A Complete Guide to Calculating Churn Rate

Have you ever calculated how many customers you lose every year and every month?

Customer turnover or customer churn means the number of customers your business lost in a defined time frame. It can be a scary metric to some companies, but it is essential to calculate it.

Get Top Free Online accounting software and free billing software can help you calculate this with ease and also help you address the impact on your revenue. As a result, you will be able to take remedial measures and reduce your turnover rate.

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The only issue is that businesses struggle to use the right churn formula. To help you eliminate these issues we will discuss the different aspects of churn rate and how you can reduce it.

What Do We Mean By Customer Churn Rate?

Customer churn rate is simply the % age of your customers who no longer wish to continue with your services in a given period, such as month or year.

The churn formula is an extremely important metric for enterprises that have a recurring payment cycle. It is common with subscription-based companies. Even if you earn huge monthly revenues, your average customer acquisition cost will go for a toss if your average customer doesn’t stay for long.

You can choose a CRM(customer relationship management) system and find out the total number of lost customers. At the same time, you can even Use software to calculate Churn.

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Churn Rate Formula 

The churn rate formula is

(Lost Clients ÷ Total clients at the start of the designated time period) x 100. 

For instance, if your business had 500 customers at the start of the month and now has 450 customers, you would need to divide 50 by 500. The quotient will be 0.01. When you multiply it by 100, you will get 10% as your churn rate.

While the churn formula can help you calculate figures, it would not be very practical when you include other aspects. As a result, you must use tools that let you calculate it accurately.

How Can You Calculate Using Online Accounting Software?

When you use Software To manage a company’s accounting entries, you will need to first set a time period. It can be annual or monthly. Moreover, you will no longer be required to feed in the customer at the start and end period as it will already have the details stored.

A free billing software normally uses these steps to determine your churn rate.

  • Asks you to determine a time period: monthly, annual, or quarterly.
  • Calculates the number of customers you had at the starting and end of the designated period.
  • Ask you to confirm the value.
  • Consider the customers you lost due to all reasons, including poor customer service interactions and expired contracts.
  • Applies the churn formula and gives you an accurate figure.

However, you must take into account the 50 customers that are longer with you due to expired contracts or may be not getting the services they asked for.

Suppose 50 customers decide to move to a competitor and 50 were lost due to expired contracts. In total, you lost 100 customers out of 500. When we divide 100/500, we get 0.2, and on further multiplying by 100, you get a customer churn rate of 20%.

Now that you know the churn formula and know how to calculate the churn rate, you might think about how you can reduce it. If your churn rate is high, follow these tips to decrease it and achieve your business goals.

Can Churn Rate Be Reduced?

Here are some tips you can follow to reduce churn rate.

1. Analyse Customer Behavior

Despite the best of your efforts, you cannot avoid churn. But, this doesn’t mean you cannot work to reduce it. For example, you can ask your customer service team to analyze the factors and prevent churn in future cases.

Online accounting and inventory software can help you explore your customer journey and even do a thorough competitor analysis for you. Besides, you can use it to generate reports and identify challenges in customer experience. This will help you share insights with your product and development team and improve your products.

2. Improvise Your Onboarding Plan

Another idea is to create a solid onboarding process and send a personalized welcome email to your prospects. You can even create a knowledge base on your site, develop your blog section, and add relevant social media content.You can even choose video channels to build a strong rapport with your customers.

3. Training Your Sales Executives

You must make sure that your sales and representatives know your products and services in and out. Moreover, it is necessary that they also feel good about themselves. In this manner, they will be able to communicate the same and manage issues that come their way. As a result, you will be able to guarantee customer satisfaction and secure your customers for the long haul.

Wrapping Up

This post discussed the churn rate and how to calculate it using the churn formula. Free billing software and online accounting software can help you do it with ease and stay on top of customer expectations.

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