Today’s consumer has an endless amount of choices at their fingertips. They can find almost any product or service from the palm of their hand, and if you don’t satisfy them at every turn, you run the risk of churned customers and decreased revenue.

Revenue churn rate is a metric that helps businesses identify the monthly revenue they lose with every lost customer. In this guide, we cover the basics of revenue churn, how you can calculate and reduce it, and how being attentive to your customer experience (CX) can make a significant impact.

More in this guide:

Why is revenue churn rate important?

Revenue churn rate is significant because any amount of lost revenue is impactful. If your organization is experiencing high revenue churn, you need to understand why.

It’s natural for consumers to end their relationship with your business occasionally. However, a pattern of consistent customer cancellations or downgrades indicates that there may be issues with your product or your customer experience. Understanding this metric can help you in key areas like:

• Customer retention: Revenue churn can help identify what your customers appreciate—and what they don’t. This can lead to a better CX and improved customer loyalty.

• Product improvements: Monitor your revenue churn when establishing new systems or product features. If it stays consistent—or even reduces—that tells you your customers value your new approach.

• Increased revenue: You can improve your processes by understanding why customers leave. This can reduce the cost of customer acquisition and increase long-term revenue.

When you understand your revenue churn, you’ll be more in tune with your customer base and more likely to build long-term relationships.

Revenue churn vs. customer churn

While different, revenue churn and customer churn are two sides of the same customer retention coin.

Customer churn rate is the percentage of customers who stop doing business with an organization over time. This metric can offer insight into how well an organization can retain its customers.

Revenue churn rate measures the loss of monthly revenue from customers over time. This metric provides insight into how well an organization can produce revenue from its customer base.

This is an important distinction because, while these terms are related, they can mean different things for your business. Let’s take a look at two fictional businesses:

• Peak Impact Fitness lost 10 customers who paid the company $10 per month, or $100 of revenue.

• Plugin Fitness only lost two customers, but they each paid $200 per month, or $400 of revenue.

In the above examples, Peak Impact had a higher customer churn rate (10), while Plugin had a higher revenue churn rate ($400).

How to calculate revenue churn rate

You can calculate revenue churn rate in two ways: gross revenue churn rate and net revenue churn rate.

Gross revenue churn rate

Gross revenue churn rate measures how much revenue a business lost in a period without factoring in new customer acquisition. This is a useful formula for examining revenue churn in a vacuum.

To use this formula, divide your churned revenue for a month by your MRR from the previous month and multiply by 100.

For example, Peak Impact Fitness wants to measure its gross revenue churn for July. It had an MRR of $50,000 in June. During July, it registered a churned revenue of $7,000. First, the business divides $7,000 by $50,000 to get 0.14, then multiplies that by 100. So, Peak Impact’s gross revenue churn rate for July is 14 percent.

Net revenue churn rate

The net revenue churn rate measures how much revenue a business loses in a period while also considering new business gained. This is a useful formula for growing companies or organizations that want to see how their growth rate offsets their churn.

To use this formula, subtract expansion revenue from churned revenue for a month before dividing the result by MRR from the previous month and multiplying by 100. To illustrate, let’s revisit Peak Impact.

In June, it had an MRR of $50,000. During July, it had a total revenue churn of $7,000—but it also had $5,000 in expansion revenue. To calculate, Peak Impact subtracts $5,000 from $7,000 to get $2,000. Next, it divides that by $50,000 to get 0.04 before multiplying by 100 to get 4 percent.

This is a good example of how gross and net revenue churn rates differ, as Peak Impact had a gross revenue churn of 14 percent in July but a net revenue churn of only 4 percent.

Common causes of high revenue churn

Businesses can experience revenue churn for a myriad of reasons, but it usually comes down to issues with your product or customer experience. Here are some common reasons for a high churn rate, along with insight from our Zendesk Customer Experience Trends Report:

• Bad customer service: Our CX Trends Report states that 80 percent of consumers expect support agents to help them with everything they need. Unhelpful and inexperienced reps who constantly transfer your customers to other agents could impact churn.

• Lack of innovation: Per our CX Trends Report, 65 percent of CX leaders see artificial intelligence as a strategic necessity. Consumers expect the latest and greatest innovations, and if they aren’t getting it from your brand, they might look for a company that can.

• Subpar data security: According to our CX Trends Report, 70 percent of consumers won’t purchase from a business with poor security measures. If your consumers are concerned about how you’re using their data, they may churn.

• Poor customer onboarding: Efficient onboarding immediately delivers value to your customers and shows them your product’s capabilities. Without that, they may become overwhelmed or switch to a competitor.

How to reduce revenue churn rate

In addition to identifying and mitigating the reasons for churn, businesses can reduce their revenue churn rate in several ways. Here are some of the most impactful.

Adopt a customer-first approach

Being customer-first means putting the customer at the center of organizational decision-making instead of only focusing on profitability. This approach involves listening to customer feedback, anticipating customer needs, providing personalized experiences, and seeking ways to consistently deliver a positive CX.

When organizations focus on the customer with every decision, they are more likely to meet or exceed customer expectations. And when customers are happy with the organization they’re doing business with, they are likely to stick around long term.

Invest in the customer experience

A commitment to the customer experience goes beyond adopting a customer-first approach—it also means equipping your team with the tools to deliver good customer service time after time. Consider investing in solutions like customer service software to streamline and enhance the customer experience.

This software can assist your team in several ways, like helping you build a knowledge base so customers can find answers on their own or deploying chatbots to be the first line of defense for consumer concerns. These types of features can help to reduce your churn.

Find out why your customers churn

Knowing that your customers are churning isn’t enough—you need to know the why. Identifying patterns through customer surveys, analyzing key performance indicators (KPIs) like customer service metrics, speaking to your support team, and other actions can reveal why your customer base is churning. When you discover why your customers are leaving, you can implement steps to change.

Learn to identify high-risk customers

After you identify patterns that lead to customer churn, it’s important to learn how to identify high-risk customers before they leave. By proactively addressing concerns or engaging in targeted messaging, you can rectify the situation before it’s too late.

For example, you may discover that individuals who haven’t interacted with your marketing emails for two months usually churn. In this situation, you may send them a personalized discount or product offer to get them to re-engage with your brand.

Establish loyalty programs

Establishing a customer loyalty program is an excellent way to prevent customers from churning. These programs incentivize consumers to remain loyal to your business by offering exclusive benefits, discounts, and rewards. Doing so can help reduce churn, improve your customer retention rate, boost your customer lifetime value, and increase profitability.

Strive for continuous improvement

Regularly assess and refine your process and product based on feedback and customer retention metrics. A commitment to continuous improvement ensures that your business remains agile, responsive to market changes, and aligned with changing consumer preferences.

Frequently asked questions

Reduce your revenue churn with Zendesk

A high revenue churn rate can cause significant problems for your business. Organizations need to adopt a customer-first approach, invest in CX, and understand why their customers are churning to minimize the impact on their balance sheets. While you can do this independently, you’ll find more success by partnering with a customer experience expert.

At Zendesk, we provide a comprehensive CX solution that helps businesses of all sizes form meaningful connections with their customers, increase long-term loyalty, and improve their customer retention—all of which can reduce revenue churn. Try us for free today.