There are a few numbers that I find extremely important for every CRM strategy to report on. On of them is the customer churn: the number of customers that leave after being a customer for a period of time.
I think customer churn reporting is useful, since you will always be looking for ways to grow your business. Instead of focusing solely on generating new (and often the sexy) business, you should also pay attention to your current customer base. Customer churn gives you an indication of who is leaving the company as a customer (and stops generating revenue), giving valuable feedback to your sales reps and the business as a whole.
What is customer churn?
Customer churn simply put is the number of customers who do not generate revenue in time X, divided by the complete customer base in time X. This period can be put as weeks, months, years of even multiple years. The time is defined by the customer base, your industry and the product(s) you sell.
It makes common sense that a car dealer’s customer churn interval is a lot longer than a restaurant’s. A car dealer will put this time frame at maybe three to five years, where a restaurant should stick to something like one or two weeks. Key is that you can only use customer churn well if your business works with subscriptions or recurring products (like groceries).
The not so secret formula of customer churn
The formula of customer churn is: number of customers who stopped paying / total number of paying customers.
It is that simple. Let’s give you a quick example on how to calculate this for an e-mail newsletter subscription list.
|Unsubscribes in August||100|
|Total news letter subscriptions in August||10.000|
The curn on this newsletter list is 1% (100 / 10.000).
Average customer life time value
The customer life time value is your customer churn rate divided by 100%. This will give you an indication of the average customer life time value or how long it will take before you run out of business if you do not grow new business. In this case, because of a customer churn of 1%, it will take 100 months (100% / 1%) before no one is left on the subscriber list, giving the subscribers a customer life time value of 100 months or roughly 8 years.