.

Churn 101: The Basics of Customer Attrition

Let’s start with a really basic question: What is churn?

The most common way of describing churn looks like this:

Just in case this is a new idea, here’s the quick breakdown. Your business is the bucket. And that bucket has holes in it—small inefficiencies or friction points that result in a loss of water.

The water inside the bucket typically represents the people who are constituents of your company—your customers, leads, email subscribers, etc. But you can also think of the water as your current and potential revenue.

So, you’re constantly losing water over time through these holes. But, of course, you’re also adding new water to the bucket, too, by building your email list and acquiring new customers.

Churn, then, is how you measure the rate at which the water leaves the bucket.

Who Does Churn Affect?

Churn is a really big deal for companies with a subscription product—like SaaS companies and any sort of recurring service like gyms, memberships, and anything else that bills on a regular basis like Birchbox or Netflix.

But churn doesn’t just happen with recurring services. It affects every company in some way or another.

In fact, churn is a perfectly natural part of every business. Nobody who joins your email list will stay forever. Nobody who buys your membership product will stay a customer forever. You’re always going to have people coming in and people leaving.

The goal is not to reach 0% churn. After all, your product, your service, and your message are not always going to be relevant to everyone. And people evolve over time—sooner or later most people will reach a point where your message no longer applies to them the way it once did.

But that doesn’t mean you can ignore churn. Far from it! Because even though some churn is natural, too much churn can be …read more

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