Importance of measuring churn rate for your business strategy

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How to measure average churn rate

As with Netflix, measuring the churn rate is both a preventive and a projective measure. It is used to measure the efficiency of the business model (monthly, quarterly, annually, etc.), establish growth forecasts and, above all, determine the causes of a “churn event.”

This is the name given to the moment when a client decides not to continue consuming your services or products.

For companies that are managed by renewable subscriptions, such as Netflix, Spotify, or a company that sells software licenses, these events are easy to determine by simply auditing the number of members who do not renew.

In this way, the reasons why these customers stop renewing can be analyzed: a price increase, a limitation of the benefits of the product, a loss of brand prestige, etc.

However, churn rates are not an indicator exclusive to these types of companies. south africa whatsapp number database Companies that manufacture tangible products (such as fashion or household appliances) can benefit from measuring churn rates.

In these cases, sophisticated data analysis comes into play , where factors such as the useful life of the products and the time it takes a customer to renew them come into play. For example: a pair of shoes is functional for 18 months and the average customer takes two months to renew them.

The churn rate , in this example, would be measured over that 20-month period, once the customer decides to buy shoes from a brand other than ours. And, even with that slack in time, this ratio will allow for measuring income and efficiency.

What does the churn rate tell us at first glance?

First of all, our company has made one or two big mistakes:

Poor customer adaptation: when the company does not understand the evolution of its own market, much less the consumption trends of its customers.
For example, when Blockbuster refused a strategic alliance with Netflix in 2010, clinging to the rental of audiovisual media, it went from dominating 25% of the world market to losing it in three years.

A bad customer experience: when the company does not take care of the final part of the sales funnel , and fails to retain the customer.
This is the case we have reported on regarding the Netflix churn crisis, whose audience felt mistreated by sustained price increases and a limitation on the portability of user accounts.