Customer Churn Rate: Definition, Calculation & Tips to Reduce

Alex Danchenko

Co-founder, Reteno

October 29, 2022

Some people will leave your app or service after a certain period, which is normal and to be expected. But you need to know exactly how many people are doing that. And with modern market competition, you’ll probably want to keep that figure as low as possible.

In this article, we’ll discuss a few important questions:

  • What is a churn rate? (Or, what is customer churn?)
  • What causes customer churn?
  • How do you calculate a churn rate?
  • How do you reduce customer churn?

Customer Churn & Churn Rate: Definition

What does churn mean? Churn, also referred to as attrition, represents how many customers or users are no longer active. Depending on the type of business and the product, this metric will describe people who no longer use an app, stopped making purchases, or unsubscribed from a service. 

The churn rate is calculated as a percentage over a certain period (a month, a quarter, a year). The higher the numbers, the more people the business is losing. 

What is a good churn rate? Acceptable churn rates vary by industry and type of product. For a SaaS product, a good monthly churn rate is under 1%, and an annual churn rate is 5%-7%. Even a small uptick in churn can have a significant financial impact on the company’s bottom line, so set a reasonable number of “churned” users as a benchmark and continuously monitor it. 

Churn Rate: Definition

Why Churn Rate Is a Crucial Metric for Marketers

Calculating the churn rate is essential to evaluating the effectiveness of a marketing campaign. For one thing, it shows whether you’re attracting the right users. Let’s say a marketing team brings in a substantial number of users each month but loses a third of them over time. Assuming the product works well, high churn indicates that marketing should be directed toward a different audience.

Churn can also help marketers understand what keeps users engaged. For example, you roll out a new reward campaign and see your churn drop. That is the basis of retention strategies and operational practices designed to keep users from closing the app.

The churn rate impacts other metrics like customer acquisition costs, customer lifetime value, and retention rate. So, the longer you ignore churn, the more expensive it gets to conduct business.

Main Factors That Cause App Churn

Knowing why your users leave is the key to understanding how to adapt your app to keep them around. If you fail to adapt, you’ll end up with a high churn rate and a barely sustainable app. 

These are the three top reasons why people ditch an app. 

Lack of Necessity

Sometimes your product, service, or tool doesn’t offer what the user is looking for. In other words, you don’t provide enough value. 

It may be the case that the app underdelivers on promised functionality, which is an issue for the product and the sales department. Or it could be an incompatibility with the user’s needs, which marketers should address. In either case, your user should have a strong reason to continue using, or they’ll churn.

Limited Storage

Storage is a constraint for many mobile users, who have a couple of dozen apps on average. With “Storage Almost Full” and “Storage Space Running Out” messages flashing on users’ screens, your app is always at risk of getting deleted. 

Try to minimize the app’s size without compromising build quality. To have the upper hand over competitors, consider keeping your app below the baseline average. But remember that functionality comes first.

Excessive Ads or Notifications

Free or freemium apps can afford a higher number of ads. But even then, there is an unspoken agreement that apps should not overwhelm users with ads. Besides, people are becoming more sensitive to advertisements, switching to apps that interrupt the user experience and have a cleaner-looking interface. 

Too many notifications can also be the reason for uninstalls. Keep your messages to a minimum, only sending immediate and immensely helpful ones.

Of course, these are not the only reasons for leaving an app. You should also account for changing user needs, desired outcomes, customer service, bugs, competition, and price. 

How to Calculate Customer Churn Rate

Here is the basic churn rate formula:

How to Calculate Customer Churn Rate

To calculate customers lost, you need to subtract the number of customers at the end of a period from the number of customers at the beginning of it. 

Now, let’s break down the churn rate calculation for different periods, starting with monthly churn. 

Monthly churn = Customers lost in a month / total customers at the beginning of the month x 100%

For example: 100 / 10,000 x 100% = 1% monthly churn rate

Annual churn = Customers lost in a year / total customers at the beginning of the year x 100%

For example: 500 / 10,000 x 100% = 5% annual churn rate

There is also the question of potential churn. The easiest way to calculate it is to base your prediction on previous periods. The more complicated way is to use statistical models for predicting potential churn trends, available in many analytics software platforms. 

Here is a bonus formula for revenue churn:

Revenue churn = MRR lost over a certain time period / MRR at the end of the previous month x 100%, where MRR is monthly recurring revenue

For example: $1,000 churned MRR / $100,000 MRR at the end of the previous month x 100 = 1% monthly revenue churn

7 Actionable Ways to Decrease the App Churn Rate

If you see an elevated churn rate, here are a few ways to reduce it. Or follow these tips to prevent a high churn. 

Use Cohort Analysis

Cohort Analysis

Cohort analysis, often used in other mobile marketing areas, observes groups of users over time. So, in customer churn analysis, you’ll be looking at how user behavior changes against your baseline rates. 

It doesn’t give you specific reasons for churn, but it maps out the important moments in the user journey. After finding out when users become inactive, you can focus your retention efforts on that specific moment.

Collect Feedback and React Promptly

Ask for user feedback at key moments of their journey — after their first purchase, when user churn is peaking, etc. Or you can set a customized schedule for each specific user and build on their activity (or lack thereof). 

After you find out what makes or breaks a happy customer, act on it.

Provide Perks

Another way to reduce your user churn rate is to incentivize app usage. A loyalty program is a classic, especially in retail apps. 

But there are a myriad of other options if regular rewards don’t suit your app. You can give member-only discounts, use the “the first to know” tactic to tell app users about a new product or feature, or offer a free webinar, just to name a few possible perks. 

Revamp Your Onboarding

The onboarding process should be simple and immediately demonstrate the core value. Forget complex signups and let users focus on the benefits of using the app. The “aha moment” of the app should come as quickly as possible. 

Test a few different onboarding flows to see what motivates users to stay and explore the app further.

Consider Sending a Push Notification

Trigger app usage with push notifications, primarily targeting users that are at risk of churning. If you’re looking for ideas, you can go for the “last chance” push, a reminder of what the user has been missing between sessions, and feature updates with buzzwords.

But remember that notifications can also be the reason for increasing churn. 

Leverage Deep Linking

This tactic allows you to send mobile users directly to a specific page within the app. So, instead of forcing the user to go through steps toward a high-engagement page, the user will get there instantly. As a result, the customer journey will appear more seamless.

You just need to place these links strategically, perhaps on a social media post.

Personalize 

Finally, to prevent churn in sales and elsewhere, you need to connect with a person on the other side. Call the user by their name, share useful recommendations, and give discounts tailored to their preferences.

Personalization requires you to look deeply into the data collected from users. In the process, you’ll develop relationships with people, making them feel more than just another user.

Final Thoughts

A certain amount of app churn is inevitable because your app will not be for everyone. So, you can’t completely prevent customer churn. But what you can do is predict customer churn, put together strategies to win back users, and implement practices to keep the figure low. 

Get into the habit of tracking and analyzing your churn. The math is fairly simple, and automation tools make it even easier to have all your metrics ready. You can also always get help from agencies and services specializing in user retention.

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