How to Calculate and Reduce Customer Churn

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 can be expensive.

But that doesn’t have to be a problem – the best way to recover that investment is by reducing customer churn and encouraging your clients to buy more than once. Once your customer acquisition cost is covered after the first purchase, each additional sale becomes significantly more profitable.

For that reason, today’s post will cover:

• What churn rate is.
• Different ways to calculate it.
• How to reduce customer churn so your clients keep buying.

Ready to prevent customer churn and stop clients from leaving without buying? Let’s dive in.

What Is Customer Churn Rate?

Churn rate measures the percentage of clients who stop buying from your e-commerce store during a specific period. In other words, it tells you how many customers you’ve lost over a certain time.

• If your churn rate is high: You’re losing customers and missing out on sales opportunities.
• If your churn rate is low: You’re successfully fostering loyalty, and customers continue purchasing regularly.

This metric is crucial because a high churn rate indicates a customer experience that isn’t fully satisfying. Reducing churn by improving that experience directly increases your profitability, as repeat purchases from the same customer are more valuable.

What’s the Right Churn Rate for eCommerce?

While a 0% churn rate sounds ideal, it’s virtually impossible—some customers will always buy once. Instead, the goal is reducing churn rate as much as possible.

A high churn rate is a red flag that your clients aren’t satisfied, while a low churn rate signals a positive experience that encourages repeat purchases and strengthens customer loyalty.

How to Calculate Churn Rate?

Once you’ve decided the time period to analyze (monthly is recommended, but quarterly or yearly works too), there are two main ways to calculate churn:1.

1. If You Know the Exact Number of Lost Customers

You have to divide the number of clients that have stopped buying by your total number of clients. Use the following formula:

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:

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:

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%.

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 (A Way to Reduce Customer Churn)

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 (Improving Your Business to Prevent Churn)

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 (Key to Reducing Churn and Encouraging Repeat Purchases)

There are two fundamental ideas for every online business:

1. Repeat purchases from existing customers are more profitable than capturing new ones.
2. 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:

• 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 (A Crucial Step in Preventing Customer Churn)

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.