Customer Churn vs Retention: How do they differ?

You’re doing all the right things. You’re friendly, you’re responsive, you’re on top of customer issues and you’re constantly delivering value. But, your customer retention rate is terrible. What’s going on? Is it your customer service? Is it your pricing? Or maybe it’s your product? Well, you’re probably not alone.

All businesses are suffering from poor customer retention these days.

The first thing to think about is why your customers are leaving. Is it price? Is it convenient? Is it something you’re doing? User retention is an important factor in the success of any business, but it’s not the only factor.

Additionally, you need to consider the overall health of your business, which can be assessed by looking at customer churn rates and retention rates.

A company’s customer retention rate is the percentage of customers that remain loyal to a brand after a certain amount of time. It is often compared to the customer churn rate — the percentage of customers who stop purchasing from a brand within a certain amount of time.

While the terms “customer retention” and “customer churn” might sound similar, it’s important to note that both have different meanings.

Let’s examine the customer churn rate and the customer retention rate and explain how they differ and how they impact your business.

The first step is to understand the difference…

Customer Churn vs Retention: Where is the difference?

Keeping your customers is the most important thing for any business. You need to keep your customers happy, engaged, and coming back to your business.

It is not just a one-time thing.

Customers can leave your business at any time. To keep your customers, you will need to keep them happy. This means that you need to ensure that they have a good experience when they interact with you.

A high churn rate means that customers are going to leave your business. A low churn rate means that you are doing well and the rate at which you are retaining your customers is high.

It is important to note that the churn rate and retention rate are not the same. They are quite different.

A customer churn rate is the percentage of customers who are leaving the business. A retention rate is the percentage of your customers who are sticking with the business.

A low retention rate is not good for your business. A good retention rate is what you should aim for. It is difficult to do this because you will need to take care of your customers. The best way to do this is by understanding the different reasons why customers leave and then acting on them.

  1. The customer churn rate and customer retention rate are two metrics that are used to measure how many customers have left your company in a specific time frame. 

The churn rate is the percentage of customers that leave the business each month, quarter, or year.

For example, if you have 100 customers and five of them leave, then your churn rate is 5%. Retention rate is a somewhat newer metric that is just starting to catch on. It’s the percentage of customers that are still using your service after a certain amount of time. For example, if you have 100 customers and five of them leave within the first month, then you have 95 customers left. At the end of the second month, you still have 95 customers. If you subtract the five customers that left from the total, you would have 90 customers. ​So, your retention rate is 90%.

Why does customer retention matter?

Retention is the most important factor in customer satisfaction, profitability, and growth. In other words, customer retention is important.

  1. Churn is the opposite of retention. If you want to increase your customer retention, you want to lower your customer churn rate. And to do that, you need to understand what churn is and how it works.

Harvard Business School research shows that increasing customer retention rates by just 5% can significantly increase profits by 25-95%.

What are the best practices for customer retention?

Customer retention is a vital part of any business and one that must be monitored and managed. A good retention rate means that customers are happy with your business and are continuing to use your product or service, while a bad retention rate could mean that your customers are unhappy with your product and/or service.

  • With customer churn, you have a negative retention rate, which means that customers are leaving your business.
  • This can be due to a variety of reasons, ranging from over-saturation of your market, to your product no longer appealing to your customers, or even a bad user experience or a poor customer experience.
  • On the other hand, a good retention rate can be accomplished through a variety of means, ranging from a positive user experience and a quality product to competitive pricing and competitive shipping.

What are the common mistakes made by businesses in customer retention?

Business owners are always looking for ways to retain more customers. It’s expensive to acquire new customers, but keeping the old ones is relatively cheap. Businesses have developed a ton of tactics for retaining customers, but many of these tactics actually have the opposite effect.

  1. 82% of organizations agree that customer retention costs less than customer acquisition. (MARKINBLOG, 2020)

These mistakes are costly, and in some cases, fatal.

The two most commonly made mistakes are: 
  • Not knowing your customer: Having a customer retention strategy without first knowing what you’re trying to retain is useless. You need to know their demographics, their buying habits, and their lifestyle in order to develop an effective retention strategy.
  • Not caring about your customers: Most businesses are so focused on acquiring new customers that they don’t bother to keep the ones they already have.

How do you measure customer retention?

There are many ways to calculate and look at customer retention rates. Some of the most common are customer churn rate, customer retention rate, customer lifetime value, and customer lifetime revenue.

All of these have their uses, but they’re not all created equal.

Imagine that you own a business. That business has two groups of customers: a group you can sell $1,000 (INR75,476) worth of stuff to, and a group you can sell $10,000 (INR 7,54,760) worth of stuff to. If a percentage of people in the $1,000 (INR75,476) group leave you, that’s not really a big deal. You can make up the lost revenue in this group. If a percentage of people in the $10,000 (7,54,760) group leave you, that’s a big deal. You can’t make up the lost revenue in this group. There’s no easy way to say which of these is better — you’ll have to look at your business and see if it makes more sense to focus more on customer churn rate or customer retention rate.

Conclusion:

Customer retention is an ongoing process that requires a lot of effort, planning, and strategy. Customer retention isn’t just a one-off thing; it takes constant work to keep your customers happy. In fact, how you treat your customers can make a big difference to the likelihood they’ll return! Unfortunately, certain business owners tend to jump the gun and make crucial mistakes when trying to retain customers and end up pushing them away instead.

Are you still losing customers to your competitor? Contact our team today. We help businesses reduce customer churn and increase revenue by offering cost-effective and scalable customer service solutions. Schedule a FREE DEMO TODAY!

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