Many online businesses work hard to acquire customers and get them to convert to their online store. A major challenge they face is e-commerce churn. According to reports, companies lose US $1.6 trillion annually due to customer churn. That means a lot of investment in sales and marketing goes down the drain as customers drop off without returning and choosing a competitor’s product or service.
As an e-commerce business owner, you want to ensure your churn rate is as low as possible by designing solutions that retain a huge chunk of your customers. Therefore, this article dives deep into the concept of e-commerce churn, providing the reasons for its occurrence and tips to reduce the churn rate. Read on to learn more.
Table of Contents
What is e-commerce churn rate?
Advantages of understanding your churn rate
Top 4 reasons why customers churn (with solutions)
The bottom line
What is e-commerce churn rate?
E-commerce churn rate is described as the percentage of customers that stop using a company’s products or services during a specific period of time. For e-commerce brands, this means customers who make a purchase but never come back to buy again.
Customer churn occurs in two ways: voluntary and involuntary churn. Voluntary churn happens when the customer actively stops buying from you due to reasons like dissatisfaction with your products or services (more on that to come).
On the other hand, involuntary occurs when an issue such as a bad website interface or payment failure makes the customer abandon your store. Therefore, measuring both types of churn can assist you in figuring out your business’s average churn rate.
How to calculate customer churn
Since your customer churn rate is the percentage of customers you lose over a given period, to calculate it, you take the number of customers you lost in, say, one month, and divide it by the total number of customers you had at the beginning of the month.
For example, if you had 1,000 customers on January 1st and lost 250 by January 31st, your churn rate value would be 250/1,000, which equals 0.25% or 25%.
Here are some best practices to aid you in finding your actual churn rate:
- Look at the churn rate over 3 to 6-month periods to determine any trends, as shorter time frames can skew the data.
- Segment your customers by attributes such as purchase frequency, lifetime value, or acquisition channel. This can uncover areas needing improvement.
- Review key performance indicators around the customer journey to see where attrition happens most. Then, look for drop-off points to determine ways to improve the experience.
- Consider seasonality and how that may impact your churn. Make sure to compare churn rates year over year to get an accurate picture.
Is a 0% churn rate actually possible?
It is vital to note that churn for any business is expected, and there will never be a company with a 0% churn rate. At some point, some customers will stop shopping from your store or unsubscribe from a service. What is important is to focus on a low churn rate while emphasizing increasing your growth rate.
Advantages of understanding your churn rate
1. Reduce customer acquisition costs
Acquiring a new customer costs more than retaining one. In fact, it’s five times more expensive to gain a new customer than to keep an existing one. Thus, knowing your churn rate helps you know what you need to do to retain your repeat customers, reducing the time and budget you will invest in marketing campaigns to attract new buyers.
2. Increase your revenue
Finding out your churn rate comes down to one thing: increase your sales earnings. Uncovering the issues that result in your customers leaving forever and coming up with solutions to curb them can raise your customer retention rate. A Zippia study revealed that a 5% increase in customer retention can multiply a company’s profits by 25–95%, with 65% of sales coming from existing customers.
3. Discover areas needing improvement
Another benefit of knowing your churn rate is that it assists you in knowing where you are doing things wrong in your organization. A high churn rate indicates problems in your company, making it easier to identify and correct any loopholes.
Top 4 reasons why customers churn (with solutions)
Understanding the factors that contribute to customer churn in e-commerce is the gateway to implementing ways to reduce a high churn rate. Below are the top reasons why customers churn and the solutions:
1. Your business attracts the wrong type of customers
A reason for a high customer churn rate is that your business model attracts the wrong type of shoppers. Actually, 60% of businesses believe that attracting the wrong kind of customers is dangerous for their success.
It happens when a business’s buyer persona or ideal customer profile is unclear, thus creating a thrill for customers who lack an ingenuine need for their goods or services. The customers may also have impractical expectations, resulting in discontent and churn.
To fix this, you need to be clear about your ICP and buyer persona to customize your advertising or marketing strategy to fit the right buyers. You must also conduct market research, analyze your current customer base, and create buyer personas to help you discover your customers’ identities and specific needs.
2. Poor customer service
Bad customer service is one of the major reasons leading to a high customer churn rate, costing businesses up to US $75 billion annually. Other reports suggest that 61% of customers would opt for a competitor after one negative experience. Another survey by Zendesk on how customer service influences purchase decisions found that a whopping 81% of customers revealed that a positive customer service experience increased their chances of continuing to buy from that business.
Improving your customer’s experience is vital for reducing customer churn levels. You can do this by creating a more optimized customer service experience. For instance, implement an integrated system to handle simple requests while leaving the most complex problems to be handled by your customer support team.
Incorporating proactive support also assists in giving your customers a better experience. Take the example of Lululemon, which demonstrates this strategy by listening to brand mentions on social media, even if a customer is not using the company’s handles or hashtags. Actions like these make your existing customers happy while attracting new prospects to your business.
3. Better offers and prices from competitors
Sometimes, it may not be your fault that your churn rate is through the roof. There are instances where your competitors get aggressive with their marketing and come up with attractive offers to your consumers and hard to beat. That’s why you must be watchful of your competitors and observe their actions to prevent them from stealing your customers.
While customer switching has US companies losing over US $136.8 billion per year, beating your competitors can be as simple as reviewing your prices and offerings. Meanwhile, when they come up with a better deal, counter-strike theirs with special offers like product discounts, fair pricing, loyalty programs, or free shipping. This may even persuade their customers to shop from your e-commerce store.
4. Your website or mobile app has bugs, glitches, and error codes
Shoppers expect a smooth shopping experience when buying from your e-commerce platform. When bugs ruin their online shopping experience, it may be dangerous for your brand. Here are some quick facts you should know according to Quality Logic:
- 34% of users will choose a competitor if they are unhappy with your software.
- 48% of customers think poor site performance means the company doesn’t care about its clients.
- 79% of shoppers may rethink their decision when buying again from a poorly performing website.
- 88% of US consumers have a negative perception of a brand if it has a poorly performing app.
It’s because of unexpected technical issues that Groove, a US $500,000 per month business, learned the hard way when they had to rebuild their entire software to regain the trust of their customers.
While these issues are bound to occur, how you handle the situation determines if your customers will take their business elsewhere or stick with you.
To deal with such issues, you need to keep your customers updated with these errors. Take the case study of Buffer, which did a great job in 2013 when its platform experienced a security breach. They provided regular updates to their customers until, eventually, the issue was solved. Ultimately, it prevented churn that would have otherwise damaged the brand.
The bottom line
E-commerce churn rate is an important metric you need to track if you want to boost your business sales. Once you understand the loopholes that lead your customers to leave your store, developing practical solutions that increase retention and customer loyalty becomes a walk in the park. Eventually, your customers and churn rate will thank you.
Start sourcing quality products from Alibaba.com and implement these powerful strategies to see how you can reduce churn in your e-commerce business.
