Are you analysing your product’s health well? Read all that you need to understand between Churn Rate & Growth Rate, and How they affect product’s health.
Churn Rate is the rate of attrition of customers in a month.
- Customer Churn Rate is the rate of attrition in terms of number of customers.
- Revenue Churn Rate: Rate of attrition in terms of rupee value.
We will be discussing Customer Churn Rate in this article.
Growth Rate is the addition of new customers /revenue in a month as compared to previous month.
How Customer Churn Rate affects product health?
Churn Rate pulls down growth of a product. For example, in Jan you had 5 customers. 2 more joined you in first week of February, making the total number 7. But 3 old customers left (Churned out) as soon as March started, with no joining.
So your Growth in Feb. : 40 %
Churn rate in March: 43%
Growth in March: -42%
Higher the Churn Rate, Lower will be the Growth.
What is the acceptable churn rate?
It is said the acceptable churn rate is 5% – 7% annual, which comes to 0.42% – 0.58% monthly.
Reasons for High Churn Rate:
- Product features: If majority of the customers are not satisfied with features your product is offering, it could result in customers leaving your product.
- Improper handling of Customer: There’s nothing better customer retention technique than personal handling of their queries. If they are feeling unanswered, they wont stay for long
- Complicated Product: Easy usage products means comfortable users and a controlled churn rate.
Growth Vs Churn
If we simply consider Growth as the addition of new customers & Churn as the attrition, then your product can be one of these 4 conditions.
- Low Growth Low Churn: New Customer engagement techniques are required to increase revenues.
- Low Growth High Churn: Work On improving Product features, customer retention, customer engagement.
- High Growth High Churn: Customer retention is a priority.
- High growth low Churn: Jackpot!!
If your product is not working well, analyse which situation is more likely to be yours? Whether it is that new customers are not coming? or Existing customers are switching away too easily? Or Both? Or None? Only on correct diagnosis can you decide what should be your treatment to your product/business.