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Customer churn in eCommerce: The silent revenue killer and how to fight back
Updated:
9
minutes read
You've put your heart and soul into nurturing customers, and suddenly, they start slipping away from your Shopify stores, without you knowing the root of the problem.
Arm yourself with insights into churn rate in eCommerce—it's the critical metric that can make or break your store's success.
Understanding churn rate is the first step towards turning the tide. That's what our blog post is all about. In this blog post, we delve into all key aspects of churn rate and reveal powerful strategies to reduce customer attrition.
What is churn rate in eCommerce?
Churn rate is the rate at which customers stop using a service or purchasing a product from your online store within a certain period of time.
There are two types of churn rate, active churn and inactive churn. Active churn is when a customer actively stops interacting with your store (making a purchase, signing up for emails, etc.). This can be due to customer dissatisfaction.
Inactive churn is when a customer has a problem or error that causes the payment transaction to fail and is kicked out of the shopping journey, such as a website error when making a payment.
Why churn rate matters for any Shopify business?
Understanding churn rate and its impact on your Shopify store is crucial for making informed decisions that enhance customer satisfaction and drive business growth.
Churn directly affects a business's revenue
When customers churn or disengage from your online store, it means they are no longer making purchases. This loss of customers translates directly to a loss of potential sales and revenue.
By actively managing and reducing churn rate, you can retain more customers and keep them engaged with your business, thereby increasing repeat purchases and contributing directly to revenue growth.
Churn impacts customer lifetime value
Customer lifetime value (CLV) is a crucial metric that measures the total value a customer brings to your business through their lifespan. It takes into account not only the initial purchase but also the potential for repeat purchases and the overall value that a customer contributes to your business.
By reducing churn rate and improving customer retention, you can extend the lifespan of customer relationships and increase customer lifetime value.
Key indicator of customer retention
Churn rate provides insights into how well you are retaining your customers and the effectiveness of your customer retention efforts. If you notice a sudden increase in churn rate, it may indicate a problem with your product, customer service, or overall customer experience.
On the other hand, a declining churn rate suggests that your retention efforts are working well and customers are more likely to stick around.
Prioritizing churn helps reduce customer acquisition costs
Acquiring new customers in eCommerce often requires significant investments in marketing, advertising, and other acquisition strategies. These costs can quickly add up, especially when targeting new audiences or competing in a saturated market.
By prioritizing churn reduction and focusing on customer retention, you can minimize the need for constant customer acquisition. When you successfully retain existing customers, they continue to generate revenue and contribute to your business without incurring the high costs associated with acquiring new customers.
Moreover, retaining existing customers is generally more cost-effective than constantly acquiring new ones, as it eliminates the expenses for marketing, advertising campaigns, and other investments to attract new buyers.
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How to calculate churn rate in eCommerce
The churn rate, typically expressed as a percentage, can provide valuable insights into the health of your business.
What is considered a healthy customer churn rate
According to Forbes, well-established and mature companies strive for an annual churn rate of 5% to 7%, with a monthly churn rate of less than 1% considered a desirable benchmark.
Below are the Median subscription churn rates across global retail categories in 2022
It's important to note that churn rate can vary depending on various factors, including the industry, business model, customer acquisition costs, etc. For instance, if your business relies on a high volume of one-time purchases or experiences seasonal fluctuations, a slightly higher churn rate may be more acceptable.
Formula for calculating churn rate
Here's the formula to calculate churn rate:
Churn Rate = (Number of Customers Churned / Total Number of Customers at the Start of the Period) x 100%
Here are the steps to calculate churn rate:
- Decide on the specific time frame. It could be a month, quarter, or year.
- Count the number of customers who have stopped engaging with your business during the chosen time period. This could include customers who canceled their accounts, unsubscribed from your email list, or ceased making purchases.
- Calculate the total number of customers you had at the beginning of the chosen time period (including both new and existing customers).
- Plug the numbers into the churn rate formula.
Churn rate calculation example
Let's say you had 1,000 customers at the start of the quarter, and during that quarter, 200 customers churned.
The churn rate would be calculated as follows:
Churn Rate = (200 / 1,000) x 100% = 20%.
This means that the churn rate for that quarter is 20%.
20% churn rate means that, on average, 20% of your customers stopped using your product or service during that quarter. This rate is relatively high and indicates a significant loss of customers. It highlights the urgency for implementing retention strategies to reduce churn.
How to reduce customer churn rate
Understanding why customers are leaving
Understanding why customers are leaving is crucial for reducing churn rate and improving customer retention. Start by implementing feedback mechanisms such as surveys, customer interviews, and analyzing customer support interactions.
Additionally, studying customer behavior data, such as purchase history and engagement patterns, can reveal patterns and trends that contribute to churn.
Implement customer retention programs
Implementing customer retention programs is a powerful strategy to reduce churn rate and foster long-term customer loyalty.
Retention programs can take various forms, including loyalty programs, exclusive offers, and personalized experiences.
Learn more: GemPages’ comprehensive guide on How to create an effective marketing referral programs that ramp up your conversions.
One common tactic is to develop loyalty programs that reward customers with increasing benefits for their continued purchases. Exclusive offers and personalized discounts are additional ways to retain customers. Shopify owners often use this approach by sending personalized discount codes or offering exclusive access to sales and events for loyal customers.
Promote effective communication channels to keep customers engaged
By maintaining regular and meaningful communication, you can foster a sense of connection and reinforce the value of your brand in the minds of your customers. There are several strategies you can employ to achieve this.
- Email marketing: Send personalized newsletters, product updates, and exclusive offers that cater to their interests and preferences.
- Marketing landing page: Create a landing page that highlights new products, promotions, and upcoming events to keep customers informed and engaged. Take advantage of leading page builders like GemPages and its extensive library of high-converting templates to effortlessly create a professional and polished landing page that captures attention and drives results.
- Social media: Share user-generated content, and run contests or giveaways to encourage interaction.
- Webinars and virtual events: Host informative and interactive sessions where customers can learn more about your products, industry trends, or best practices.
Provide smooth shopping experiences
Creating a professional and user-friendly website is key to encouraging customers to return for more. Here are some ideas:
- Simplify the checkout page design by minimizing the number of steps required and reducing friction.
- Optimize mobile experience by implementing mobile-specific features, such as one-click purchasing and mobile-friendly navigation.
- Leverage customer data and insights to provide personalized recommendations and tailored product suggestions.
Tips: GemPages is a powerful website builder that allows you to streamline the customer journey on your website, from entering the landing page to browsing the products and making purchases. With its drag-and-drop functionality and rich design templates, you can easily customize your checkout page, mobile layouts, personalized product recommendations, and more.
GemPages drag and drop editor enables you to easily create and customize your online store without any coding knowledge required.
By utilizing GemPages, Shopify owners can effortlessly create a professional-looking website that ensures a satisfied customer experience and encourages them to return and purchase again..
Provide exceptional customer support
By delivering exceptional customer support, you can build stronger relationships, improve customer satisfaction, and reduce churn. Here are some strategies to provide your customers with outstanding support:
- Respond to customer inquiries and support requests as quickly as possible. Beside support team, you can leverage automation tools, such as chatbots, to provide instant responses.
- Offer support across multiple channels to accommodate customer preferences. This can include email, phone, live chat, social media, etc.
- Personalize support experience as much as possible: Use their name in communications, refer to their previous interactions, and tailor solutions to their specific needs.
Conclusion
Understanding and effectively managing churn rate is crucial for the success of eCommerce businesses. By calculating churn rate and monitoring it regularly, businesses can gain valuable insights into customer retention and identify areas for improvement.
Remember, reducing churn is an ongoing process that requires constant evaluation, adaptation, and a commitment to delivering outstanding experiences that keep customers coming back for more. We hope this information and our proven tips to reduce customer churn will help guide you in the right direction toward reducing churn and increasing customer loyalty for your business.
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FAQs
What is churn rate?
Churn rate is a metric that measures the percentage of customers or subscribers who stop using a product or service over a given period of time. It represents the rate at which customers discontinue their relationship with a business.
What does a 20% churn rate mean?
A 20% churn rate means that 20 out of every 100 customers are discontinuing their relationship with the business within a specific time frame. It indicates a relatively high rate of customer attrition, suggesting that a significant portion of the customer base is leaving the business.
How do you calculate a churn rate?
To calculate churn rate, you need to determine the number of customers lost during a specific period and divide it by the total number of customers at the beginning of that period. The formula for churn rate is typically expressed as a percentage.
How to reduce churn rate?
Reducing churn rate requires implementing various strategies aimed at retaining customers and improving their satisfaction. Here are some effective approaches to reduce churn rate:Gather feedback through surveys, customer interviews,… to understand why customers are leaving. Providing exceptional customer service to address any issues or concerns promptly Offering loyalty programs or incentives to encourage repeat business and build customer loyalty
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