What is customer churn and how do you prevent it?

Natalie Smithson
AI enthusiast | Tea addict | Focused on using AI assistants to win the working week

What is customer churn?

Customer churn, also known as your churn rate, measures the percentage of customers who stop using your service or product within a specific time period. It gives a clear indication of your ability to retain customers and reveals areas needing improvement to enhance customer loyalty and satisfaction.

How do you calculate customer churn?

To calculate customer churn, divide the number of lost customers within a specific time frame by the total number of customers at the start of that period. Multiply this figure by 100 to find the percentage. For instance, if a company starts with 500 customers and loses 50 in a month, the churn rate would be (50/500) x 100 = 10%.

This straightforward formula helps your teams effectively track any loss of customers.

What is a good customer churn benchmark?

Industry benchmarks typically range between 5% to 7% for customer churn, varying across sectors. A lower churn rate signifies higher customer satisfaction and loyalty, so aim to keep your churn rates below the appropriate benchmark for your industry to drive continuous growth, maintain positive customer relationships, and achieve lasting business success.

Rethinking customer churn rate strategies to suit the age of AI

Use of an AI assistant gives you a new way to prevent customer churn. If customers are leaving because of slow responses (for any reason, like being short-staffed), they can’t access support at a time that suits them or in their local language, or maybe the information they get from you is confusing or contradictory, you can eliminate these problems straight away using AI automation.

A next-gen AI assistant on an advanced chatbot platform will give every customer, every time:

  • An instant response any time of the night or day
  • Consistently accurate information that is the same every time a question in answered (Note: If you’re using LLMs like GPT to help automate responses, you must introduce them with guardrails to protect the quality of your content)
  • Answers in 100+ languages from any corner of the globe

AI is faster, more accurate, and able to scale your support services faster than human activity alone, but it’s important to remember that an AI assistant adds value to your teams, it doesn’t replace them. An advanced AI assistant brings opportunities (not threats) to customer-facing staff, so use your customer churn rate to identify a problem if one occurs, use your AI assistant to capture detailed feedback from dissatisfied customers, then rely on your human team members to fix those problems.

“With a feedback functionality, the Get Living AI assistant is a crucial tool for our team in understanding our residents’ needs so we can continue to improve our personal service and rental offer.” ~ Christian Armstrong, Director of Brand, Product & Technology at Get Living

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How often should we calculate customer churn?

It’s advisable to calculate customer churn regularly, such as monthly, quarterly, or annually, depending on your business needs and the frequency of customer interactions.

Can high customer churn rates be reversed?

Yes, high churn rates can often be reduced by adopting a customer service mindset, analysing customer feedback, enhancing service quality, and mastering key goals to improve customer experience and satisfaction.

What are some common causes of customer churn?

Common causes of customer churn include poor customer service, lack of product satisfaction, pricing issues, and competition offering better alternatives.

How can we prevent customer churn effectively?

To prevent customer churn, focus on improving communication, take advantage of opportunities to be innovative, deliver personalised experiences, seek feedback regularly, and address customer concerns promptly to enhance loyalty and satisfaction.