Customer churn is the rate that a customer leaves the business. If customer churn is high then there will need to be a constant supply of new customers to buy, in order for the business to stay afloat, as each customers life time value will be low. On the flip side if churn is low then there is less pressure on having a constant customer supply, life time value will also be higher as customers will keep purchasing.
If customer supply is steady, a low churn business will always have higher top line, higher gross margins and higher cash flow. All with less pressure.
Enterprise value of a business is deemed as 20% customer churn PER YEAR (1.6% churn per month)
Strategies to reduce churn
✅ If somebody doesn’t consume prescribed stuff… call them and find out why
– accountability for the consumption of the thing you sell
– effectively be their conscience
âś… Exit interviews
– Introduce friction
– identify things that are wrong and need fixing
– sometimes people might be leaving to get more value elsewhere when you offer higher-value services where they already are
âś… Member events/community nights
âś… Cards/ gifts of appreciation (personalised)
– tell them the journey that they have been on
âś… Check-in on them as a friend, not a business
Calculations
🔄Customer churn and ltv are directly proportional.
Churn = customers that have left business over period Ă· total number of customers served over period
Ltv = average customer value per month Ă· per month churn