Complete Guide to Customer Churn

Shipped on March 22, 2023

What is Customer Churn?

Customer churn is the rate at which existing customers stop doing business with your company. Customer churn is a crucial metric for measuring customer loyalty and satisfaction. It is also an essential indicator of a company’s success in retaining customers and maintaining customer relationships.

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of customers churn due to delivery problems.

Why churn matters – it is cheaper to retain customers than acquire them.

Customer churn is an important metric for ecommerce businesses because it can have a significant impact on their revenue and profitability. Customer acquisition cost (CAC) is one of the most important metrics to track for ecommerce.  CAC needs to be lower than customer lifetime value (LTV) in order for your business to be successful. Here are some reasons why customer churn matters for ecommerce businesses:
  1. Revenue loss: When customers churn, ecommerce businesses lose out on their future revenue. The cost of acquiring new customers is often higher than retaining existing customers, so losing customers can be a significant financial setback for ecommerce businesses.
  2. Reputation damage: Customers who churn may leave negative reviews or feedback about the business, which can damage the business’s reputation and make it harder to attract new customers in the future.
  3. Reduced customer lifetime value: Churned customers have a lower customer lifetime value (CLV) than loyal customers. CLV refers to the amount of revenue a customer generates over their lifetime of purchases from a business. Losing customers reduces the overall CLV of the business.
  4. Increased marketing costs: Ecommerce businesses may need to spend more on marketing and advertising to attract new customers to replace those who churned, which can be a costly and time-consuming process

What factors cause customer churn?

  1. Poor customer service: Poor customer service is one of the most significant factors in customer churn in ecommerce. Customers expect fair and speedy treatment; if they don’t get that, they are more likely to take their business elsewhere.
  2. Lack of engagement: Customers want to feel heard and valued. If a company does not try to engage with customers or takes too long to respond to customer inquiries, customers may be more likely to churn. 
  3. Poor product/service quality: If a product or service doesn’t meet customers’ expectations, they may be likelier to abandon the company and look for alternatives.
  4. High prices: Customers may be more likely to churn if they feel they are paying too much for a product or service.
  5. Bad website experience: A website should be easy to navigate and provide customers with their desired information and products. If it doesn’t, customers may be more likely to churn.

How to measure churn rate?

A basic formula for measuring customer churn is:

[(customers at the beginning of the time period – customers at the end of the time period) / customers at the beginning of the time period] x 100 = customer churn rate.

For a company that had 10,000 customers on the 1st of the month, and 9,800 on the 31st of the month it would look like this:

((10,000 – 9,800) / 10,000) x 100 = 2% churn rate

There are several other methods to gain insight into customer churn:

  1. Cohort Analysis: Cohort analysis involves grouping customers based on a specific characteristic, such as the month they made their first purchase. By tracking the percentage of customers that return to make another purchase in subsequent months, you can measure the churn rate for each cohort.
  2. Recency-Frequency-Monetary (RFM) Analysis: RFM analysis involves analyzing customer data based on three metrics: recency (when was the last purchase), frequency (how often they purchase), and monetary (how much do they spend). By grouping customers based on these metrics, you can determine which customers are most likely to churn and take steps to prevent it.
  3. Customer Retention Rate (CRR): Measures the percentage of customers that return to make another purchase within a specific period. This metric allows you to identify trends in customer behavior and take steps to improve retention rates.
  4. Net Promoter Score (NPS): NPS measures customer loyalty by asking customers how likely they are to recommend your brand to others. Customers who give a low score are likelier to churn, so tracking NPS can help you identify customers who may be at risk of leaving.

How to prevent and reduce customer churn?

  1. Offer excellent customer service: Companies should strive to provide excellent customer service that is fast and reliable. This can include responding to customer inquiries quickly, providing helpful and relevant information, and resolving issues efficiently. 
  2. Engage with customers: Companies should make an effort to engage with customers and make them feel heard and valued. Examples include offering rewards and incentives, creating personalized campaigns, and sending personalized emails and messages.
  3. Improve product/service quality: Companies should ensure that their products and services are of the highest quality to ensure customer satisfaction, such as providing frequent product updates, offering guarantees and warranties, and offering a money-back guarantee.
  4. Keep prices competitive: Companies should strive to keep their prices competitive and in line with the market. Examples include offering discounts and promotions or lowering prices without sacrificing quality.
  5. Improve the website experience: Companies should strive to make their websites easy to use and navigate. This could include ensuring the website is mobile-friendly, providing helpful information, and making checkout processes as simple as possible.
  6. Segment your customer base: Use audience segmentation to ensrue that you are targeting the right customer with messaging that resonates.

How to increase customer retention and loyalty?

  1. Personalized customer experience: Personalization is critical to building customer loyalty. By personalizing the customer experience based on their preferences, browsing and purchase history, you can show them that you understand their needs and care about their satisfaction.
  2. Rewards program: Implement a rewards program incentivizes customers to return to your ecommerce store. Rewards can include discounts, free shipping, and exclusive promotions.
  3. Customer service: Excellent customer service is a crucial aspect of customer loyalty. Ensure that your customer service team is knowledgeable, responsive, and helpful.
  4. Quality products: Ensure that your products are high quality and meet or exceed customer expectations.
  5. User-generated content: Encourage customers to share their experiences with your brand on social media and review sites. User-generated content is an efficient way to build trust and credibility with potential customers.
  6. Follow-up emails: Send follow-up emails to customers after they purchase to thank them for their business, offer additional product recommendations, and ask for feedback. Post-sale engagement shows customers that you value their opinion and care about their satisfaction.
  7. Community building: Build a community around your brand by creating social media groups or forums where customers can connect and share their experiences. Increase customer loyalty by fostering a sense of belonging and community.
  8. Branded Tracking Portal: Offer your customers a branded tracking portal to stop WISMO issues before they start. Provide your customers with peace of mind about where their order is.

Overall, the key to increasing customer loyalty in ecommerce is to provide an exceptional customer experience, build trust and credibility, and incentivize customers to return to your brand.

What are the best practices for customer service?

  1. Omnichannel support: Offer customer support across multiple channels like email, phone, live chat, social media, and chatbots. Allow customers to choose the most convenient method for their needs.
  2. Quick response time: Aim to respond to customer inquiries quickly. Set up an automated response system to acknowledge customer queries immediately and provide a reasonable time frame for a comprehensive response.
  3. Personalized service: Collect and use customer data to tailor your support services. Personalize email and live chat responses by addressing customers by name and using information about their previous purchases or interactions.
  4. Empathetic communication: Train your customer support representatives to listen actively, show empathy, and understand the customer’s perspective. Encourage them to use positive language and maintain a friendly tone throughout interactions.
  5. Knowledgeable support team: Equip your support team with extensive product and policy knowledge to address customer concerns effectively. Provide them regular training and updates on new products, promotions, and policies.
  6. Efficient issue resolution: Whenever possible, focus on resolving customer concerns during the first interaction. Develop a straightforward escalation process for complex issues that require additional investigation or input from other departments.
  7. Proactive support: Monitor customer feedback and analytics to identify common issues and concerns. Address these issues proactively through FAQs, knowledge bases, video tutorials, or personalized outreach.
  8. Collect and act on feedback: Encourage customers to provide feedback on their support experience. Feedback enables you to identify trends and problem areasin order to implement any necessary changes.
  9. Offer self-service options: Provide customers with self-help resources, such as FAQs, knowledge bases, and chatbots, to resolve simple issues without contacting support.
  10. Measure customer satisfaction: Track metrics like Customer Satisfaction (CSAT) scores, Net Promoter Score (NPS), and Customer Effort Score (CES) to assess your customer service performance. Use this data to set goals and continuously improve your support operations.
  11. Implement a post-purchase platform: Utilize Shipped Suite to automatically process customer support requests related to lost, damaged, or stolen packages to provide your customers with peace of mind and an easy-to-use claims portal.

Average Customer Churn Rates by Industry

Use this breakdown of churn rates by industry from Omniconvert to compare your rate and see if you have room for improvement. 

Beauty and fitness: 62% churn rate

People and society: 63% churn rate

Food and drinks: 64% churn rate

Health: 65% churn rate

Books at literature: 69% churn rate

Pets and animals: 70% churn rate

Sports: 70% churn rate

Apparel: 71% churn rate

Home and garden: 75% churn rate

Toys and hobbies: 77% churn rate

Shoes: 78% churn rate

Apparel clothing accessories: 79% churn rate

Consumer electronics: 82% churn rate

Gifts and special events: 82% churn rate

By implementing these best practices, you can create a customer service experience that meets and exceeds customer expectations, increasing loyalty, positive word-of-mouth, and higher revenues. Start by implementing Shipped Shield and improve customer satisfaction and CX resolution times with premium package assurance.