What is customer churn?

As your business grows and becomes bigger and better at what it does, there is one inevitability that is always lurking just around the corner.

You are going to lose customers.

No matter how hard you work or how amazing your product is, at some point people just won’t come back. They will go and buy from someone else.

While this is sad, and in some cases quite worrying, it is absolutely inevitable. No company, no matter how amazing, can avoid losing customers.

It’s what we refer to as ‘customer churn’. Customer churn happens when you lose customers as part of the natural process of running a business over time.

The difference between successful and unsuccessful companies is whether you allow the churn to get out of control.

A definition

Customer churn is best defined as the percentage of customers who stopped using your product or service during a particular time frame.

This means the number of customers you lost during the last financial quarter, as a percentage. Or the lost customers in 2018. Essentially, it’s a percentage figure that gives you an idea of the size of the chunk of customers you lost during a certain time period.

To work out your customer churn, simply divide the number of customers you lost in the time period (say a month) by the number of customers you had at the start of that time period.

Kind of like this, really (with thanks to Adrian Swinscoe)

I am hopeless at Maths, so I found this really handy churn rate calculator, which not only works out the churn, but also how much it costs your business.

So why do this?

It’s easy to dismiss losing a small percentage of income every now and then, but if you continually use a churn rate calculator, as a freelancer or small business, you will soon see how important it is to reduce churn.

I have talked about how important it is to hold onto customers (and that is, basically, what this blog is all about), and customer churn is a great and useful way to highlight the impact of not doing that. Reducing your churn rate is a really big part of your success.

If you have a high churn rate, attached to a significant loss in revenue every month, for example, you’re failing. It means that your work is not good enough to make people keep giving you money for it.

Seriously, that’s what it means.

If you’re a freelance writer and you land a great client that has plenty of work available, and you lose them within a few weeks, what does that tell you?

In addition to that, a high churn rate should be a strong and urgent warning sign for you. It means you have to improve what you do, possibly on a huge scale. People are simply becoming unhappy with your work.

Of course, you could be a freelancer or small business owner who just wants to ‘bag and run’ clients. One shot work, in other words. But is that really what you want? Is that healthy? What happens when your selling isn’t working out too well one month? It’s a good job your customer churn is low, right?

You get the picture.