How to track customer churn in eCommerce businesses
Customer churn - also known as customer attrition – is when a customer stops using/buying your products or services.
It’s a measure of the number of customers leaving a business over a specific period of time.
Customer churn is something that every business has to deal with because customers always come and go, but if churn is left unchecked, it can greatly impact your revenue in the long run.
For this article, we are looking at why churn is important and how to track it in eCommerce businesses.
Why it's important to reduce churn?
Throughout years of working with eCommerce businesses, we have identified the two most important reasons why focusing on churn benefits them.
Reduced cost of acquisition
It’s often much easier and more cost-effective to keep an existing customer than it is to gain a new one. It’s estimated that acquiring a new customer costs as much as five times more than it does to nurture your existing customer relationship.
Acquiring new customers might require you to set up a full sales funnel in order to attract and convert new visitors into customers. But retaining them may be something you can do with an email sequence.
Increased revenue
Customers who return time and time again are the pillars of long term surviving businesses. Reducing churn increases revenue generated by a business through repeated purchases made by retained customers who otherwise would be lost.
These purchases result in more profit to the business because they are generated at a much lower cost, unlike the first time purchases.
There are so many advantages to reducing churn because retained customers convert much better, drive a lot more purchases with higher frequency, providing you with the resources you need to generate more customers.
Indicators of customer churn
Customer churn in eCommerce especially can be difficult to track because it is not usually something that happens overnight.
It can be a result of days, months, or years of customer dissatisfaction or missed opportunities.
However, there are usually some indicators of churn that every business should review before it becomes a problem. Things like:
Declining repeat purchases
Reduced purchase frequency
Negative feedback and complaints from customers
Reduction in Net Promoter Score (NPS)
Even late payments can be a sign of early churn.
All of these indicators can easily be tracked and monitored by reviewing customer data in platforms like Klaviyo.
By being aware of trends in your customer data, you can solve potential problems with customer churn before they even happen.
Tracking customer churn in eCommerce
Businesses today have more data than ever about their customers and are able to identify key actions that can result in churn.
This can be done by using behavior analytics tools like Amplitude or Mixpanel to track action events before they subscribe (churn). Including pages visited, emails opened, alert, metric points, and other events that happen before a customer churns.
These kinds of events can be monitored so that if any other customer takes the same pattern, they are considered as customers at risk of churn.
The problem, however, is for eCommerce businesses, since there’s no definite action like unsubscribe for subscription business that we can say is when a customer has churned.
In a normal eCommerce model, customers just stop buying from your store.
So to track churn, we monitor the deviation of customer purchase behavior over time.
The logic behind this is, if a buyer with a defined purchase behavior begins to deviate from that, then he might be at risk of churn.
In practice, the question you are trying to answer is: How many days should pass after purchase for a given customer to be at risk of churn?
Here’s an example; if an eCommerce store has three customers Jon, Jack, and Julia, with the following purchasing data:
Let’s look at Jon first.
Jon has made 8 purchases from your store within an average of 120 days, and his last purchase is 30 days back.
We can reasonably say that Jon is a healthy customer expected to purchase again because of the number of days from his last purchase is low compared to his average repurchase time.
We can then be comfortable enough to say that Jon will buy from your store again
Jack, on the other hand, has 2 purchases made within an average of 40 days but hasn’t made a purchase in the last 120 days.
We would have expected Jack to buy again in the next 40 days, but since that hasn’t happened, we can conclude that Jack has churned.
Simply because there’s a clear deviation from Jack’s expected purchase behavior.
We track such deviations from expected behavior along the customer journey because it allows you to segment your audience and run more targeted campaigns to people who need it most.
Let me explain this with our last example. Julia
Julia, over the course of 120 days has made 5 purchases but hasn’t bought anything in the last 90 days.
In Julia’s case, the number of days since his last purchase is lower than the average repurchase time.
Knowing this, you might want to prioritize your marketing resource to a customer segment (with purchase behavior like Julia) to drive top of the mind awareness and bring her back to purchase more.
This is the first stage of reducing customer churn by understanding where, when, and why it occurs.
If you know when customers are at risk of churn, then you know when to hit them with that retargeting campaign with offers to get them back.
Tools like Klaviyo make this really easy as you can create segments of customers at risk of churn; usually, people who haven’t opened an email in the last say 60 days and send them automated win-back campaigns like;
If you know why they churn, then you know what to work in order to reduce. This is what we shall be looking at in the next article.
At Humanlytics, we use data to help eCommerce businesses reduce churn and achieve other marketing goals.
Using analytics models like predictive analytics, we are able to identify customers at risk of churn across channels, not just email, and after analyzing your data, we provide you with a clear set of actions to take and reduce churn.
Get started with Humanlytics
Conclusion
Churn is a result of declining customer satisfaction, especially if their expectations are met at all levels of the customer journey.
Before you can start to optimize for customer churn, you need first to understand what it is and how to track it, especially for eCommerce businesses where churn is highest. And I hope this article has done that.
In the next article, we are going to be looking at the key steps you can take to reduce churn and keep your existing customer base.