The customer attrition rate is a key indicator of a company’s health and performance. It measures the percentage of customers lost over a given period.
According to a study by McKinsey & Company, acquiring a new customer costs on average 5 times more than retaining an existing one. It is therefore crucial to calculate, analyze and especially minimize your customer attrition rate as much as possible.
By implementing the right strategies to decrease your attrition, you will boost customer loyalty and increase your long-term revenue!
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Definition: What is the Attrition Rate?
The attrition rate, or churn rate in English, refers to the phenomenon of customer, subscriber or user loss over a given period for a company.
The attrition rate is calculated by dividing the number of customers lost during a period (e.g. quarterly or annually) by the total customer base at the beginning of that period. The result of the calculation is expressed as a percentage.
More specifically, there are two types of attrition:
- Total attrition, when the customer completely stops purchases from you and switches to a competitor. This is the most problematic form of abandonment for your company.
- Relative attrition, when the customer changes offer, subscription or service level while staying with the same provider. This type of attrition can be less problematic depending on the situation, for example when your customer upgrades to a higher value offer.
The attrition rate is therefore one of the key indicators of customer loyalty and satisfaction. It allows you to quantify customer loss and evaluate its evolution over time. Reducing your churn rate is essential to strengthen retention and ensure sustainable business growth.
How to calculate your Attrition Rate
The attrition rate calculation is quite simple. You just need to apply the following formula:
Attrition rate = (Number of customers lost during the period / Total number of customers at the beginning of the period) x 100
For example, let’s imagine a company has 1,500 customers on January 1, 2023. Over the past year, 150 customers have canceled their subscriptions or stopped purchasing from the company.
The annual attrition rate is calculated as follows:
- (150 / 1500) x 100 = 10%
The company therefore recorded a churn rate of 10% over the past year. This means they lost 10% of their initial customer base.
While the calculation is simple, it is important to clearly define the analysis period (month, quarter, year, etc.) and perform this calculation regularly.
This allows you to track the evolution of the rate over time and assess the impact of actions taken to improve customer retention. A high attrition rate should alert the company and prompt it to take action quickly.
What is considered a good Attrition Rate?
There is no absolute benchmark for defining a “good” attrition rate. It depends on the industry, type of offerings and the company’s strategy.
However, in general, the lower the rate the better. A rate below 5% is considered excellent in most industries. Conversely, above 10-15%, the attrition rate is seen as concerning.
For example, in banking and insurance, the average rate is around 5%. In telecommunications and internet service providers, it is higher at around 25-30%, as this sector is known for its high customer volatility.
To interpret the significance of the attrition rate more accurately, it is advisable to segment it by customer type, separating high potential customers from less qualified ones.
It is also essential to analyze the evolution of the churn rate over time and assess the impact of actions taken by the company to reduce it.
In summary, an attrition rate is only relevant to analyze when contextualized within the company’s overall customer strategy. The goal remains to minimize it as much as possible in order to maximize retention and profitability of your customer base.
The main causes of high Attrition Rates
A high attrition rate stems from various factors, which are essential to identify in order to act effectively:
- Products or services no longer meeting customer expectations and needs: obsolescence, quality issues, lack of innovation, etc.
- Poor customer experience: complex customer journey, complicated usage, relational issues, lack of customer support and advice, etc.
- Inadequate pricing: prices too high compared to perceived value, aggressive discount offers from competitors, etc.
- Operational issues: out-of-stock, unmet delivery times, insufficient customer coverage, etc.
- Lack of communication: customers no longer perceive the added value of products/services and fail in their usage.
- Failing digital strategy: degraded online experience, impersonal customer relationship, lack of engagement program, etc.
Conducting an in-depth analysis of customer journeys combined with accurately identifying reasons for cancellation is essential to determine key areas for improvement. The goal is to strengthen the fit between your offers and customer expectations and ensure their full satisfaction at every step.
5 key tips for effectively reducing your Attrition Rate
After identifying potential reasons for customer departure, it is crucial to take action to effectively reduce attrition. Here are five practical tips to achieve this.
Identify the reasons customers leave
Systematically survey customers who have canceled to understand the real motivations for their departure. These regular surveys are essential to identify key pain points and top priority areas for improvement.
Segment your customer base
Categorize your customers into homogeneous profiles according to their current and potential value. Then tailor your relationship and sales approach to retain your best customers. Deploy tailored loyalty programs with exclusive privileges and rewards.
Develop long-term loyalty and support
Conduct proactive campaigns for training and advice to optimize the usage experience and ensure sustainable adoption of your offers. Regularly distribute tutorials, best practices guides and tips & tricks tailored to customer profiles.
Be attentive to their needs
Collect and analyze customer feedback across your channels to detect irritants and quickly respond to issues. Adopt a proactive listening approach to build proximity.
Continuously optimize your product/service offering
Taking into account customer feedback, regularly evolve your products and services to meet emerging customer needs. Favor short optimization cycles and an incremental innovation approach.
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Read the article:
French – Taux d’attrition client, click here
German – Kundenabwanderungsrate, click here
Portuguese – taxa de atrito de clientes, click here