Why Does Customer Churn Matter?

You may have heard the term before, but not understand its full meaning. Or you may understand its meaning but think it’s not that important to your business.

We’re talking about “churn”.

Customer churn refers to the turnover of your existing customers. Once they sign up or purchase once, do they stick around/come back for more, or do they flee for some reason – either choosing to do business with a competitor or dropping out of the market entirely?

In business, we usually measure the churn rate. That is the percentage of new customers or subscribers who discontinue or leave within a given time period. It’s a measure of loyalty, and can tell you a lot about how your business is performing.

For example, a company like Facebook succeeds not simply by amassing a huge user base. That would mean nothing if those users did not keep coming back to Facebook again and again.

Or think about a paid service that uses a free trial to attract new customers. They only succeed if those “free” users turn into paid users.

Because we know that it’s about 6x less expensive to sell to or keep existing customers than it is to recruit a new customer, keeping a low churn rate is vital for any business looking to grow and succeed. The lower the churn, the more loyal your customers are, the more you can rely on them to provide a steady revenue stream, and the less you’ll have to spend on advertising.

That’s why churn matters. In an upcoming post we will review how to improve customer churn.