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One element that holds greater significance for long-term sustainability for any company is the retention of customers and prevention of customer churn rate.
While acquiring new customers’ trust and loyalty can be seen as a critical determinant for your business’s success, that excitement can easily be undercut by the time it takes to break even on the acquisition cost. According to Esteban Kolsky, the founder of ThinkJar, it takes 6-7 times more to acquire a customer than to retain an existing one.
Therefore, knowing which metrics to track is essential for businesses to make data-driven decisions. With inflation impacting disposable income levels, retention is a top priority for companies in 2025.
Customer churn rate is a metric that represents the rate at which customers leave a business. Understanding this metric helps brands make targeted improvements to keep customers happy and low costs.
Here's the complete guide to understanding and improving your customer churn rate.
What is customer churn?
Customer churn rate is a metric that measures the number or percentage of customers who stop doing business with a company over a specific period.
High churn rates can lead to a loss of revenue, increased customer acquisition costs, and decreased customer loyalty. On the other hand, low churn rates indicate a healthy customer base and can help a company build a solid foundation for future growth. Monitoring and improving churn rates is essential to a customer retention strategy.
Voluntary vs. involuntary churn
Voluntary churn and involuntary churn are two types of customer churn that companies commonly face.
Voluntary churn is when customers choose to stop doing business with a company. This choice can stem from various reasons, such as finding a better deal or switching to a competitor. Voluntary churn may include canceling a subscription, discontinuing a service, or not renewing a contract.
Involuntary churn occurs when customers can no longer continue business with a company. Reasons outside the customer's control cause this type of churn. For example, a customer's credit card might be declined, suspending their account due to non-payment. Involuntary churn can also happen when a customer moves away from a brick-and-mortar business or in-person service.
Here is a clear comparison:
Both types of churn can be detrimental to a company's bottom line. However, voluntary churn is generally more challenging to address, as it often reflects underlying issues with customer satisfaction or competition.
Why do customers churn?
Several factors could lead to losing a customer. In addition to the reasons mentioned above, common reasons why customers churn include:
1. Poor customer service
Customers may leave the company if they have negative experiences with customer service representatives, such as not receiving timely or satisfactory assistance.
2. Lack of personalization
Thanks to advanced technology and data collection tools, personalization has become a significant part of marketing strategies in recent years.
Customers may feel unvalued or appreciated if a company fails to personalize their interactions or offers, such as sending generic marketing messages. As personalization becomes more commonplace, it's becoming an expectation in marketing efforts.
3. Product quality issues
Customers may be dissatisfied with a product or service if it fails to meet their expectations or does not work as advertised. This leads to a one-and-done purchase and can also negatively impact on the brand's reputation.
4. Changing needs or preferences
Customers' needs and preferences may change over time, and they may no longer find a company's offerings relevant or useful. Baby-related products and services are a prime example of this transition.
5. Pricing issues
Customers may switch to competitors if they find that a company's prices are too high or if they can get a better deal elsewhere.
Similarly, if the customer's overall budget changes, they may eliminate certain aspects of their spending to cut costs. This issue has impacted many businesses over the past few years and will continue to be a concern in 2024.
6. Brand reputation
Customers are becoming more conscientious about sustainability and social responsibility. Retained customers may choose to stop supporting a business with a poor reputation. For example, fast fashion clothing manufacturers.
Poor customer experience can significantly impact customer churn, leading to lost revenue and increased customer acquisition costs.
Companies should monitor key performance metrics and note changes in customer behavior or environmental factors. By proactively addressing these warning signs, companies can take steps to retain customers and improve their overall customer experience.
What is customer churn rate?
Churn rate, sometimes known as attrition rate, is the rate at which customers stop doing business with a company over a given period of time. Churn may also apply to the number of subscribers who cancel or don’t renew a subscription. The higher your churn rate, the more customers stop buying from your business. The lower your churn rate, the more customers you retain. Typically, the lower your churn rate, the better.
How do you calculate customer churn rate?
To determine the percentage of revenue that has churned, take all your monthly recurring revenue (MRR) at the beginning of the month and divide it by the monthly recurring revenue you lost that month — minus any upgrades or additional revenue from existing customers. Do not include new sales in the month, as you are looking for how much total revenue you lost. New revenue from existing customers is revenue you have gained.
(Customers at the beginning of the month − Customers at the end of the month) ÷ Customers at the beginning of the month
How to measure customer churn rates
Measuring customer churn rates is important for several reasons. It helps companies identify potential issues and proactively address them. Continuous measurements also track the progress of improvements put in place.
The most common metric for this issue is the overall customer churn rate, which can be measured by assessing the percentage of customers who stop transacting over a specified period.
However, other metrics provide deeper insights into why customers churn, including:
- Net promoter score (NPS) - This measures a customer's likelihood of recommending a company to others.
- Customer lifetime value (CLV) - This measures the total revenue a customer is expected to generate for a company over their entire lifetime as a customer.
- Repeat purchase rate - This measures the percentage of repeat customers versus one-time customers.
These metrics can help key stakeholders determine the best approach to improving churn rates.
How to reduce customer churn rates
Understanding the importance of customer churn rates is just a small part of the puzzle; developing solutions is where the real work begins.
Here are some focal points to consider when strategizing how to reduce customer churn rates:
1. Improving customer experience
Start by identifying areas of the customer journey that need improvement. This process may involve gathering customer feedback through surveys or social media, analyzing customer support interactions, or tracking customer behavior and purchase patterns.
Once areas for improvement have been identified, create plans to address them, such as improving product quality, streamlining customer service processes, or personalizing interactions.
2. Improving engagement and personalization
To reduce churn by increasing customer engagement, companies should build strong customer relationships through personalized interactions, exceptional service, and ongoing communication.
Use automation and machine learning to create targeted marketing campaigns. Focus on creating a positive and memorable customer experience at every touchpoint in the customer journey.
3. Leveraging customer feedback
Take a deeper dive into customer feedback to look for specific improvement points. For example, evolutions to your existing products or related offerings.
You can also motivate customers to share valuable insights by offering small rewards or incentives for completing feedback surveys or leaving reviews, turning feedback into a win-win opportunity.
4. Providing proactive customer support
Proactive customer support means anticipating and addressing customer needs before they become issues.
Companies can start by monitoring customer behavior and interactions to identify potential problems or areas for improvement, then proactively contacting customers to offer assistance or solutions. This approach could involve offering personalized recommendations, providing self-service resources, or delivering targeted messaging.
5. Offering incentives and rewards
Companies can offer incentives such as discounts, free products or services, or exclusive access to content to incentivize customers to reduce customer churn.
Loyalty programs can also be effective, offering rewards and benefits to customers who make repeat purchases or referrals. This approach also presents an opportunity to offer personalized rewards based on customer behavior or preferences to increase engagement.
How to track churn rate
Now that you understand why churn matters and how to reduce it, the next step is putting a system in place to monitor it consistently. Tracking churn may vary depending on your business model, but here are some essential guidelines to follow:
- Set your time frame: Decide if you want to measure churn over fixed periods (such as monthly or quarterly) or use a rolling calculation to observe churn trends over time.
- Define what churn means for your business: Identify the most relevant churn type for your goals. This could be standard customer churn, gross revenue churn, adjusted churn, or even a mix of these, depending on what you want to improve.
- Measure performance: Leverage tools like customer experience or CRM software to keep tabs on churn, gather customer feedback, and monitor related retention metrics.
- Evaluate and refine: Regularly review your performance data to spot patterns and make improvements. For instance, if you notice churn rising when CSAT scores drop, it may signal the need to improve your customer service approach.
How Commercial Bank of Ceylon boosted customer retention with Loyalife
The Commercial Bank of Ceylon PLC, a leading private sector bank in Sri Lanka, faced increasing challenges with customer retention in a highly competitive market. To stay ahead, the bank needed a robust, scalable loyalty solution that could deepen customer relationships, increase engagement, and drive sustainable growth.
Challenges
Despite being a trusted financial institution, the bank struggled with:
- Low customer retention rates as competitors introduced aggressive offers and rewards
- Limited personalization in its existing loyalty program, making it difficult to appeal to diverse customer segments
- Operational inefficiencies in managing reward campaigns, redemptions, and member communication
These issues created a gap between customer expectations and the bank’s ability to deliver meaningful loyalty experiences, putting long-term customer relationships at risk.
Solution
The Commercial Bank partnered with Loyalife to transform its loyalty program into a growth engine. With Loyalife, the bank was able to:
- Launch a fully integrated, flexible loyalty program across its banking products and services
- Use the loyalty engine and rule engine to set up targeted rewards, cashbacks, and tiered benefits tailored to different customer profiles
- Automate program operations, from reward earning and redemptions to member engagement using engage tools
- Access real-time insights and performance analytics through reports & insights, helping the bank continuously fine-tune its loyalty strategy
Impact
With Loyalife, the Commercial Bank achieved impressive results:
- Increased customer retention: Higher engagement with tailored rewards led to stronger customer relationships and lower attrition
- Improved program efficiency: Automated workflows reduced manual work and improved operational speed
- Higher revenue and growth: A loyalty-led approach boosted cross-selling and upselling opportunities across products
- Stronger customer satisfaction: Personalized rewards and seamless experiences strengthened the bank’s reputation as a customer-first brand
By implementing Loyalife, the Commercial Bank of Ceylon transformed its loyalty program into a powerful tool for increasing customer retention and, in turn, significantly reducing customer churn.
Through personalized rewards, seamless engagement, and automated program management, the bank was able to strengthen customer relationships, enhance satisfaction, and keep more customers coming back — ultimately setting a new standard for loyalty-led growth in the banking sector.
Final thoughts
Understanding customer churn rates is essential for businesses because it reveals the overall health of your customer base, helps pinpoint gaps in the customer experience, and shapes effective retention strategies. By actively measuring churn, companies can take smarter, proactive steps to reduce customer loss, boost satisfaction, and build long-lasting loyalty, all of which contribute to stronger business performance.
To make these efforts more effective, brands need more than just data — they need the right tools to transform insights into action. This is where Loyalife makes a real impact.
Loyalife enables businesses to craft personalized loyalty programs that reward customer behavior, deepen engagement, and strengthen retention — all within a flexible, enterprise-ready platform. Whether it’s offering tailored rewards, recognizing milestones, or surprising customers with thoughtful perks, Loyalife helps brands go beyond simply monitoring churn to building meaningful, long-term relationships that keep customers coming back.
Understanding customer churn rates is essential for businesses as it provides insights into the health of the customer base, helps identify areas for improvement in customer experience, and informs customer retention strategies.
Discover how Loyalife can help you reduce churn, increase engagement, and drive sustainable growth.
FAQs
Customer churn and retention can be a complex, multi-faceted issue, leading to a lot of questions and confusion. Let's take a look at some of the most commonly asked questions by brands interested in developing a customer retention strategy.
How much customer churn is normal?
The amount of customer churn considered "normal" varies depending on the industry and company in question.
Generally, it's difficult to determine an exact benchmark for "normal" churn rates because a wide range of factors, including product quality, customer service, competitive landscape, and customer demographics, can influence customer churn.
That being said, some industries tend to have higher customer churn rates than others. For example, telecommunications, cable, and internet service providers often have higher churn rates than industries like healthcare or banking.
Conduct some market research to determine the benchmark churn rates in your industry, and strive for continuous improvement.
Is it possible to predict customer churn?
It is possible to predict customer churn by collecting data, monitoring customer behavior, and tracking metrics. Paying attention to environmental factors (like inflation) will also help companies take a proactive approach.
How does customer engagement reduce churn?
Customer engagement is crucial in reducing churn because it helps build stronger relationships between a company and its customers.
When customers feel engaged and invested in a company, they are likelier to remain loyal and less likely to churn. This leads to better customer lifetime value (CLV), helpful feedback, and better social proof. In essence, customer engagement contributes to both churn rates and new customer acquisition.