Customer churn rate is a crucial e-commerce metric. When not effectively managed, it can lead to substantial financial losses, with retailers facing up to $136 billion per year, according to SupplyGem’s statistics.
This article explores the ultimate guide to managing customer churn in e-commerce, offering tips to prevent churn and providing overview statistics about this metric. But before delving into the analysis, let’s briefly examine the definition of churn.
What is Churn Rate?
This metric measures the percentage of customers who stop using a product or service over a specific period.
Two primary types of customer churn directly impact the financial performance of an e-commerce business:
- Voluntary churn occurs when customers proactively cease purchasing from the business, often due to dissatisfaction with the provided services.
- Involuntary churn happens when a payment failure results in the cancellation of a customer’s purchase.
Churn is a widely used metric in subscription-based e-commerce businesses. Those business models readily detect when an engaged customer cancels their subscription or churns.
However, online stores without subscription models can estimate customer churn by examining customer behavior metrics, such as:
- Negative feedback and customer complaints.
- Repeat purchases or lower purchase frequency.
- Reduced Customer Satisfaction (CSAT) or Net Promoter Score (NPS).
What is a good Churn Rate?
Determining what constitutes a “good” churn rate can vary widely depending on the industry, business model, and company peculiarities.
According to Recurly Research, a 5% monthly churn rate for subscription businesses is considered a reasonable churn rate for e-commerce companies. However, this is not always the case. Depending on the enterprise, churn rates of up to 10% may be successful.
For single-purchase businesses like skincare or a typical fashion brand, about 75% churn rate would be considered average. This means that an average cosmetics or apparel e-commerce store can expect approximately 25% to 26% repeat customers who make a second purchase (based on Shopify statistics).
Not all customer churn rates need to change, and achieving a 0% churn rate is unrealistic. Some customers may churn due to factors beyond the company’s control, such as changes in their financial situation or relocation. The key objective is maintaining a minimal churn rate, ensuring it does not surpass your growth rate.
Why does Customer Churn happen?
Unsatisfactory customer service
When customers experience poor services, such as slow response times, unhelpful support, or difficulty in issue resolution, leads to dissatisfaction. They are likely to seek alternatives for a more attentive and satisfactory experience.
According to Oberlo, 81% of consumers say customer service experiences increase their repeat purchases. Businesses should prioritize enhancing their customer service strategies to decrease churn rate, build a loyal customer base, and improve their brand reputation.
Perceived value deficiency
Many are willing to pay more for quality products, provided they believe they receive aligned value for their money. Therefore, pricing your products appropriately and flexibly is necessary for significant value-based churn.
Superiority of competitors
Customers may switch to a competing brand when they discover alternative products or services offer better features, quality, or value. So, businesses must continuously innovate and enhance their offerings to stay ahead.
Complicated checkout process
When customers are ready to make repeat purchases or renew their subscriptions online, the process should be straightforward and require minimal effort.
Any unnecessary complexity in the process can lead to customer frustration and, ultimately, churn. Customers should be able to navigate the steps effortlessly without encountering unnecessary hurdles.
Moreover, optimizing and simplifying the customer onboarding process is equally critical. A customer’s initial experience when engaging with your product or service sets the tone for their entire journey. If the onboarding process is cumbersome or confusing, it creates a negative impression, leading to rapid customer attrition.
Six ways to reduce Customer Churn Rate
1. Improve customer service
According to 123 Form Builder, 61% of customers consider switching to another brand after one instance of unsatisfactory customer service. The quality of customer service can either contribute to customer retention or result in dissatisfaction and churn.
Create an optimized customer service experience to improve your customer service. You can reduce waiting time by implementing an automated system to handle simple requests. This helps your customer support team to focus on resolving complex or technical issues frequently encountered by e-commerce businesses.
For instance, Shopify proactively engages with its customers through social media during outages instead of waiting for them to initiate contact and complain about their concerns.
2. Record the customer’s feedback
When customers take the time to share their thoughts, whether positive or negative, you need to acknowledge and appreciate customer feedback, showing them that their opinions matter. Then, use feedback to make necessary changes, fostering a sense of partnership between your business and its customers. This positive interaction can enhance customer satisfaction and create a more positive brand image.
3. Use omnichannel and proactive customer service strategies
It would be helpful if you reduce customer effort so they don’t struggle to contact support or wait a long time for help. Two unique, easy and quick customer support systems include:
- Use omnichannel customer service by letting customers reach out to you in whatever way they like – calling, texting, or messaging on social media platforms.
- Proactively implement customer support by sending a welcome message to new customers on social media, asking website visitors if they have questions through live chat, or having helpful resources like FAQs page.
Both ways give customers more chances to ask questions, get advice, and enjoy stress-free shopping.
4. Build customer loyalty program
According to Queue.it, more than 83% of consumers state that belonging to a loyalty program influences their decision to buy again from a brand. This statistic underscores the crucial role of loyalty programs in retaining customers and building a loyal customer base.
Here are practical ways to implement a loyalty program:
- Provide loyal customers exclusive access to sales, events, or product launches.
- Celebrate customer milestones with special rewards or discounts, such as birthdays or anniversaries.
- Maintain consistent communication with your customer base through newsletters, updates, or personalized messages.
5. Implement systems to decrease passive customer churn
Involuntary churn occurs when a customer obtains a new credit card and forgets to update their information.
For those selling subscription-based products, avoid passive cancellations by establishing a follow-up process with customers after their card fails on a renewal date:
- Attempt multiple card charges to ensure the error wasn’t an isolated incident.
- Initiate an automated email sequence from various support team members, reminding customers to update their cards for continued subscriptions.
- Increase outreach to SMS if the customer remains unresponsive or fails to update their card.
6. Improve your post-purchase experience
When customers feel valued and supported after making a purchase, they are more likely to become repeat buyers, reducing the likelihood of customers seeking alternatives and contributing to long-term business success.
Here are ways to enhance the post-purchase phase:
- Provide customers with clear and transparent purchase information, including order confirmation, shipping updates, and delivery notifications.
- Simplify the returns process and communicate return policies.
- Send personalized thank-you messages or emails expressing gratitude for the customer’s purchase.
- Offer robust customer support after the purchase, promptly addressing any queries or concerns.
- Implement post-purchase loyalty programs, including exclusive discounts, early access to sales, or other perks.
- Provide helpful resources post-purchase, such as user guides, tutorials, or FAQs.
Churn Rate benchmarks
Churn rates by average revenue per customer (ARPC)
Research shows that 71% of survey participants believe price increase is the main reason for customer loss. Subscribers readily sign up for services, drawn by the affordability of offerings. On the other hand, the ease with which they can cancel subscriptions in such categories indicates a heightened sensitivity to changes in value or price.
Business churn rate by industry
B2C subscription businesses generally have higher customer churn rates compared to B2B businesses. Industries like Digital Media and Entertainment, Consumer Goods and Retail, and Education experience an average churn rate of 7.1%, while their B2B counterparts in Software, Business & Professional Services, and Healthcare have an average churn rate of 5.8%. B2C purchases come with lower prices and lower cost risks than higher-priced B2B purchases.
SaaS (Software as a service) and cloud computing services include a higher proportion of B2B services which tend to experience less churn.
Seasonality significantly impacts customer churn rates, particularly in the Education industry during the start and end of the academic year. You can observe similar patterns in direct-to-consumer subscription businesses, like Box of the Month and other consumer goods that offer niche products suitable for specific months of the year.
Customer churn is a vital metric for assessing the overall well-being of a business, particularly the effectiveness of retention strategies. Exploring customer churn allows you to uncover potential hurdles along the customer journey, identify customers at risk of leaving, and expand a profitable e-commerce venture. This knowledge is crucial for the growth and development of your e-commerce store.
*Preference: Oberlo, 123 Form Builder, Queue.it, Recurly Research