Churn rates are an inevitable part of doing business. In fact, according to Recurly, B2B and B2C organizations see the average loss of customers at a rate of 4.91% and 6.77% respectively over time.
While churn rates may be unavoidable, they’re certainly not irreducible! As we’ll discuss, customers churn for all kinds of reasons. Let’s take a look at why this is, what churn rates are, and how SEON can help reduce them.
What Is Churn Rate?
Churn rate is the rate at which a business loses customers (known as customer churn). It is calculated based on the volume of customers or prospective customers lost within a certain time period. A company’s churn rate is the opposite of its retention rate.
A business’s churn rate is a measure of its customer engagement levels. The caveat of customer engagement, however, is that customers engage with businesses at different levels and abandon them at different stages. On top of this, their engagement may end for reasons both inside and outside of their control.
An example of this is false positives during security checks. These can lead to both involuntary and voluntary customer churn rates (we’ll explain these terms more in a moment). The issue is that false positives can not only lead to a customer unwittingly ending their custom, but some customers take false positives personally. This contributes to customer insult rates, which show those customers who not only leave a business but essentially boycott it out of protest.
Businesses’ churn rates are crucial to helping them consider whether they have too much friction due to burdensome and potentially inaccurate customer security checks. It’s the need to reduce such pitfalls that is one of the many reasons that organizations turn to fast and reliable fraud prevention systems like SEON.
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How Is Churn Rate Calculated?
To calculate your churn rate, you need to find out how many customers engaged with your organization and then how many stopped engaging with it over a certain time period. The rate is usually a percentile calculation formed of the number of disengaged customers divided by the number of engaged customers multiplied by 100.
The type of customer engagement that’s lost and the time period in question are two metrics that must be considered and clearly outlined to ensure the validity and reliability of the churn rate calculation. Different companies will, after all, obtain different churn rates depending on respective risk appetites and the chosen parameters to suit them. However, regardless of those thresholds, they should always be calculated hygienically and consistently.
Why You May Have a High Churn Rate
There are many reasons why a high churn rate exists, but at their core, they are either down to customers choosing to leave a business (voluntary churn) or having been left with no choice but to do so (involuntary churn). These two main reasons often stem from either a poor user experience or an outright failed one.
Let’s now have a look at some specific examples of voluntary churn and involuntary churn.
|Type of churn
|Customer is swept away by the business’s competitor.
Customer is frustrated by the business’s flawed customer service and reputation.
Customer is put off by the business’s offerings due to high security friction – or even a generally subpar user interface or experience.
The price of the service or the customer’s financial status changes, leading them to leave (this can also be involuntary churn).
The business suffers a data breach, leading to customers leaving over fears for their privacy and security.
|Technical issues, such as a card being declined (either due to the customer being fraudulent or because they were the subject of a false positive).
Multiple password failures resulting in a lock-out (either due to the customer being fraudulent or because they were the subject of a false positive).
Insufficient assistance from staff, meaning the customer feels forced to leave against their wishes.
A high churn rate can result from a range of factors, and sometimes the reasons – such as cashflow limitations and price increases – can prove both voluntary and involuntary in nature.
This is where qualitative data becomes useful alongside quantitative data: quantitative to calculate the churn rate, and qualitative to understand why those customers churned out in the first place.
A common way of learning the reasons for your churn is to request feedback from those who’ve left your service at their time of departure. For example, you could provide an exit survey that asks, “Why are you leaving?” and offers the following answers:
- I didn’t enjoy the service.
- I didn’t receive the customer service I needed.
- I couldn’t figure out how to use the service.
- I encountered technical difficulties.
- I failed a security check.
Research such as this will help you to not only carry out your own market research but also determine how user-friendly your security checks are. According to PYMNTS, research at FlexPay shows that 48% of churn can be down to failed payments.
The good news is that this makes such involuntary customer churn preventable. Businesses such as SEON can flag the reasons behind canceled transactions, especially if they’re due to suspicious behavior, which will help you decide whether it’s a fault in your business or a fault with the customer.
What Are the Challenges Associated with a High Churn Rate?
A high churn rate poses a challenge for any business. To attract clients, businesses have to invest time and money in creating products, marketing them, and building company processes and structures. If the business then fails to retain those clients, all those resources go to waste.
While the nature of churn rates is both industry and business-dependent, according to Harvard Business Review, it is anywhere from five to 25 times more expensive to acquire a new customer than to retain an existing one.
Even a relatively low churn rate is likely to burden your operations. Research from Recurly states that the average churn rate of businesses is 5.57%. This means a notable number of customers will likely leave your reach and retention over time if you don’t optimize your customer base with the right KYC Verification checks and market research.
One key way to focus on reducing your churn rate is to understand what tends to cause it, as well as the two key terms that relate to it: acquisition rate and retention rate. Let’s check out the below table.
A high acquisition rate and retention rate will help your business to thrive, but it’s important to remember that churn rates are still an inevitability, and the resources it takes to reduce them can be costly.
One way to rise to the challenge is to remember that acquisition rates, retention rates, and churn rates are all part and parcel: The more customers you acquire and retain, the less notable and burdensome your churn rate will ultimately be.
How Can SEON Help Reduce Your Churn Rate?
SEON helps reduce your churn rate by limiting friction – and therefore bolstering your business’s user experience – through its efficient fraud prevention technology. From the get-go, SEON generates data about what customers you’re dealing with before they’re even onboarded to your business.
Partner with SEON to reduce your business’s customer churn rates with security checks and real-time data enrichment.
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One of the core ways that it does this is by helping you to determine whether those customers have a realistic social media presence, so, right off the bat, you don’t end up with potential fraudsters in your customer base!
By helping to protect your business from financial criminals, SEON reduces the friction that may otherwise put off your customers from continuing their engagements with you. It does this through real-time checks and dynamic friction, which means your security checks can be short and fluid for less suspicious customers, and a bit longer for customers who may need a little more scrutiny.
One of the core ways it achieves dynamic friction is through device fingerprinting. This means that SEON tracks your customers’ hardware and software configurations and allows you to determine whether you’re dealing with hackers and other suspicious individuals. For example, if a user claims to be from the US but they log in from another country, SEON can recognize the discrepancy in their device hash and flag this with you.
Device fingerprinting and dynamic friction lead potentially suspicious users to go through more checks and roadblocks, so that users of your service are screened by a proportionate and focused vetting process. This ultimately means you will see a lower churn rate later down the line by reducing those suspicious individuals who should never’ve been in your customer pool in the first place!
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Speak with a fraud fighter.
Sam is SEON's Fraud Content Writer. He has a background in writing and editing content for a range of tech and engineering publications which has led him to gain a strong interest in cyber security. At SEON, Sam enjoys writing about cutting-edge solutions to fraud attempts and cyber attacks, such as transaction monitoring and machine learning.
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