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Ecommerce Churn: How To Calculate, Interpret, And Anticipate It

Ecommerce Churn: How To Calculate, Interpret, And Anticipate It

When you hear “churn rate” (or customer attrition), your mind probably goes to subscription services like Netflix or Amazon Prime or even SaaS business models like Asana, Slack, or Zoom. The point is that you likely associate churn rate with businesses that have clear monthly recurring revenue.

However, even as a Shopify store owner, understanding your churn rate can help you build a clear picture of how much business you’re losing and how that compares to others in your vertical.

Why does knowing your churn rate matter? You can’t improve what you don’t measure, and reducing your churn rate will help your business grow and become sustainable.

So, in this guide, we’ll be discussing:

  • Churn rate compared to other loyalty metrics;
  • Ecommerce industry average churn rates;
  • How to calculate your store’s churn rate;
  • Figuring out why your customers churn;
  • How to spot customers who are ‘at risk’ of churning;
  • How to reduce your churn rate; and
  • How to target and recover customers who have churned.

Churn rate compared to other loyalty metrics

Let’s cover some of the key metrics you’ll be interested in for your Shopify store compared to the churn rate.

First, there is a difference between customer churn and revenue churn — they measure different data. Revenue churn focuses on the financial impact of losing customers, while customer churn focuses only on the number of customers lost over a given time.

On the flip side, your customer retention rate measures the proportion of your loyal customers who keep coming back and engaging with your brand, while a repeat purchase rate helps you figure out how often customers buy from you.

For example, if your company started the month with 100 customers but ended with 80, the retention rate would be 80%. If 50 out of those 100 customers purchase more than once, the repeat purchase rate would be 50%.

Finally, your Customer Lifetime Value (CLV) refers to the value of a customer throughout the entire time they do business with you.

The challenge with using these measurements in ecommerce is that the benchmarks, or what folks would consider normal, significantly depend on the type of products a store sells.

Of course, you’d expect a higher repeat purchase rate within verticals like cosmetics compared to home furnishing, where customers typically only need to buy a product once (assuming the products last a long time).

Ecommerce industry average churn rates

Because of the challenge of measuring churn rates for ecommerce stores that don’t use a subscription model, it can be difficult to figure out (but don’t worry, we’ll be looking at how to calculate it with reasonable accuracy in the next section).

However, to get a decent idea of industry benchmarks, we can look at retention rates and invert them — after all, if you’re retaining 80% of your customers (like our example above), then it stands to reason that you’ve churned the remaining 20%.

According to Omniconvert’s data, the average customer retention rate in e-commerce is 23% (across all major verticals), which implies the average customer churn rate would be 77%. That sounds like a high churn rate, but remember, e-commerce stores selling one-off purchases don’t have monthly recurring revenue to count on.

Using Omniconverts data again, we can break it down by ecommerce vertical; check out each one in the table below:

ecommerce churn rate by industry
Data from Omniconvert

When you calculate your churn rate, compare it to the industry benchmark. If it’s higher, that means you’ve got more improvements to make. If it’s lower, congrats! But there’s always room for improvement.

It’s also important to note that it’s basically impossible to have a 0% churn rate—it’s business, and you’re going to lose customers at some point for any reason (some of which we’ll be looking at later).

How to calculate ecommerce churn rate

Now we’re getting to the heart of the challenge—calculating your store’s churn rate without an MRR model.

As a side note, if you do have a subscription model in your ecommerce store, calculating your churn rate is easy:

(Customers at the start of the period – Customers at the end of the period + New Customers Acquired in the Period) / Customers at the start of the period

E.g., 100 customers at the start of the month – 110 customers at the end of the month + 15 customers acquired / 100 = 5% churn rate.

You won’t even need to do this calculation most of the time; Shopify apps tend to have this metric available.

However, if you don’t have a subscription model, here’s your next best option for a Shopify churn rate.

With Shopify’s default analytics dashboard, you have access to the “Returning customer rate” (another name for repeat purchase rate), which will help you figure out your average repeat purchase timeline if you measure the average days between purchases and a “Customer cohort analysis.”

Using these two bits of data, you can get a reasonably accurate churn rate — that’s because the churn rate of a given cohort (defined by the date of the first purchase) is the percentage of customers in that cohort who didn’t make another purchase within the average repeat purchase timeline.

We can explain this a bit better with a fictional example of an apparel brand analyzing a Spring cohort (i.e., first purchase was April 1st)

  • Using the returning customer rate data, you’ve figured out that your average repeat purchase timeline is six months.
  • Then, using the cohort analysis, see what percentage of those customers reordered over the following six months, in this case, up to October 1st.
  • If you had 3000 customers in the cohort at the start of the period, and 700 of them reordered within the average timeline, your churn rate would be 77% (rounded up) — (3000-700)/3000 x 100.

Using this method will give you a more accurate idea of your churn rate vs simply inverting your customer retention rate as it’s more nuanced (though you’re welcome to compare the manual calculation to the inversion method to save time for regular analysis).

Figuring out why your ecommerce customers churn

With your churn rate figure more or less pinned down (at least for the period you measured), you can start to take action.

The first port of call is to look at the underlying reasons your customers might be churning right now. Here are some common pitfalls in e-commerce stores that can cause both voluntary and involuntary churn.

A not-so-great user/shopper experience (UX)

For potential customers, nothing is more frustrating than a store that makes it difficult to actually shop, and there are some key UX areas to look out for to make your customer’s experience seamless and enjoyable:

  • Loading times
  • Mobile-friendliness
  • Accessibility
  • Navigation
  • Copywriting

When building (and maintaining) your store for shopper experience, make sure you prioritize functionality and usability. Also, optimize your product pages and landing pages with attention-grabbing copy and design (without sacrificing page speed).

Checkouts that aren’t optimized for conversion

Your customers may be ready and willing to shop with you again, but they may involuntarily churn because the payment processor doesn’t accept their method of payment. They may also voluntarily churn because the checkout process is too complex or lengthy for them or delivery is too slow or expensive.

In this case, turn to Conversion Rate Optimization (CRO) techniques, such as accepting all digital payment methods and one-click checkout, to make your checkout experience as smooth as possible. Also, explore shipping options to reduce time and expense.

Poor product or service quality

No one likes to hear that the products they sell are bad, but if you have enough customers sending complaints, returning products, or leaving bad reviews — you’ve got an issue you need to deal with. Get a sample of your own product and ask yourself, “Would I pay X for this? Would this add value to my life?”

If not, try improving the product design or its features, and if the issue is prevalent enough, try changing manufacturers.

Low or no personalization

According to Marigold’s 2024 Global Consumer Trends Index, 56% of customers worldwide said that “[they] work hard to build a relationship with me” was an important or critically important factor for keeping them loyal to a brand.

How do you build meaningful relationships with customers? Using personalization and loyalty strategies to turn your messaging from generic to make it feel like a 1:1 conversation.

Those are some of the top issues that cause ecommerce churn, but others include your competition offering better value or a limited selection of products compared to competitors.

How to spot customers who are at risk of churning

Keeping an eye on the above factors will help you see factors that already contribute to churning customers, but how can you anticipate when existing customers are at risk of churning?

Here are some key factors to look out for:

  • Reduced purchase frequency. Shopify has the returning customer metric to help you see when customers are reducing their purchase frequency, which can indicate they’re losing interest in your brand.
  • Lack of engagement. Using analytics data, you can see if customers haven’t visited your site in a long time or have lower engagement levels, such as reduced time on the page or fewer sessions. Similarly, in emails, you can see customers that have a low open and click-through rate, which can show a loss of interest.
  • Negative reviews or support feedback. If the customer has left a negative review, that’s a red flag for churn risk, but great customer service can help turn the negative interaction into a positive one.

Some tools, such as LoyaltyLion, can help you identify at-risk customers based on a number of factors (LoyaltyLion shows customers who haven’t returned to purchase in an expected timeframe).

How to reduce churn in ecommerce

Now that you know what is currently causing customers to churn and where you can look to figure out if customers are at risk of churning, how do you reduce and prevent it?

Reducing churn is effectively a customer retention strategy, and one of the best methods of retaining customers is to focus on loyalty initiatives. We published a guide on reducing churn through loyalty already:

Read more: How to Reduce Customer Churn: Effective Strategies to Retain Customers and Boost Ecommerce Success

In summary, here are the methods for reducing churn we covered in that guide:

  • Using win-back messages. When you find a customer who’s at risk of churning, you can send them hyper-targeted win-back messages via email. What’s more, you can automate this process.
  • Collect more customer data. The more you know about your customers, the more you can personalize your marketing to them. You can use a loyalty program to incentivize customers with rewards in exchange for more customer data.
  • Use loyalty tiers. Tiers work by creating an environment that rewards your customers the more they engage with your brand and gives them something to work towards.
  • Use helpdesk integrations. If your customers are increasing their customer support interactions, you need a system to deal with it, such as Gorgias. But you can take this a step further by integrating it with your loyalty program to offer even more personalized support.
  • Use email and SMS integrations. You can’t always rely on your customers to remember to visit your store. Using email and SMS, you can tailor your messaging to at-risk customers and re-engage them with the brand.

How to target and recover churned customers in ecommerce

Prevention is better than cure. However, prevention doesn’t always work. So, how do you recover customers who’ve already churned?

First, you need to find out why. We’ve already covered some of the main reasons your customers might be churning above, but if you want to get the most accurate insights on why your customers churn specifically, you need to ask them.

If you’ve identified a churned customer (or you use LoyaltyLion and have not received a response to your win-back messages), send a follow-up email asking the customer what went wrong and how you can improve. Of course, you won’t always get a response, but the times you do will provide golden insights for your brand.

Use the feedback you receive to make improvements in the areas customers have brought up — once you’ve made those improvements, let the customer(s) who mentioned the problem know. This type of interaction can make the customer feel valued and may return.

However, you can also try a compelling win-back offer. In the article linked above, we highlighted the example from ON THAT ASS in the introduction, which offered a free product and loyalty credit for returning and reactivating a subscription.

on that ass loyalty rewards

For regular ecommerce stores, a free product might be out of scope for win-back offers, but with a loyalty program in place, you can offer a significant points reward (and recommendations on what to spend them on) for your offer.

Reduce your churn rates with LoyaltyLion

At this point, you should have a clear idea of how to figure out your churn rate and compare it to others in your vertical, as well as how to interpret, anticipate, and prevent customer churn.

It might seem like a lot of work, but with the right tools, monitoring and reducing ecommerce churn can be a breeze. LoyaltyLion can help you build an on-brand loyalty program to boost your customer retention efforts and even increase key metrics like CLV, repeat purchase rates, and average order value.

Ready to get started? Check out the LoyaltyLion pricing page to find the right plan for your needs.

The post Ecommerce churn: How to calculate, interpret, and anticipate it appeared first on LoyaltyLion.

This article originally appeared on LoyaltyLion and is available here for further discovery.
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