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Churn Rate is the Worst Metric

This week:

 

CHURN RATE IS THE WORST METRIC


Does your churn rate appear to fluctuate constantly? Have you ever had your churn rate suddenly spike upwards, seemingly out of nowhere?


❌ The problem is not your churn; it's your metric!


It turns out there's a flaw built right into the formula that ruins churn rates. Let me explain... ↓


➗ THE DENOMINATOR PROBLEM

First, we have to remember that churn rate is a simple equation:


CHURNED CUSTOMERS ← is the numerator

_____________________


TOTAL CUSTOMERS ← is the denominator


👀 Notice that churn is not the only number in the equation. ↑


⏱️ CHURN IS DELAYED

The other thing to understand is that churn is delayed, which means that time passes between when customers join and when they leave.


🤔 THIS IS WHY CHURN RATES ARE DISTORTED...

Increases or decreases in sales change the denominator - and the churn rate - before the churn for those customers arrives.


The impact of this is HUGE:


👉 When your churn rate suddenly goes up (or down), it does NOT mean that your REAL CHURN has changed. 👈


FOR EXAMPLE:

When sales go up, the denominator (total customers) increases right away, but churn doesn't. So your "churn rate" will go DOWN immediately and then back up again when the churn later arrives.


REVERSE EXAMPLE:

This also works in the other direction. → When sales go down, the "churn rate" will go UP, instantly making churn look worse than it really is!



📈 This is why so many companies appear to experience a sudden spike in churn! When sales slow down, the "churn rate" invariably shoots upward, even if churn hasn't actually gotten worse.


🎲 This is why you can’t use the churn rate to manage your churn effectively.


In fact, you can't even compare your churn over time using "churn rates," meaning you can't tell if your churn is getting better or worse.


⚠️ WARNING: ANY ATTEMPT TO OPERATE USING CHURN RATES IS DANGEROUS! ⚠️


The common pattern is for companies to underinvest in customer success during the rapid growth phase because the churn rate appears low, and then they panic when the churn rate suddenly spikes due to slowing sales.


✅ I do real churn analyses for companies every day, and it's amazing how consistently they do not know beforehand whether their churn is getting better or worse!


THERE'S A BETTER WAY TO MEASURE CHURN

There's a much more effective way to measure and manage your REAL churn. I'll gladly show you how to do it with a FREE CHURN ANALYSIS of your real data! (click the link below ↓)


Find out how your churn compares and become a part of the world's largest anonymous churn benchmark for free!

 

I'm Speaking at Pulse 2023

Come see me at Gainsight Pulse this coming Wednesday (5/17) at 10:30am! I am speaking with 🗺️ Todd Kirk ⛷️ AVP at Brainstorm. We are diving into the 3 kinds of customer churn and how customer behavior change is the key to high retention.


If you can't make it, come say hi at booth G4 where ChurnRX is being hosted by Brainstorm."



 

Upcoming Webinar: Why Your Company is NOT Customer Centric


Join Dave Jackson, CEO of TheCustomer.Co and me on Wednesday, 5/24, as we take on what it really means to be CUSTOMER CENTRIC. (I'll give you a hint, it's not about having a high NPS!)




 

Download your copy of the 2023 Customer Churn Benchmark Report

Learn what benchmarks impact customer churn, such as Customer Satisfaction, Customer Size, Sales Discounts, and more!


 

QUOTE OF THE WEEK:


Anything that decreases customer results will increase churn.

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