Is your churn rate better than average? Churn rate by industry and how to improve customer loyalty

When you think about churn, your mind will likely go to SaaS and subscription-based businesses.

These are, after all, the industries that most often express concerns in this area, especially since a recent Pacific Crest survey found that 33% of SaaS companies reported unsatisfactory churn rates

However, when you consider it as a standalone issue, it becomes evident that churn rate is a powerful way to think about customer engagement in any industry. Maintaining a healthy base of happy customers is your key to growth, after all, and churn rates are just as vital to annual reviews as your customer acquisition rates. As such, we are going to benchmark average churn rates by industry and look at the steps you can take to minimise churn and maximise profits at last. Hint: a good customer loyalty programme is your ticket to success in 2020. 

 

Determining your churn rate

Before you can understand how your annual churn rate compares to averages, you’ll need to know what it is. While most SaaS companies will collect and thus know this information as standard, surprisingly few of us in other sectors actually understand how to determine monthly churn rates, or how to decipher what they mean regarding customer success levels overall. This is a significant problem considering that reducing churn is vital for achieving customer lifetime value, and reduction is never going to be possible until you get a firm grasp on figures.

Luckily, this isn’t a difficult thing to get your head around, especially if you have a clear idea (as you should) about the number of customers you can expect through your doors during given time periods. With this information to hand, you can settle on simplistic churn rate calculations by merely dividing your amount of churned customers by that total number. You could then also take this further by figuring out when customers most often churn using variables such as the length of time since their last visit/purchase. 

Revisiting these calculations on a monthly and also annual basis means that you can forever understand where your churn rate sits among average rates, and what you can do to improve it.

 

Understanding how you compare: Churn rates by industry

Now that you understand your churn rate as it stands, you must consider how it compares within your industry. Only then can you understand if the rates you’re working with right now are better or (hopefully not!) worse than average. 

Sadly, this is a much more laborious process than your calculations in the first place, especially considering that churn rates vary a great deal across industries and even sectors within them. Worse, with many statistics pointing solely towards churn rates among B2B SaaS companies and subscriptions, retailers often struggle to reach accurate amounts here. After all, B2B businesses typically reach average churn rates of around 5% compared with the 7.05% that’s more typical of customer-facing companies. And that’s just the tip of the iceberg on industry rates and changes.

churn rate by industry

Cohort analysis also reveals that rates even vary a great deal within seemingly similar industries. SaaS averages, for instance, are at just 4.79%, while business services in general garner much higher rates of 6.25%. Even customer-forward companies like media and entertainment are down to 5.23% at the moment, compared with a significantly higher 9.62% churn rate from consumer goods businesses such as retailers. 

Ultimately, then, understanding whether you’ve got a ‘good churn rate’ comes largely down to understanding your customer base, and taking the time to analyse only revenue churn from companies that operate in much the same ways. Make sure, too, that you’re considering variables such as voluntary and involuntary churn. User churn can, after all, come down to either involuntary or voluntary setbacks. As such, even a seemingly positive churn rate turnup might be way ahead of the 1.39% involuntary rate, or much lower than the 4.21% voluntary rate. And that can make all the difference to the steps you should take for improvement moving forward.

 

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Customer loyalty: the solution to churn rates you can trust?

While you’ll want to do whatever you can to keep churn rates low and well within those average brackets, the simple fact is that you’re always going to experience some level of churn. That much is inevitable and even expected. With that in mind, all you can do is take steps to reduce the damage and address any issues, especially if large numbers of consumers are churning on an involuntary basis. After all, it costs five times more to acquire new customers than keeping your existing ones. As such, reducing your churn rates by just 5% could see you saving anywhere from 25-125% of your income.  

Given that your efforts here really all come down to keeping customers onside and buying your products, it should come as no real surprise to you that customer loyalty should be at the heart of your annual plans for churn rate reductions. By building a loyalty scheme that genuinely speaks to the consumers you’ve got and those you acquire moving forward, you can certainly wave goodbye to high churn rates. Even if your current calculations put you at better than average, that’s a goal well worth working towards. The question is, how exactly can you improve customer loyalty with churn rates in mind?

Be proactive

Few consumers suddenly decide to turn their backs on companies. Rather, this tends to be a gradual process of forgetting or dissatisfaction. And, those are both issues you can address by simply becoming more proactive in your loyalty efforts. Automated and personalised emails are a fantastic way to do this, as are loyalty programmes that keep on giving and ensure the consumers in question never feel abandoned or unimpressed enough to leave. 

Surprise, delight and engage with third-party loyalty programmes

Loyalty programmes can also help you a great deal when you use them to surprise and engage customers with third-party offerings. In this instance, even individuals who were considering looking elsewhere are more likely to start buying from you again. This is because third-party providers have the tech and know-how to dedicate entire experienced teams to tailor-made loyalty offers that guarantee genuine interest. Programmes like these are always better from a churn rate perspective than cardboard cutout alternatives, and they could just see you beating averages next year, or going even lower than that curve.

Always add value

Along the same lines, you should always do what you can to add value to your existing consumers. This means avoiding standardised ‘10% off’ offers, and instead thinking about what consumers really want. Returning to your churn rate calculations could help here. For instance, higher than average involuntary churn rates suggest that things like high shipment costs are your issue, so free shipping offers for repeat customers are sure to work well. Equally, personalising loyalty discounts, etc. based on purchase history makes sure you’re adding value where it matters, and keeping many more customers on board as a result.

 

Stop churn rates from churning up mud in your business

Ultimately, there’s no such thing as a good churn rate. While understanding where you rest in industry averages can help you to get a grasp on just how many consumers you’re losing each year, you can guarantee that customer loyalty still deserves a place at your business table. By simply taking the time to build on your retention efforts in these ways, you’ll never again need to ask yourself whether your churn rate is better than average. You’ll automatically know that it is.

 

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