In this short series, I'll explain why focusing on the customer churn rate makes it harder to solve churn, and show you a better way to operate.→
Business leaders often come to me with questions like this...
“Our customer churn rate is X%. Is that bad? What should we do about it?”
They're always surprised when I tell them I can’t answer these questions because: the churn rate is meaningless.
Here's why...
DISTORTED
First, I can't determine from the churn rate if your churn is high or low because, the way it's calculated, the churn rate is virtually always distorted either up or down.
As a result, the churn rate can’t be used to reliably answer the most basic questions like:
• How much real customer churn do you have?
• Is your churn getting better or worse?
It's essential to understand what the churn rate really measures and why it's distorted.
MEANINGLESS
More importantly, there's no way to gain any practical insights from the churn rate. It reveals nothing that we really need to know, such as:
• What kind of churn do you have?
• What is causing your churn?
Many people wrongly believe that the churn rate is caused by customer dissatisfaction. But my research reveals that satisfaction has nothing to do with the churn rate.
Put simply, the churn rate isn't actionable. It's not a useful guide for decision-making.
USELESS
What all of this means is that the customer churn rate is the worst kind of business metric: it's a poor measuring stick that also offers zero actionable insights.
That’s why the churn rate can't help you improve customer retention. Unfortunately, it's often just the opposite: trying to improve your churn rate can make your customer churn worse!
Have you felt frustrated in your attempts to operate to the customer churn rate, and confused when it behaves in ways that don't seem to make sense? I'm going to explain why.
Next up in this series: I'll show why churn rates don't actually measure churn and how they get distorted.
Continue with the next article in this series: Churn Rates Are Distorted (2/4)