Customer Loyalty

Customer Churn Rate

Customer churn rate is the percentage of your customers or subscribers who cancel or don't renew their subscriptions during any given time period. The best way to calculate churn is to designate a time period and tally up the total number of customers you acquired and the number of customers who churned during that time period. Then, divide the number of customers who churned by the total number of customers acquired, and multiply that decimal by 100%.

Churn remains important as your company grows. While when you are smaller, it may seem like every customer that churns is a huge impact (often times because it is), but as you grow larger it becomes a key indicator of what changes you’ve made that might have an impact on your customer base. For example, if you remove a feature, or change pricing and note a good deal of churn, it gives you lessons that you can use to shift your strategy moving forward.

Customer Retention Rate

Customer retention rate is the percentage of customers that stay customers and continue to spend money with your company over a period of time. It can be calculated as:

Retention Rate = ((CE-CN)/CS)) X 100

CE = number of customers at end of period

CN = number of new customers acquired during period

CS = number of customers at the start of period.

Like churn, retention can seem like a huge deal when you are smaller—every customer that you keep can make a big difference to your business’ financial metrics. But, as you get larger, the customers that you keep indicate things that your company is doing right. For example, if you make a product change, or build something that people have been asking for, and see that your retention rate is higher, you can tell that you are moving in the right direction and should continue pushing forward.

Negative Churn

Negative churn is the holy grail of customer loyalty metrics. It’s what happens when revenue from existing customers is growing, rather than shrinking. Negative churn has a huge positive effect on the growth of your company - because instead of needing to replace lost revenue from your existing customers, every additional customer grows your revenue exponentially.

To achieve a negative churn rate, businesses need to prevent customers from leaving and also create ways for their existing customers to spend more money with them. This might be through plan upgrades, upsells or adding new users.

Net Promoter Score

Net Promoter Score is a metric designed to measure how customers feel about your company overall. It’s a holistic metric that takes into account every part of the customer experience from marketing, to onboarding, to the product, to service. It’s calculated by asking customers “How likely are you to recommend [COMPANY] to your family and friends?” where 1 is not likely and 10 is very likely. Customers that respond 9 or 10 are considered promoters and are likely to stay loyal and advocate for your brand. Customers that respond 6 or lower are considered detractors and are much more likely to churn in the near future.

NPS surveys usually also include a follow-up question that asks customers why they gave the score they did. The qualitative insights from these questions are helpful in targeting customer experience improvements designed to improve NPS and customer loyalty.

Customer Effort Score

Customer Effort Score is a survey metric that asks customers how easy it was for them to get help or resolve their problem. In 2010, the CEB discovered that high effort experiences were the leading cause of customer disloyalty. They believe that companies that seek to make it easy to do business are more likely to have loyal customers.

And it makes sense intuitively. We all know how it feels, as customers, to be put through a difficult and convoluted process to get a simple answer. Even if our question was answered, that frustration makes us less likely to remain customers in the future.

Surveying customers using CES after an interaction can help companies highlight where they are making things more difficult for their customers, and where they can remove friction to improve customer loyalty.

Customer Satisfaction (CSAT)

Customer satisfaction doesn’t always directly correlate to customer loyalty, and here’s why. CSAT is measured after a customer service interaction between your company and your customers. If the customer is happy with the resolution, they will rate you positively on a customer satisfaction survey. But that might not stop them from churning. While the response from the customer service team was good - the customer doesn’t want to have to talk to you in the first place. They don’t want to have a problem that they need your help to resolve.

Still, measuring customer satisfaction can ensure that your customer service isn’t causing disloyalty. While good customer service might not be enough to keep customers who are running into trouble around, bad customer service is surely enough to drive them away.