Understanding the Customer Churn Rate and Using Surveys to Lower It

Understanding the Customer Churn Rate and Using Surveys to Lower It

The customer churn rate is a crucial metric that all businesses must measure, as customer churn is a grim reality that businesses contend with regularly. In fact, two-thirds of companies have a customer churn rate above 5%.

Also referred to as customer attrition, defection or turnover, this metric gauges the unfavorable aspect of the loss of business with customers, users, vendors, revenue, or other factors within a period of time. 

Commonly used in SaaS market research, it is used to measure the percentage of customers who unsubscribe from a SaaS product in a given period of time. However, this metric is crucial to measure in all industries. 

This rate ought to be kept low, as churn usually indicates customer dissatisfaction or the availability of affordable alternatives. This is hugely problematic, as the customer is king; 43% of customers spend more money on brands they're loyal to. Additionally, acquiring a new customer costs 5 times more than retaining an existing customer. Thus, businesses should retain their loyal customers.

This article expounds on the customer churn rate, its importance, its average across various industries, its calculation and how surveys can lower it.

Understanding the Customer Churn Rate

As its name suggests, this rate is a calculation of customer churn. Before diving into the metric, businesses should understand the meaning of customer churn. 

Customer churn refers to the number of customers or subscribers who stop using a service during a given time period. There are a number of ways that customer churn affects a business, depending on its nature. These include:

  1. An account closure
  2. A subscription cancellation 
  3. A non-renewal of a contract or service agreement
  4. A consumer switching to another service provider
  5. The cancellation of a contract midway through it or before completion

The customer churn rate (CCR) is therefore a metric that calculates the total number of customers a business has lost during a specific period. Therefore, it is the antithesis of the customer retention rate

The customer churn rate is typically used to measure churn in businesses that run on a contractual or subscription-based product or service offering. As such, this term is chiefly associated with companies that operate on a subscription basis, such as SaaS companies. 

referred to as the proportion of contractual (or subscribed) customers who terminate their contractual relationships/subscriptions with a company in a given timeframe. In this context, the term is primarily associated with companies operating on a subscription basis.

The Importance of the Customer Churn Rate

Businesses should measure their customer churn rate at regular intervals, as it is an important metric. 

Firstly, its indication of lost customers directly ties into lost revenue. When a company loses customers, it negatively affects its bottom line. In this way, a high churn limits a business’s growth potential. Additionally, a significant churn rate always incurs financial difficulties of some degree.

Another reason it is so important to study and improve customer churn is that it is far more expensive to acquire new customers than it is to retain existing ones. In fact, acquiring a new customer costs 5 times more than retaining an existing one. As such, a business’s customer acquisition cost (CAC) is going to be more expensive than its customer retention rate (CRR). 

Therefore, when a business loses existing customers, it will have to grapple with both the loss of revenue and business opportunities, coupled with the need to spend more on acquiring customers to make up for those that have churned.

As such, businesses must rein in their customer churn rate — and in order to do so, they have to keep track of it

Studying this rate also involves keeping tabs on the competition, another critical area of maintaining business success. This is because the CCR can increase when competitors launch new and/or less expensive products, which may entice customers to churn and switch to them.

This dampens customer loyalty for obvious reasons and for some customers, can be a permanent switch to another brand. The ability to predict the churn rate is necessary for a company’s long-term success. Thus, businesses should gauge their churn rate and control it whenever possible.

How to Calculate the Customer Churn Rate

There are multiple ways to calculate the customer churn rate. This metric is typically presented as a percentage of either lost revenue or customers lost within a period of time. The following explains the CCR calculation:

To calculate a company's churn rate, first, you must choose a period of time to evaluate and identify the following values:

  • The number of customers at the start of a period (X)
  • The number of customers lost during the period (Y)

Then, use the following churn rate formula to determine your customer churn rate (Z), expressed as a percentage.

Customer Churn Rate Formula

CCR =  (Y / X) x 100

CCR =  (number customers churned in a period / number of customers at the beginning of the period) X 100

For example, if a business had 200 existing customers at the start of Q3 and lost 20 customers by the end of Q3, it would calculator its churn rate as such:

CCR =  (20/200) x 100

CRR = 0.1 x 100 

CRR = 10%

This means that this business has a quarterly customer churn rate of 10% for Q3.  

Aside from the number of lost customers, there are other churn metrics to plug into the customer churn rate formula. Whether or not these metrics are worth using to calculate the CCR is completely up to the business in question. It will depend on the nature of the business and its performance metrics needs.

Other churn metrics that businesses can use include the following:

  • recurring revenue lost
  • percentage of customers lost during a specific period
  • decreased engagement product engagement
  • percentage of revenue lost
  • other variables specific to their product and business. 

The more granular a company is with its customer churn analysis, the more effective it can be when working to reduce the churn rate and keep its customers.

Ideal Versus Poor Customer Churn Rate Benchmarks

All businesses undergo churn, even those that are new and/or are experiencing a solid subscription rate with no current turnover. 

How can businesses distinguish between a good and bad churn rate? There are certain existing benchmarks for this. The most ideal, but unrealistic churn rate is 0%, as no business profits when a customer churns.  

Given that it is virtually impossible to maintain a 0% churn rate, there are certain practical benchmarks that businesses can aim for. The following lists both ideal and poor CRR benchmarks that businesses ought to know:

  1. The ideal churn rate is 5-7%.
    1. This is considered the proper rate for mature and well-established SaaS companies that target enterprises.
    2.  For early-stage businesses, the monthly churn should be closer to 5%.
  2. A churn rate above 10% is a critical warning that a business is poorly faring in customer retention. 
    1. It signifies the need to change the customer experience (CX).
  3. A high CCR is over 10%, signifying that a business is operating at an unsustainable rate.
    1. It usually means that marketing efforts/ resources are used for acquiring customers rather than retaining them.
  4. When a business has a high churn rate, it must examine how it forms and fosters its customer relationships.

The Customer Churn Rate Across Industries

The CCR varies across industries and is highly likely to vary from one company to the next. Businesses should have an overview of how the churn rate fares in their industry and others. The following lists the average customer churn rate across several major industries:

  1. General retail: 24%
  2. Online retail: 22%
  3. Financial: 25%
  4. Telecommunications: 21%
  5. Travel: 18%
  6. Big box electronics: 11%
  7. Cable: 25%
  8. SaaS: 4.79%

How Surveys Can Lower Customer Churn Rate

Survey research can be used for a variety of purposes, which include lowering this unfortunate metric. This is because reinforcing strong business relationships with customers is a must in order to decrease the CCR. The most potent way to achieve this goal is by understanding your target market. Surveys allow businesses to do so in a quick and efficient manner.

Surveys allow businesses to examine their customers on an in-depth level, as surveys provide them with anonymity and speed, unlike survey panels and focus groups, which are not anonymous and are typically more time-consuming.

Given that surveys can address a wide range of topics, from customer satisfaction, to customer aversions, to customer buying behavior, brands can gain a wide swath of insights that support various campaigns. 

Whether a business seeks to adjust its pricing strategy, partake in customer development before releasing a new product or improve its brand visibility, surveys provide the strongest means for obtaining customer feedback and insights. 

Essentially, surveys allow businesses to understand their customers in relation to numerous business topics and concerns, while also providing them the opportunity to improve their strategies across functions, such as marketing, advertising and beyond. When businesses are in lockstep with their customers, they are far less likely to disappoint them.

Thus, businesses that know how to cater to their customers are poised to satisfy and delight them, thereby lowering their customer churn.  

Using the Best Online Survey Platform to Reduce Churn

Customer churn can occur within even the most loyal of customers, especially in a highly competitive landscape. Understanding what causes formerly loyal customers to abandon ship is much-needed to sustain business growth.

While survey research is crucial, all online survey platforms are not identical in function, interfaces, data quality and ease of use. A strong online survey tool ought to excel in all regards and more. 

For example, a useful online survey platform should incorporate RDE (random device engagement sampling) in order to capture respondents in their natural digital habitats and in a completely randomized manner, as well as include artificial intelligence that performs quality checks to ensure the highest quality of customer data.

Businesses should choose their survey software wisely, should they seek to lower their churn rate and improve on many other business fronts.

How Surveys Help Reduce Customer Churn Rate

How Surveys Help Reduce Customer Churn Rate

The customer churn rate can be a disappointing metric that businesses must contend with — that is, it measures a negative behavior, but when the rate is low, it signifies a positive business attribute.

This is because churn rate quantifies an aspect of financial health by way of a customer behavior; a low churn rate is indicative of favorable customer relations. Companies should strive for a low churn rate as it helps pave the way for a strong financial standing.

On the contrary, a high customer churn rate is bad news; it points to poor consumer loyalty, which all brands should avoid like the plague. Implementing market research, particularly surveys can help reduce churn.

This article explains what the customer churn rate is and how surveys are a proven antidote.

Defining the Customer Churn Rate

This is a financial metric that measures customer churn, which is a behavior defined by customers who stopped using a business’s products or services within a certain time frame

Also called customer attrition, this metric is especially relevant for businesses who offer subscriptions or contract-based services. In this case, the churn rate specifically refers to the number of subscribers who either cancel their subscription or don’t renew it. 

Customer churn rate is expressed as a percentage, in which the percentage refers to churned customers within a given time period. 

“Churn” also alludes to loss on a larger scale; this means it can describe losses beyond customers alone. Here are a few examples of matters that churn rate determines:

  • The number of customers (the most common measurement)
  • The value of lost recurring business 
  • The percentage of the loss of recurring value 

How to Calculate the Customer Churn Rate

Calculating churn rate is fairly simple; all you need is to consider two variables: the number of customers you lost within a time period and the number of customers you started off with previously. 

Divide the number of customers you lost, say, in the last quarter, as is the common variable, by the customers you started with in the last quarter. Move the decimal point twice to the right to get the percentage. This percent represents the churn rate.


Customers you lost last quarter: 50
Customers you started with at the beginning of last quarter: 900

50/900= 0.05555555
Churn rate = 5.55%

This standard calculation also represents the simplest kind, as there are 4 ways to calculate churn rate. You ought to consider which calculation is most needed for the unique situation of your business. 

It’s important to note that the simple method of calculating churn does not take newly acquired customers into consideration. For example, say you gained 40 new customers during the last quarter — these are not part of the formula, therefore do not count towards your quarterly churn rate.

It’s also critical to remember that the time period used above is just an example; you can quantify customer churn on a monthly or yearly basis if you so choose.

Why Churn Rate is Significant to Consider

You should be regularly checking your churn rate as it helps you gauge your customer loyalty. Loyal customers are unlikely to churn, so the ones that do are significantly less loyal. 

By understanding the disloyal customers, you can craft better experiences, messaging and even product innovations to ensure less churn and therefore greater customer retention. In today’s competitive digital landscape, customer retention is more important than customer retention

Not only is acquisition more expensive, as it costs 5 times more to acquire a new customer than to keep an existing one, but it also yields less profitable results. Customer retention, on the other hand, increases profits up to 95%, after a mere 5% increase in retention, as one study found. Therefore, it is key to a successful business.

Additionally, retention is critical, as existing customers don’t require as much persuasive efforts to stay with a business (they’re already doing so). They are also willing to spend more — up to 31% more, as well as being more inclined to try new products

The lower your churn rate is, the greater your customer retention is for a particular time. As such, it is in the best interest of any business to keep churn rates low, so they must be carefully observed. 

As far as customer retention is concerned, churn rate is also useful to study in comparison with Customer Lifetime Value (CLV), which measures a customer’s entire worth to a business during their lifetime relationship with one. 

All in all, the churn rate helps you keep track of your lost customers. In order to keep this rate to a minimum, you must at the very least calculate it. 

Customer Care: the Most Potent Way to Minimize Churn

Your product or service may be useful and necessary to your target market, but if you are disconnected from your customers, many of them are bound to churn. The strongest method to avoid churn or reduce it significantly is to provide the best care for your customer.

Caring for your customers involves a number of different actions, as it is not bound solely by friendly customer relations, as its name may suggest. Here are several ways to care for your customer to minimize churn rates:

  1. Offer multiple methods of communication, to ensure your customers that they are being listened to and heard. This will also allow you to understand what they seek and what they loathe. 
  2. Create incentives; these help your company stand out among competitors and grant your customers more value.
  3. Formulate a loyalty program; this incites multiple purchases, fostering retention and relationship-building with your customers.
  4. Implement a strong VoC (voice of the customer) program for customers to be able to express their grievances and desires.
  5. Practice social listening, the process of overseeing social media networks for mentions of your company and competitors. This will give you a firsthand glimpse into how your customers feel about you in relation to other businesses in your niche. 
  6. Personalize the customer experience, whether online or in-store, personalization shows customers that they’re not just another number making a purchase, but they are individuals you are being thoughtfully catered to.
  7. Reach out to customers yourself. Don’t wait for them to come to, as most often won’t unless they have a question or concern. Up your marketing ante via emails, social media and calls (especially if you provided free samples for the last method). This also shows customers that they are being heard and more personally served. 

Survey Research: Providing a Breeding Ground for Better Customer Relations

Surveys help you achieve all of the techniques aforementioned in the prior section. This is because in order to coax your customers into loyalty and out of churning, you need to be able to understand them

While plenty of software programs make promises of improving customer satisfaction and thereby relationships, surveys are the only alternative to get specific answers to both your own questions and those of your customers. 

Surveys have the power to capture more than merely your customers’ needs. These vehicles allow you to gain direct insight into your customers’ minds on virtually anything: opinions on current affairs, aversions, desires, small irritation factors, shopping preferences, etc. 

The better you understand your customers, the better you will serve them, whether it is through your marketing, branding, or product upgrade endeavors. 

With mail-in surveys becoming obsolete, an online survey platform is the most optimal method for conducting your survey research. 

Surveys help stamp out churn rate as they can be hyper-focused on one aspect of the customer experience. For example, you can create a survey to collect feedback on a recent order, an interaction with a salesperson or a chat representative, or you can gather opinions on current product updates, product glitches, ads and virtually anything else you can think of to avoid customer churn. 

The latter is especially useful if the survey platform you use allows you to insert visual elements (images, GIFs, etc) to your questionnaires. 

Surveys may appear to provide little depth as most have to be kept short to avoid survey attrition. However, you can design surveys with open-ended questions for a qualitative approach to your surveys. These allow customers to provide invaluable insights on why they churned or are thinking about doing so. 

Prioritizing the Correct Actions to Reduce Churn Rate

Once you’ve gathered and analyzed data from your survey research, you’ll be able to understand what causes your unique customer churn rate. This will equip you with the knowledge to move forward with meaningful changes.

You should prioritize on the strongest influences to your churn rate and create a plan of action to reduce them. Survey research can point to problems you’ve never thought were present.

For example, perhaps your product or offering is perfectly fine and even desirable among your customer base. Instead, your customers churn due to poor customer support. This should prompt your business to adopt more training within this particular department. 

Or, perhaps your product has no malfunctions; rather your customers want it to do something beyond its capabilities. It is possible that your competitors are already on to this and have adapted their product to this customer desire. Thus, it is easy to see why your customers churned. What’s most important is that with this insight in tow, you can inform your product team and prioritize on innovating. 

This will lessen your churn rate in turn. When your churn rate is in decline, it translates to added revenue. Surveys can detect frustration with specificity, allowing you to avoid issues that contribute to customer churn. 

Frequently asked questions

What is customer churn rate?

Customer churn rate is the percentage of customers who stopped using a company’s products or services during a certain period of time.

How is customer churn rate calculated?

In order to calculate customer churn rate, a company must first identify two figures for a certain time period: the number of customers who started off with the company and the number of customers who left. To calculate the customer churn rate for a certain period of time, divide the number of customers who left by the total number of customers during this time period.

Why is it important to track customer churn rate?

By understanding how your customer churn rate changes over time, a company can understand the factors that influence customers to stay or leave. The company can also work on creating a better customer experience to improve its churn rate.

What are some of the ways to minimize customer churn?

Customers are more likely to stay with a business if they feel a connection with the company, are easily able to contact the company, have an incentive to stay (i.e., via a loyalty program) and/or are satisfied with the customer experience in general.

How can survey research improve customer churn rate?

Surveys can provide direct and unique insights into the mindset of your customers so that you can enhance the customer experience, improve customer loyalty and reduce customer churn.