What Is Customer Churn?
Customer churn is the loss of customers from a business, service or product. You may also hear people refer to it as customer attrition or customer turnover. Closely related is the concept of customer insult rates, where customers churn because they feel insulted by things such as false positives, false declines of payment methods and so on.
Your level of customer churn can indicate how happy customers are with a business or their customer journey. If your rate of customer churn is increasing, this is an issue, as you are losing customers.
What Is Customer Churn Rate?
Your customer churn rate is the percentage of customers who have abandoned a shopping journey or other customer experience, out of everyone who has engaged with the customer journey. For example, a 1% customer churn rate means that 1 out of every 100 customers choose to abandon the experience or company.
Customer churn is an important measurement of how well a business, service or product is performing. There are various tools available to help you measure and analyze your rate of customer churn as well as investigate its causes.
SEON’s dynamic friction strategy allows only the minimal amount of churn-inducing security barriers to be put up, stopping fraudsters and leaving good customer unbothered. Read our guide below!
How to Calculate Customer Churn
To calculate your customer churn rate, you will need to know:
- how many customers began using your service or engaged with the customer journey
- how many customers stopped using your service or disengaged with the customer journey
You then divide the number of customers you have lost by the number of customers you had at the start, then multiply the result by 100. This provides you with the percentage of your customers who have left your business.
This is the simplest, most general way of calculating customer churn. In reality, calculating your churn rate might involve many different factors if you want to pinpoint problematic, churn-inducing practices.
For example, do you calculate your customer churn rate based on how many people signed up for your service, including those who signed up but never used it? Or do you calculate it based on the number of active users you had who have left, ignoring sign-ups that did not progress to profitable customers?
Both calculations can be valuable, as both can reveal insights into your business, as can the size of the gap between your number of signups and your number of active users. But one ought to keep this context in mind when deciding how to calculate customer churn and how to interpret the results.
It is also useful to look at your customer churn rate over different time periods. What percentage of customers have left your business after a month? After a year? Tailor the calculations to your particular product or service model to ensure that you are using the most relevant data for your business.
What Is Customer Churn Analysis?
Customer churn analysis studies churn at different times and touchpoints and allows us to identify patterns and trends – as well as causes of churn and their solutions. Calculating your customer churn at any given point in time will provide you with a single percentage – a snapshot of your level of churn. However, calculating it at multiple intervals and then analyzing how your customer churn rate has changed can be very useful.
These patterns can reveal things you are doing well and areas where your service model, customer journey, or even product is letting you down by putting customers off.
Why Measure Customer Churn?
It is important to measure customer churn because you can use the results to:
- build a better business model, which increases the customer lifetime value of each customer
- identify problems or blockages in your service delivery
- drive forward measures that will increase customer satisfaction
- understand the health of your business over time
- project future revenue more accurately
Businesses are between 60% and 70% more likely to sell products and services to existing customers than to new ones, according to eConsultancy. Meanwhile, it costs five times more to acquire a new customer than it does to retain an existing one. These figures highlight the importance of lowering your churn rate. Doing so can mean greater profits at a lower cost.
What Causes Customer Churn?
Customer churn has a range of causes. If the customer faces friction when using your service, for example, the likelihood that they will churn increases. If they think that your product is not good value or does not work as it should, the risk of churn increases.
Other causes of churn include poor customer support, poor user experience (UX), negative press or social media coverage, price increases, data breaches, service outages, disruptive updates, and more.
Sometimes, of course, introducing elements that cause churn is unavoidable. Know Your Customer mandates are a good example of this. Several types of businesses are mandated by law to verify customers’ identities as part of their anti-money laundering considerations, and even more organizations are choosing some level of KYC to prevent identity theft and fraud. However, from a customer perspective, these can sometimes be time-consuming and irritating – both factors that cause customers to churn.
Communication is important here. If you explain clearly to your customers why they have to complete the KYC process, it becomes more likely that they’ll be understanding about having to do it. How you manage the causes of churn can have a big impact on how much they actually contribute to your customer churn rate.
Customer Churn Examples
Carrying out identity verification checks is one example of a cause of customer churn, but the reasons a customer might churn are unpredictable and unlimited. Here are some common causes of customer churn – reasons why customers might choose to shop elsewhere, in other words.
One clear customer churn example is price increases. Every business has to raise its prices at some point. Price rises can be driven by anything from material or energy cost increases to shareholders’ desire for greater profits. Whatever the reason, they can cause customers to churn – particularly if the increases are steep, abrupt or poorly communicated.
If your customers start hearing negative things in the press or on social media about your business, the likelihood increases that they will take their custom elsewhere.
A poor UX is another customer churn example. If your product has a seamless onboarding process but then delivers a poor user experience once the customer starts using it, you can expect a high customer churn rate. Likewise, if you roll out a service update that causes disruption and negatively impacts users’ experience of your product, you can expect your customer churn rate to reflect this.
How to Prevent Customer Churn
In broad terms, you can prevent customer churn by keeping your customers happy. In practice, this encompasses a range of tasks. You need to:
- ensure that your product meets customers’ needs
- provide a smooth, low-friction onboarding process
- deliver a great user experience
- provide excellent customer support
- ensure your customers feel listened to and nurtured, with appropriate opportunities for customer feedback
Get any of these steps wrong and your customer churn rate will reflect your mistake. Get multiple steps wrong and your bottom line will certainly feel the impact.
If you add friction via an overly onerous multi-factor authentication (MFA) process, for example, you risk increasing your customer churn rate.
Yes, such processes can be key in cybersecurity, but they need to be as low-friction as possible if you want to keep your customer churn rate low. If you then add in terrible customer service when your customers call for help with their MFA problems, your customer churn rate is likely to spike even higher.
You can also use your customer churn analysis to help prevent churn from occurring.
For example, if you notice that your customer churn rate is low after customers have used your service for three months, but high after six, you can investigate why this is. It could be that there is a point of friction in your service delivery that is causing customers to churn. Identify and solve it, and you have the potential to prevent churn.
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Customer Churn in Fraud Prevention and Cybersecurity
Deploying fraud prevention doesn’t mean you should just sit back and watch your customer churn rate increase. There are different rates of churn-inducing friction associated with fraud prevention tools and strategies. In fact, sometimes fraud prevention can be fully passive and not impact the customer journey whatsoever.
Implementing frictionless authentication, for example, helps you protect against fraud while also not irritating your customers. Beyond this, there are fraud prevention platforms that take data observed (e.g. an IP address) or readily provided by a customer (e.g. their email address) and enrich it in order to help keep the organization safe. Such an approach does not cause any friction and is thus preferred when trying to minimize customer churn.
Dynamic friction is another solution that helps to minimize churn. This approach to introducing friction in fraud prevention is based on preliminary passive checks. Once a customer’s actions and profile are assessed, dynamic friction allows us to let provably legitimate customers continue their journey uninterrupted, while banning obviously fraudulent individuals and only introducing more friction where the customer’s intentions are unclear but could still be legitimate. Good customers are thus less likely to churn without compromises to security.
Beyond this and when you are forced to introduce some level of friction, communication is key. You could hit your customers with some stats. PwC’s Global Economic Crime and Fraud Survey 2022, for example, found that 46% of companies have experienced fraud, corruption, or other economic crimes during the last two years. If your customers understand the scale of the threat – and the fact that fraud also affects them – they will be less likely to churn as a result of your security measures.
You could also incentivize your customers in some way, so that all those who complete any friction-inducing steps within a certain timeframe receive some kind of bonus or are entered into a prize draw. The nature of such incentives will depend on your business model, but they can help keep customers on your side.
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