Learn how you can Unlock Limitless Customer Lifetime Value with CleverTap’s All-in-One Customer Engagement Platform.
Customer churn is the bane of nearly every business on the planet. In fact, nearly three-fourths of all app users worldwide will stop engaging with, or uninstall, an app within three months of downloading it.*
Losing hard-won customers is never easy, and in today’s highly competitive marketplace, it’s particularly painful.
While the term is often used to describe when a subscription customer cancels their subscription, it’s also often used to describe when any regular customer decides to stop doing business with you. In mobile, the term churn can also be used interchangeably with abandonment rate.
Churn is measured as the rate at which customers stop doing business with a company over a certain period of time. The impact of customer churn on your business can be significant and can affect you in a number of ways.
The impact of customer churn can be dire and includes many of the following:
Customer churn can result in a significant loss of revenue. When customers leave, they take their business and their money with them, which obviously can have a negative impact on a company’s bottom line, particularly if the customer was of high value.
Riding High, Until It Wasn’t: Netflix
In 2011, Netflix made a controversial decision to increase its prices and split its DVD-by-mail and streaming services into separate offerings. Customers revolted en masse, and many churned. Netflix lost 4% of its subscriber base in the U.S. and $8 million a month in revenue. The company apologized and quickly reversed its decision, but the damage had been done, at least in the short term.
This example highlights the importance of listening to customer feedback and when things begin to go sideways, being lightning fast in addressing the issue and potentially reversing course if a strategy is proving to be exceptionally damaging to the business.
It’s been proven again and again that it’s far more expensive to acquire new customers than it is to retain the ones you have. It’s simply an unsustainable way to do business as customer acquisition costs can become a significant expense for a business when churn is too high.
Customer churn can also result in a reduced customer lifetime value, as customers who leave are less likely to make repeat purchases or recommend the company to others.
Blue Apron Leaves a Bad Taste
Blue Apron is a subscription meal service kit. In 2017, Blue Apron went public, reporting that it had acquired over one million customers. However, the company also reported high churn rates, with many customers trying the service for a few months, then canceling, unsatisfied with the offerings or the value for the money.
In addition to their CLV declining from 26 months to just six months over two years, the company also reported a net loss of $210 million in 2017, and its stock price declined by over 50% from its initial public offering price.
Obviously, churn here had a hugely negative impact on a seemingly successful company going public, and it had to undertake many changes to encourage customers to stay subscribed.
A customer who leaves is likely to find another business instead to meet their needs — your competitor. If too many customers leave, your company will suffer from the impact of this decreased market share and increasing inability to compete.
Dying on the Vine: Lessons From BlackBerry
BlackBerry was once the leading smartphone manufacturer in the world, with a dominant market share of over 50% in the U.S. market in 2009. But, the rapidly evolving smartphone market saw many customers switch to more preferred and innovative devices from companies like Apple and Samsung. BlackBerry reported a net loss of $1.1 billion in 2013 and its stock price declined by over 70% from its peak in 2008. Eventually, the company largely exited the smartphone market altogether, its ruin complete.
Not just a catchphrase, this example illustrates the genuine need for your businesses — or any business — to continually “innovate or die.” And when market conditions change drastically, you need to adapt quickly if you’re going to survive.
Another impact of customer churn can be on a company’s reputation as unhappy customers can and will share their negative experiences with others — with their friends but also more widely via social media, website comments, and third-party review sites.
Unacceptable: United Airlines’ Epic Fail
You may recall a widely reported incident on a United Airlines flight in 2017, and the widespread public backlash that followed, after a passenger was forcibly removed from a flight to make room for crew members*. The incident sparked outrage and calls for a boycott of the airline.
Not surprisingly, as a result, the airline lost a significant number of customers in the days and weeks that followed the incident, up to 10,000 customers by some estimates. And of course, the brand’s reputation suffered mightily, at least for a time.
Ayopop is an Indonesian fintech startup that was challenged by retaining customers beyond the initial 90-day period. To address this issue, Ayopop partnered with CleverTap to utilize our sophisticated engagement and retention features
With CleverTap, the team at Ayopop can understand and fine-tune the entire user journey and identify the key factors infuencing churn. Flows and Funnels enabled them to gain a deeper understanding of user behavior, and automated segmentation lets them create user groups based on demographics.
The results were impressive. Ayopop managed to reduce its 90-day churn rate by an impressive 15%. CleverTap’s data-driven approach and personalized engagement strategies kept customers active and satisfied beyond the initial phase.
Ayopop’s success in reducing churn demonstrates the value of leveraging data and targeted messaging to improve customer retention in the highly competitive fintech industry.
To learn more, read the entire case study.
Measuring the cost of lost customers can be a challenging task, as it involves assessing a variety of factors that contribute to the loss of a customer. Here are some steps that can help you to measure the cost of lost customers:
1. Determine the customer lifetime value (CLV): The CLV is the total value that a customer is expected to bring to a business over the course of their relationship. This includes the value of their purchases, the frequency of their purchases, and the length of time they are likely to remain a customer.
In calculating CLV, you must also account for customer acquisition costs (CAC), ongoing sales and marketing expenses, operating expenses, and, of course, the cost required to manufacture the product and services the company is selling.
Here’s how to calculate CLV:
For more detail on CLV, how to calculate it, and some tips for increasing it, read our blog.
2. Calculate the churn rate: The churn rate is the percentage of customers that stop doing business with a company over a certain period of time. This can be calculated by dividing the number of lost customers by the total number of customers.
3. Calculate the revenue lost: Once you have calculated the churn rate, you can then determine the revenue lost due to lost customers. This can be calculated by multiplying the CLV by the number of lost customers.
For example, suppose you have 10,000 customers in total, a churn rate of 10%, and a customer lifetime value (CLV) of $100. To calculate the revenue lost due to lost customers, you would:
Determine the number of lost customers: 10,000 divided by 10% = 1,000
Multiply the CLV by the number of lost customers: $100 * 1,000 customers = $100,000
This is your total revenue lost: $100,000
4. Determine the cost of customer acquisition: To fully understand the cost of lost customers, it is important to consider the cost of acquiring new customers to replace them. This includes marketing and advertising costs, as well as the cost of sales and customer service.
5. Analyze the impact on profitability: Finally, it is important to consider the impact of lost customers on overall profitability. This includes the direct impact on revenue, as well as the indirect impact on brand reputation and customer loyalty.
… it can be minimized.
As the examples above illustrate, some of the most successful, enduring companies can be challenged by losing customers. Whether through changes in the marketplace, poor strategic decisions, or failure to innovate and anticipate, churn can affect brands large and small in any category.
Regardless of your brand’s past or future success or your share of the marketplace, you can — and undoubtedly will — be faced with churn. How well you anticipate, understand it, and manage it will be the key to how well you can overcome it,
If you need to know the most effective and proven strategies and tactics for reducing churn — and how to implement them — download our guide below.
Preventing Mobile App Churn