If you have been in the ecommerce industry for a while, you might have surely heard, or at the least, experienced Churn Rate in your ecommerce website. For those of you who do not know what it is, let us define it for you:
A Church Rate in an ecommerce business is the rate at which the business loses customers or subscribers in a given time frame.
More broadly, it is a metric that is conveyed in the form of percentages to measure the rate at which your ecommerce business loses customers or subscribers in a set period. Sounds to be a familiar experience, isn’t it?
The churn rate can be implied to cancellation of subscriptions, closure of accounts, non-renewal of contracts, and so on. The customer churn rate can vary depending on your nature of business. In this blog, we will run deep through the calculations of the churn rate for an ecommerce website. Keep reading, it may help you or your friends in need!
How is Churn Rate for Ecommerce Websites/ Stores Calculated?
Although Churn Rate is a significant metric for every business out there, calculating churn rates for subscription-based businesses is all the more important. We’ll tell you why; in subscription-based ecommerce businesses, the primary source of income is from the monthly or yearly subscribers. With the increased number of subscribers ceasing to subscribe, the churn rate increases, and eventually lead to the dissolution of the business. Therefore, irrespective of the type of your business, it is essential to know the process of calculating the churn rate, learn the ideal churn rate, and the ways to reduce the churn rate.
We are glad to let you know that calculating the churn rate is an extremely easy process. All you got to do is measure two metrics, the number of customers at the beginning of your defined time frame and the number of customers who stayed loyal to your business by the end of the time frame. Once done, you can calculate the churn rate using the following formula:
(The no. of customers in the beginning – the no. of customers in the end)/(The no. of users in the beginning) = Churn Rate
For instance, if you have 2000 subscribers or customers in the beginning and 1000 of them by the end, your churn rate would be 2000 – 1000 / 2000 * 100 = 50%
This is a universal formula used by ecommerce businesses of all kinds from around the world to measure the customer churn rate.
So, now comes the next question, what would be an ideal churn rate? We assume you have already calculated the churn rate of your ecommerce business using the above formula by now. You must be curious to know whether your churn rate is healthy or needs to be improved.
Let us be clear, there is no universal perfect number to define the churn rate of an ecommerce business. As we mentioned above, the churn rate depends on various factors including the type of ecommerce business. Some businesses may need new customers every day, and some may find it exhausting and complicated. However, there is a global opinion for an ideal churn rate to be 5%. Well, obviously, the lower your churn rate, the faster you approach your goals.
Ways to Minimize the Churn Rate of an Ecommerce Business
As an online seller, you might want to know the reasons your customers are fleeing from your website/ store. Well, there might be many reasons, which may even vary from businesses to businesses. However, we have a few common solutions to minimize the increased churn rate, they are:
Ask directly to the customers: Communicate with the customers to know the reason behind their bad experiences. You can consider sending out surveys through email, call them directly, or send them personalized mail. You need to analyze the responses from your customers and work accordingly to reduce the churn rate.
Identify the flaws: As an online seller, you need to know that creating a strong online presence with absolutely zero or negligible churn rate is a continuous process. You as a seller must be able to identify the possible flaws in your services. Look into your business’ weaknesses, the factors that weaken your services, as well as determine your strengths and possible growth opportunities.
Encourage customer loyalty: It needs no validation to state that the repeat purchases from already existing customers are more profitable than from newer customers. Therefore, you must cater to encouraging customers to become your loyal friends. Consider investing your efforts in building loyalty programs, delivering personalized and priority experience to the customers, and most importantly, make them feel important to your business.
Provide seamless customer service: Online customers have thousands of options when it comes to online shopping. One slight discomfort and they can find many others who cater to their requirements. Therefore, in order to keep the customers engaged with your website and deliver a good user experience, you must offer seamless customer services, irrespective of the area of concern.
Conclusion
Calculating the churn rate for an ecommerce business is crucial to building a predictive business model. Consider calculating the churn rates of your business on a quarterly basis; it will help you work on your flaws and reduce the churn rate efficiently. While measuring your churn rate, make sure to think from the perspectives, customer satisfaction as well as revenue generation. Plainly measuring your churn rate alone may not be sufficient to execute a successful ecommerce business. Therefore, make sure to create a balance between all the metrics that lead to the success of an ecommerce business. Also, make sure to keep an eye on your competitors. It may help you in developing better solutions for online customers and stay ahead of the competition.
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