UWR 011 – Churn: what is it and why is it important

In today’s episode, I am speaking about churn. This episode is the audio from a Facebook live that I previously did, but the content is incredibly useful, so I wanted to share it with you here on the podcast. So, let’s dive in. I wanted to talk about churn and what churn is, why it’s important and what you need to be thinking about when it comes to churn. First off, customer churn, also known as attrition, customer turnover is a really incredibly important number to understand in your business, if you are doing anything that is run on a monthly basis, whether that’s a membership, whether that’s just monthly coaching, a group programme, whatever that might be, it’s really important to understand what churn is because churn is the annual percentage rate at which customers or clients stop subscribing, being members, whatever it is that they are. So like I said, churn is also customer attrition. It’s customer turnover. It is the annual percentage rate at which customers stop basically being customers for those people that come to you on a monthly basis for whatever it is that you’re offering. And churn is incredibly important because it directly affects your service’s profitability, so it’s really common to assume that the profitability of the surveys is directly in relation to the growth of the customer base, but the thing is with churn it basically shows you how much the customer base is potentially shrinking versus growing. If you are just focusing on growing the customer base, growing the customer base, growing the customer base and you’re not focusing on churn, what you need to make sure is that for every new customer that you get on board, you’re not losing somebody off the backend. Okay? If you keep losing customers, if your churn rate is quite high, you keep needing to get more and more and more and more new ones. You need to keep acquiring them faster and faster and more and more and that costs money. It costs way, way more to get a new customer on board or new client on board than it does to keep your existing ones, so if all you’re doing is focusing on the growth, the client numbers, the customer number growth and you’re not looking at churn, then actually you’re probably spending way more then you need to be on acquiring customers and growing your revenues, growing your business. If you focus on churn and focus on making sure that the ones that you have are not going anywhere, that they are sticky, is another word that people like to use. If you focus on that, actually you need to spend way less on terms of marketing and getting new people in, because you don’t need to keep replacing ones that you’ve lost. Not only that, if you focus on decreasing churn, usually a big, big part of focusing on decreasing churn on increasing the value and the experience that you give to the customer or client, making sure they have an awesome experience. They’re going to speak wonderfully about you when they are out and about thereby naturally, organically by word of mouth, ideally and hopefully increasing the number of people that come into your business as well. So it’s a double whammy win/win there, if you start focusing on churn in your business. The question that people often ask me when I come to look at their businesses is, “Is my churn rate okay? Is it a good rate?” And what we would say is that 5 to 7% annual churn is a good rate. That roughly translates to roundabout 0.42 to .58% monthly, if you’re looking at a monthly churn rate. So what that means is that companies with an acceptable churn rate only lose about one out of every 200 customers a month. Or you can translate to us monetarily. So one pound out of every 200 pounds a month, of course you can 10X that up, 100X that up and multiply that out to look at what you...