Reducing B2B Churn Rate: Strategies, Best Practices, and Examples
Churn rate is an essential metric for businesses looking to increase their customer retention and revenue. Churn is the rate at which customers stop using a product or service over a given period. High churn rates can lead to a decline in revenue, as well as a decrease in customer loyalty. In this article, we will discuss what churn rate is, how to calculate it, and how to decrease it to increase customer retention and revenue.
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ProfitWell's Insights on Churn
Examples of How Successful Companies Decreased Churn
Frequently Asked Questions (FAQs)
What is Churn Rate?
Churn rate, also known as customer attrition rate, is the percentage of customers who stop using a product or service over a given period. For example, if a company has 1,000 customers at the beginning of a month and 50 of them cancel their subscription by the end of the month, the churn rate for that month would be 5%.
Calculating Churn Rate
To calculate churn rate, you need to know the total number of customers at the beginning of the period, the number of customers lost during that period, and the total number of customers at the end of the period. You can use the following formula to calculate churn rate:
Churn Rate = (Customers Lost During Period / Total Customers at the Beginning of Period) x 100%
For example, if a company has 1,000 customers at the beginning of the month, loses 50 customers during the month, and ends the month with 950 customers, the churn rate would be:
Churn Rate = (50 / 1,000) x 100% = 5%
Two Types of Churn Rate
There are two types of churn rates that businesses need to be aware of: churn rate per customer and churn rate for revenue, also known as average revenue per user (ARPU).
Churn Rate Per Customer
Churn rate per customer is the percentage of customers who cancel or discontinue their subscription within a given period of time, usually a month or a year. This metric is important for measuring customer retention and can help businesses identify areas where they need to improve in order to reduce churn.
Churn Rate Per Revenue
Churn rate for revenue, or ARPU, is the amount of revenue lost due to churn divided by the total number of customers. This metric is important for measuring the impact of churn on revenue and can help businesses understand the true cost of losing customers.
Let's say a B2B SaaS company has 1,000 customers and earns $100,000 in monthly recurring revenue (MRR). During a given month, 50 customers cancel their subscription, resulting in a loss of $5,000 in MRR.
To calculate the churn rate for revenue, or ARPU, we would divide the lost revenue by the total number of customers:
Churn rate for revenue = Lost revenue / Total customers
Churn rate for revenue = $5,000 / 1,000 customers
Churn rate for revenue = $5 per customer
In this example, the churn rate for revenue, or ARPU, is $5 per customer. This means that for every customer lost to churn, the business loses an average of $5 in MRR.
By tracking ARPU over time, businesses can identify trends and patterns in churn and take steps to reduce the impact of churn on revenue. For example, if ARPU is increasing over time, it may indicate that the business is successfully retaining more customers and reducing churn. Conversely, if ARPU is decreasing, it may indicate that the business is losing more customers to churn and needs to take action to improve retention.