What is the app churn rate? How to calculate and reduce it
Churn Rate is essential for your business insight: how stable it is, and whether customers are happy with your product. The biggest impact of a high Churn Rate is, above all, a reduction of profits. In this post, we’ll not only cover what factors affect churn and how to leverage it, but also how to calculate it and what to focus on to choose the right data-driven strategy.
What is Churn Rate
Churn Rate is a metric that can tell you a lot about your business. Most basic is the number of customers who leave your mobile app or stop using your product over a period of time.
Also, Churn Rate is directly related to LTV (lifetime value) if you monetize your app with subscription sales. Minimizing Churn Rate increases your LTV and ROI over the cost of attracting customers.
Churn Rate (or customer turnover) is a business metric that shows the number of customers who leave the mobile app over a certain period of time.
If you want to use this metric to your advantage, you need to understand the customer Churn Rate formula and the ways in which you can affect this metric.
The main thing to realize is that you don’t have to figure out Churn Rate and bury yourself in numbers and never-ending analysis. We advise taking action and using this metric to see the flaws of your business strategy, fix them, and then drive revenue growth.
Why this Metric is Important and How to Use It
The potential of this metric is enormous — here are the main important aspects that prove its benefits for the development of your business.
Understand your customers. When you calculate your Churn Rate, you can better understand your users and reasons why they leave your app or stop using it. You can see all the disadvantages that make people refuse to deal with you. This way, you will know what you need to improve, and therefore your retention rates should increase as well. Plus, it’s a great long-term effort.
Retain old users. It’s like with a leaky bucket: old users leave, and you, without knowing the reason, just attract new ones (it’s much more expensive!) It’s better not to try to fix holes and spend huge sums of money, but to figure out what’s going on.
Monitor competitor activity. Yes, you will be able to monitor the activity of your competitors and keep an ear to the ground so you can react quickly. The fact is that Churn Rate tends to increase when competitors launch promotions, discounts, or new features in the mobile app. This can help your competitors steal users from you for a while, possibly forever.
More ways to leverage the metric:
- to understand the dynamics of Retention Rate;
- to identify changes that negatively affect Retention Rate;
- to calculate LTV;
- to find out which customers interact better with your product;
- to analyze and predict the performance of your app.
Thus, the ability to predict and control Churn Rate is essential to the long-term success of a company at all levels. But it is impossible to use the metric for all options at once. Churn Rate is the starting point of your analysis, not the end point.
The Difference between Churn Rate and Growth Rate
Speaking of Churn Rate, we can’t help but mention the “positive” opposite metric — Growth Rate. This is the rate at which you get new customers over certain time periods. It’s usually calculated on a monthly basis.
The main rule: Customer Growth Rate must exceed Customer Churn Rate
A well-calculated Growth Rate will help you evaluate the success of your User Acquisition campaign. It also allows you to understand the demand for your product, including such things as seasonal changes in demand. We can write a separate piece on this metric too, but for now just remember the main rule: Customer Growth Rate must exceed Customer Churn Rate.
Benefits and drawbacks of the Churn Rate metric
Benefits
How does calculating Churn Rate help you in your work? First of all, numbers will clarify how effectively you retain customers — it reflects the quality of your service or product. If you notice a negative trend in Churn from period to period, maybe it’s not even about the promotion strategy, but about how you manage your business. With Customer Churn data, you can explore the question deeper: are you creating a high-quality product, or is your customer service good enough? The Churn Rate will indicate the reasons why users are leaving your app, so you can make significant improvements. Remember that the cost of attracting new users is much higher than retaining current users, so it’s definitely worth figuring out what you’re really worth in the mobile market.
Drawbacks
One of the drawbacks of Churn Rate is that it doesn’t take into account the types of customers who leave. Customer segmentation is primarily observed among new users. Perhaps your company recently ran a campaign, and after the promotion ended, customers who tried the product decided it wasn’t for them and canceled their subscription. The impact of new customers leaving vs. regular customers is critical. New customers are fickle, while old customers have been with you for a long time, so your product satisfies them. There must be an important reason why they are leaving. You need to deal with these reasons.
| Pros of Churn Rate | Cons of Churn Rate |
|---|---|
| Gives clarity on the performance of the business | Doesn’t give clarity on the types of users who leave |
| Shows whether customers are satisfied or displeased with the product or service | Doesn’t distinguish between types of companies when comparing: startups, medium-sized, or large businesses |
| Allows comparisons with competitors to assess acceptable Churn Rate |
How to Calculate Churn Rate for Your Mobile App: Examples and Formulas
Let’s start with an example. Let’s say you started with 600 users in January, and at the end of the month you already had 400 users. Here’s how you can calculate Churn Rate: (600-400) / 600 = a Churn Rate of 33.33%. It seems easy, but there is always a “but”. Different factors can affect the result of this formula. But this particular formula is a nice starting point. Let’s take a closer look.
The Churn Rate formula (600-400) / 600 = 33.33% (pic)
You can also calculate like this:You simply divide the number of churned customers by the total number of customers. Here, “Churn Rate” is the number of users who left your app during the selected period out of the total number of customers you had during that period.
The problem with this simple Churn Rate calculation is that it’s not relevant if the number of your users is growing quickly and rapidly. With active growth, Churn Rate will definitely go down, even if you have more clients leave your app than in the previous month. For large companies with a substantial customer base and stable monthly growth it’s not an issue. But if you are a new company with a large number of new users each month, it can lead to a strange interpretation of the metric. Be careful and analyze the data properly.
Churn rates: positive and negative
Positive Churn Rate
In the perfect world, the metric should be zero. But we are not in a fairy tale, so let’s look at things from a realistic perspective, or more precisely — let’s look at the numbers. Businesses will always lose subscribers and customers for a bunch of reasons. So it’s important to compare the Churn Rate of your business to its industry’s average Churn Rate.
A positive Churn Rate indicates that a company loses significant customers, more than it brings in. This means that the company is doing something wrong, whether that be providing a low-quality product, having poor customer service, or other negative reasons that would explain why it is rapidly losing customers. A high Churn Rate is likely to mean that a company is suffering significant losses.
Every industry has a specific business model, so it will have different positive churn rates. Knowing an industry’s Churn Rate vs. your Churn Rate is a way to understand if your Churn Rate is acceptable or poor. Be sure to pay attention to the status of the company, because a startup can’t compare to a corporation.
Difference in Churn Rates Depending on the Scale of the Business
- Startups and Small Businesses. You’re likely to experience higher Churn Rates here, especially in the first year, when it is usually 10-15% per month. The reason may be that early-stage startups are still developing their marketing, pricing and user acquisition strategies to retain their target customers.
- Medium-sized business. For medium-sized companies, acceptable Churn Rates are somewhere in the middle between 11 and 22%.
- Corporations and industry giants. Such companies should strive for a Churn Rate of less than 1%. In the following years, it should decline until the business reaches a net negative churn.
Negative Churn Rate
What does a negative Churn Rate mean? Negative churn is when the revenue you get from your existing customers outpaces the revenue you’re losing through cancellations and downgrades.
To understand better, here’s an example with bread: you have regular customers every day (or every other day). If they start buying bread for more money, it will be a negative churn.
The results of the negative churn are stunning. Generating more revenue from existing customers and getting negative churn leads to great growth and dramatically boosts profits.
How to Reduce App Churn Rate
Cohort analysis
Cohort analysis helps you determine where to focus your customer retention efforts. Instead of focusing on all of your users as a whole, cohort analysis will segment them into related groups based on a particular characteristic. By comparing and analyzing cohorts, you can identify the specific reasons why users leave and their behavior.
What questions a cohort analysis can answer:
- Where do your most profitable users come from?
- What actions do your profitable users perform?
- How long does it take users to perform these actions?
Cohort data helps you discover trends and patterns so you can precisely identify what attracts new users and keeps them coming back.
Five more ways to reduce churn
Let’s explore a few more ways and options to reduce Churn Rate for your mobile app. Even if you feel confident in the mobile market and among competitors, there is a lot to choose from and work on.
- Optimize onboarding
If the adaptation process doesn’t show the core value of your app right away, users will leave. Focus on the advantages in the adaptation process. Reduce the complexity, limit the number of steps, and make users feel the joy and pleasure of using your app as quickly as possible. - Use push notifications
Send push notifications to encourage repeat visits, interactions and purchases. Thanks to a customized approach, these notifications can re-activate users who forgot about your app or wanted to delete it. - Personalize user interaction
Personalized interaction and relevant messages make users feel special. Leverage user behavioral data such as search and purchase history, device type and geolocation, and custom settings to set up targeted interactions. - Use deep links
Mobile apps use URIs instead of URLs. This means that deep links can direct users to a specific location within your app. These links can start the app from where the user left off, or redirect them to a specific product page. It’s a simple way to significantly improve user interaction. - Send direct messages to users inside an app
Use in-app messages to welcome new users or introduce them to new features.
Summary
In essence, Churn Rate is a very simple concept. This is the rate of your customers who leave your app in a certain period. Is it possible to work with a high Churn Rate? Definitely. But only with a strategy based on the right data and the right positioning of your product in the mobile market. By using data to understand why users are leaving, you can optimize your business and mobile app to attract more users.
