Why Knowing Your Client Churn Rate Is Important to Your Business

Understanding churn rate meaning is like conducting a wellness check for your business. Think of customer churn as one of its vital signs.

Your churn rate affects almost every aspect of your business. It shows how well you retain your customers and where you may be losing them.

This is critical information for home services businesses.

Why? Because in this industry, happy customers are the key to unlocking long-term success and growth. They use your services repeatedly and recommend your business to others.

In this article, we’ll explain what churn rate is and why it’s important to understand your churn rate meaning. We’ll examine how churn rate can signal customer satisfaction levels, impact revenue and growth, and influence your planning.

We’ll leave you with actionable tips on how you can start understanding your churn rate meaning and improving customer churn today.

But the first step to reducing churn rate is understanding what it means.

RELATED ARTICLE: How to Harness the Power of Automated Direct Mail

Understanding Churn Rate Meaning

Churn rate is a way to measure how many customers your business loses over time. A low churn rate means people use your services repeatedly. A high churn rate means people try you once but don’t come back.

Knowing your churn rate helps you understand how well you serve your customers. Ask yourself: Do you meet customers’ expectations? Offer good value for their money? Provide exceptional service and support? Is there room for improvement?

Your churn rate in isolation can’t answer these questions. But it’s an important signal that you shouldn’t ignore.

How to Calculate Churn Rate

Churn rate is expressed as a percentage. To find your churn rate, use this formula:

Churn rate = (number of lost customers / total customers at the start of a set period) × 100

Here’s an example:

Let’s say you run a plumbing business. At the beginning of June, you have 200 customers. By the end of June, 10 customers have decided not to use your services anymore.

To find your churn rate for the month, do this math:

  • Churn Rate = (10 / 200) × 100
  • Churn Rate = 5%
  • 5% of your customers left in June.

Customer Churn vs. Revenue Churn

There are two kinds of churn: customer churn and revenue churn. Customer churn is about how many customers leave. Revenue churn is about how much money you lose when they do so.

If a big-spending customer decides to take their business elsewhere, it might hurt more than several small customers leaving.

Monitor both types to understand how those losses affect your business.

RELATED ARTICLE: 7 Tips for Direct Mail Postcards That Bring In New Customers

Contractor consulting with client at home

Why Knowing Your Client Churn Rate Is Important

Churn rate impacts almost every aspect of your company.

It informs how you design and deliver your services, the systems and processes you use, how much money you make, and how happy your customers are.

When customers leave, it’s a sign to look closer at possible reasons for their departure.

Let’s take a closer look at why knowing your client churn rate is important.

Indicates Customer Satisfaction Levels

Churn rate is like a thermometer for customer happiness. If people like your service, they stay loyal. If they’re unhappy, they’ll start looking for other options.

If your churn rate is trending upward, assess your customer service approach.

Consider this: When customers have bad experiences, 73% will switch to a competitor.

Keeping your customers happy leads to them staying with you longer. And when you retain more customers, your business makes more money over time. You also build strong, lasting relationships.

RELATED ARTICLE: 5 Quick Tips to Help Home Services Providers Get Repeat Customers

Predicts Business Revenue and Growth

Looking at your churn rate alongside your growth rate can help you predict future revenue and growth.

Your business can be viewed in terms of customer numbers. When your new customer count exceeds the number of customers leaving, your business grows.

Conversely, your business is shrinking if more customers are leaving than joining.

For example, if your business gains 100 new customers over six months but loses 110, you have a net loss of 10 customers. This indicates a decrease in your business size during that period.

To maintain a healthy business, you want to keep your growth rate higher than your churn rate. If it’s not, your revenue will likely drop.

Informs Business Strategy Planning

Knowing your churn rate helps you make data-driven plans for your business.

If your churn rate goes up, it means something might be wrong. Maybe your customer support needs work, or people don’t think your service is worth the cost.

It’s time to dig deeper. Once you do, you can use that insight to make plans to fix the root cause.

This information helps you make informed decisions about everything from team training to technology investment.

RELATED ARTICLE: Why Marketing to Existing Customers Boosts Revenue for Plumbing, HVAC, and Electrical Companies

Customer filling out survey on phone

How You Can Start Understanding Your Client Churn Rate Right Now

Now that you have a better understanding of churn rate meaning, start with these steps to improve it:

Calculate Your Churn Rate.

Use the formula provided above to find your churn rate for set periods, like quarterly or monthly. Alternatively, use an online churn rate calculator. Calculate the data over a year or two to form an aggregate picture of your churn trends.

Review Your Churn Rate Trends.

Is your churn rate going up or down? A rising churn rate can be a warning sign indicating customers are unhappy. A dropping churn rate means you’re doing something right.

Use Analytics Tools.

Assess the software you use to manage your business and customer relationships. Does it have analytics capabilities? If not, it might be time to look for a different software solution.

Make Changes.

If your churn rate is high, think about what you can do to correct that. Maybe you need better marketing or to focus more on customer experience. Review how you handle customer service.

Invest in Training.

Sometimes, the answer is better training for your team. Make sure your employees know how important happy customers are. Provide periodic training on techniques to keep customers satisfied.

Talk to Your Customers.

Don’t guess why customers are leaving. Ask them. Use surveys or phone calls to get their honest feedback. Then, use what you learn to improve your business.