Last editedNov 20223 min read
Churn is the rate at which a business loses customers. Understanding your customer churn reasons is key to minimising churn. Here is a simple guide to the top four customer churn reasons in ecommerce.
Two main customer churn reasons
All customer churn can be divided into two main types: involuntary churn and voluntary churn. Involuntary churn happens when a customer drops out of your system without taking an active decision to stop buying from you. Voluntary churn happens when the customer makes an active decision to stop purchasing from you.
Involuntary churn is generally attributed to operational issues, especially payment issues. Voluntary churn is attributed to issues with your product or service. A small amount of voluntary churn is often attributed to natural progression. For example, a business owner may decide to retire and close their business.
How to measure customer churn
The standard formula for calculating customer churn is:
(Number of customers at start of period - Number of customers at end of period)
/ Number of customers at start of period
The result of this calculation is your percentage of customer churn. For completeness, if the figure is negative, you are experiencing negative churn or growth.
Ideally, benchmark your customer churn rates against industry standards as well as against your previous performance. If you cannot find industry standard rates, a churn rate of between 5% and 10% is generally considered healthy.
For completeness, when measuring customer churn, be clear on your definition of a customer. For example, if you offer a free trial and a customer does not go on to take up your service, will you count that as churn? Alternatively, will you only define somebody as a customer if they have paid for your service at least once?
There is no right or wrong approach here. Just think about what approach best suits your business. You can also calculate different churn rates for different types of customers.
Main involuntary customer churn reasons
The two main involuntary customer churn reasons are poor onboarding and issues with payment. Onboarding issues may be missed precisely because the customer does not complete the process. There are, however, two good ways to pick up on them.
The very best way is to have a chatbot programmed to pick up on any signs that a customer is having issues with the onboarding process. The customer can then be offered assistance in the moment. Ideally, give them the option to be connected to a human agent. If this is not possible (e.g. it’s out of hours), offer a callback.
The second best way to pick up on onboarding issues is to look at your website analytics. Pay close attention to any pages related to payments and sign-up. This includes relevant FAQ pages. If you can’t have a chatbot, at least have an on-page survey. This can be useful to get feedback on why people are leaving without completing onboarding.
The easiest way to avoid issues with payment is to put customers on Direct Debit. This eliminates problems with expired or changed cards and card declines. These problems also tend to transfer to ewallet transactions since many of them are backed by payment cards.
If this is not possible, have a robust system for reaching out to customers when you experience payment issues. Deal with these issues in a way that engages the customer and gives them an overall positive experience. If you don’t, then your involuntary churn may turn into voluntary churn.
Two main voluntary customer churn reasons
The two main voluntary customer churn reasons are perceived low value and poor customer service. The perception of value is generally derived both from the customer's needs, wants and budget. It is also influenced by what else is on the market and how it is priced.
Remember that pricing models and options can be at least as important as the headline price itself. For example, if you only offer annual subscriptions but your competitors allow people to pay monthly, they may be perceived as offering better value even if they charge more. This is because monthly payments make it much easier for businesses to manage their cash flow.
Poor customer service is a common reason given for voluntary churn. If so, it’s vital to look below the surface to understand what exactly they mean by this. In many cases, the customer’s problem is actually with operational issues rather than the customer service team.
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