Here are a few simple questions for you:
How much do you spend on SEO each year?
What about marketing?
And content creation?
No need to answer because we already know it’s quite a bit.
Every e-commerce has to strive to attract traffic and that’s really expensive.
But that doesn’t have to be problematic – and the best way to recover that investment is to get your customers to buy more than just once. Since the customer acquisition cost is covered after the first purchase, the profitability of each additional sale you get from them is much higher.
For that reason, today’s post will tell you:
- What churn rate is.
- Different ways to work it out.
- How to decrease it so your clients buy from you more than just once.
Ready to stop clients from leaving without buying? Let’s get to it.
👉 What is churn rate?
Churn rate is the metric that measures the percentage of clients that stop buying from your e-commerce shop during a specified time period.
That is, it tells you how many clients you’ve lost in a specific time.
- If your churn rate is high: Your clients don’t buy in your e-commerce again and you lose sales opportunities.
- If your churn rate is low: You’re fostering client loyalty properly and your customers keep buying from you on a regular basis.
As you can imagine, this piece of information is crucial because if you’re losing clients, it’s because the customer experience is somehow not as satisfactory as it should be.
Fixing that experience is of the utmost importance since having more purchases from the same customer directly and positively affects the profitability of your business.
👉 How to calculate churn rate
Once you’ve established the time period you’re going to analyze (we recommend doing it each month, but you can also do it quarterly or annually), there are two ways to calculate your churn rate.
✅ 1. If you know the exact number of lost clients
You have to divide the number of clients that have stopped buying by your total number of clients.
Use the following formula:
Churn rate = (Number of lost clients/Number of initial clients) x 100.
Let’s see an example to make sure it’s clear.
You have 500 clients at the start of the month and you know you’ve lost 45 throughout the month. The calculation is easy:
Churn rate = (45/500) x 100 = 9%
In other words, you’ve lost 9% of your customers.
You can do a similar calculation if you know the number of clients at the beginning and end of the time period:
Churn rate = (number of initial clients – number of clients at end of time period) / number of initial clients.
So here’s another example: You have 750 registered clients at the outset.
By the end of the month, you have 625.
In this case, your churn rate is = [(750 – 625)/750] x 100 = 16.6%
So you’ve lost nearly 17% of your clients.
✅ 2. If you know your retention rate
Your churn rate is complementary to your retention rate, which is the percentage of clients that remain loyal to your business (those that “stay” and keep buying from you).
Therefore, to calculate your churn rate, you first need to know your retention rate by using this formula:
Retention rate = [(clients at end – new clients) / initial clients] x 100:
In this case, the formula to work out the churn rate is:
Churn rate = (1 – retention rate) x 100
Let’s look at one more example to make sure you’ve seen all the different calculations.
Say you have:
- 500 initial clients
- 40 new clients
- 455 clients at the end
The formula would be: [1 – (455 – 40)/500] x 100 = 17%.
The result shows that your retention rate (loyal clients) is 83%, while your churn rate (clients you’ve lost) is 17%.
✅ What’s the right churn rate for an e-commerce
Ideally, 0% would be the perfect churn rate, but that’s simply impossible since you’ll always have one-time customers.
But the point is that churn rate has to do with customer satisfaction.
That’s why you should try to keep it low; if it’s high, it means your clients are not content, so they leave and never come back.
👉How to reduce your churn rate and stop clients from fleeing
Now that you’re aware of the importance of your churn rate, you need to find out the reason why your e-commerce is losing customers.
It’s crucial for you to know why your clients leave and stop buying from you.
At this point, let’s see some different ways to figure out why a client chooses not to buy again.
✅ 1. Look into it directly
It’s as simple as asking your clients what it is they didn’t like (or what they used to like that they no longer do), when they last bought from your online store.
Obviously, you should make it easy for them, so here are a number of simple actions you can take:
- Send out a survey to unhappy customers: You can send it by email or load it on your website, but it shouldn’t have too many questions to avoid overwhelming them.
- Call them up: By giving your customers a call, you’re showing that you care and that their satisfaction is important to you.
- Send them an email: Just make sure it’s personalized so they feel important and valued, which will make them more willing to reply.
To actually decrease your churn rate, you have to analyze the responses and provide solutions, especially to your most critical customers.
This can be a big asset in your arsenal.
Take a look at how Domino’s Pizza expertly took advantage of their extremely high churn rate:
- Their pizzas were considered to have the worst taste according to a study by Brand Keys, so they looked into it by asking their customers directly.
- They found out that after using the same recipe for 50 years, their customers found their pizzas to be dull and bad tasting.
- That’s why they had lots of one-off customers and a high churn rate.
So what did they do to fix it?
They created a website where their staff explained how they’d improved the recipe by taking into account the negative feedback they got from their customers.
By making note of complaints and fixing the issues, you can turn unhappy customers into the best ambassadors of your business.
✅ 2. Be self-critical
We all like to think we do everything right, but having a profitable business in the long term means accepting that there’s always something to improve.
The first step is to identify what can be improved.
And the easiest way to do that is with a SWOT analysis of your business (here’s a post with a step-by-step explanation of how it’s done).
This way you’ll understand:
- Your e-commerce’s weaknesses: the factors hindering your business, or what your competitors are doing better than you (which means more clients for them).
- Possible threats in your sector: external factors that may undermine your online store.
- Your strengths: what you’re doing really well – your shop’s strongest aspects.
- Possible opportunities: that is, aspects of your market’s current situation that you can use to make your business grow.
By minimizing your weaknesses and consolidating your strengths, you’ll give your clients plenty of reasons to stay.
✅ 3. Foster client loyalty
There are two fundamental ideas for every online business:
- Repeat purchases from existing customers are more profitable than capturing new ones.
- 20% of your clients generate 80% of your revenue, according to Pareto Principle.
Therefore, customer loyalty must be a fundamental pillar of growth.
Here are some ideas in case you’re wondering how to foster client loyalty:
- 5 techniques to foster loyalty in your online shop
- What are loyalty programs or how to make a client buy over and over again from your e-commerce
- Why improving your shop’s packaging will increase sales and 6 original ideas to do it
- [Storytelling for e-commerce] Once upon a time, there was a trick to selling more by telling stories
- How to write the perfect “About Us” page for your e-commerce (even if you don’t know what to say at this point)
All these tips are aimed at “taking care” of your existing customers and giving them reasons to keep buying. In other words, they’re effective tools to decrease your churn rate.
✅ 4. Offer flawless customer service
Here are the results from a study by Accenture, a consulting firm, to help you grasp the importance of having good customer service to avoid client loss:
83% of clients who have changed suppliers stated that they wouldn’t have done so if they’d been treated well.
Consequently, satisfactory customer service is crucial to stop your churn rate from increasing.
Still unsure about how to improve your customer service?
No worries. This post is filled with advice on how to improve your e-commerce’s customer service.
👉 Target: minimal churn rate
As you’ve seen, it’s important to know the number of users that cease to be your customers, but it’s even more important to figure out the reasons behind losing them in the first place.
Your target should be to keep your churn rate as low as possible since that means you’re doing things very well and your clients are happy.
And happy customers become recurring customers, which is precisely what your business needs.