Customer Churn & How to Reduce It?
Chief Business Officer
⏱ Reading Time: 6 minutes
On a digital playground where brands are refining the customer experience with the latest CX and UX innovation, it is hard to win the attention and loyalty of customers.
Among customer experience metrics, customer churn is of the utmost importance. It is the indicator of brand consistency, brand experience, and brand growth.
Predicting and preventing customer churn holds great potential for revenue growth for every business. Moreover, according to Insight Squared, reducing customer churn by 5% can increase profits 25-125%
Let’s demystify what customer churn is, the formulas for calculating and steps how to reduce this stressful metric.
What Is Customer Churn?
Customer churn is a vital brand metric representing the percentage of customers (subscribers, buyers, users, players..) who have put an end to the relationship with a company.
In an online world, the customer is treated as churned after a certain time period has elapsed since the customer’s last interaction with a service or a website. Depending on the business niche and the target audience, brands can move time-period mark from 6 months to a couple of years.
Customer attrition, as some like to call it, is a vital metric for brands that want to maximize their marketing and sales. It costs 5 times more to acquire new customers than it does to keep the current ones, That’s why business owners today try multiple strategies to reduce customer churn.
Why Is Customer Churn Important?
Naturally, companies will lose some of their customers over a certain period of time. But, the ability to predict that a customer might churn, while you still have time to do something about it, is a great strategic advantage.
Companies that can predict and prevent the customer churn, have the potential for an additional revenue source. Moreover, with great customer experience in mind, preventing the churn from happening is the indicator of seamless CX and more loyal customers.
Direct revenue loss from potential customers is one side of the customer churn coin. While other side effects are:
- Customer churn helps your competitors
Unhappy customers tend to be vocal about their bad experience which often results in negative reviews.
- High churn rate is an indicator of much bigger company problem
A high percentage of churned customers often is an indicator that you are failing with your customer service, or that a product or a service fails to meet customer expectations.
How to Calculate Customer Churn Rate?
To calculate this important rate first you must determine a time period you want to do a calculation for. Calculate the total number of customers you acquired and the number of customers who have churned during that period.
Customer churn rate is calculated when you divide the number of customers who churned by the total number of customers acquired and multiply that decimal by 100%. The final percentage is your customer churn rate.
Let’s see the example:
You’ve decided to calculate the churn rate on a defined period of a year. During a year period, your business had 10 customers churned and you acquired 400 new customers:
10 / 400 = 0.025 X 100% = 2,5% (customer churn rate)
The Importance of Customer Retention
To illustrate the importance of customer retention, InsightSquared analysis shows that 80% of your company’s future revenue will come from just 20% of your existing customers.
To successfully reduce churn, marketers and retention experts must try to predict the churn through the analysis and hold the market knowledge. Moreover, marketers need to develop insight on which marketing activities will have the greatest retention impact on a particular customer or type of customer.
Customer Churn Prediction
As a part of the much larger customer experience strategy, customer churn prediction is a set of techniques aiming to understand customer behaviors that signal customer churn possibility.
Customer churn prediction is mostly based on static data and metrics. Such as customer information about a number of purchases, frequency of visits, etc. Some companies dig into older statistics for longer time periods and data-mining.
However, there are better and more accurate ways to predict churn. For instance, if you calculate the customer lifetime value (LTV) for each and every customer, you will uncover the possible turning point for each customer segment.
5 Ways How to Reduce Customer Churn
1. Analyze why churn happens
Use your churned customer and analyze the reason why customer leaving. Analyze when and how churn happened in customer’s lifetime with your team and use that data for improvements.
FACT: 68% of customers leave because they think a company doesn’t care about them.
2. Define your most valuable customers
Instead of focusing on offering incentives to customers who are possibly considering churning, it could be even more useful to redirect your resources into your loyal, profitable customers.
3. Target the right audience
No matter how tempting your retention tricks are, they may all go down the drain if you are bringing the wrong audience.
What we want to say to you is that if your first interaction with the customer is about “free” and “cheap,” then you risk attracting people who are not looking for the value you provide. These “freebie” receivers are the most likely to leave.
It’s better to target those who appreciate the long-term value of product or service and see investing in good quality as an advantage. You’d better have big eyes on those ones.
4. Provide exceptional customer service
Everyone knows how exceptional customer service can influence on business and customer loyalty.
Bad customer service can harm your business and boost your churn rate.
Don’t let that happen. Provide your customers with excellent customer service by listening to them, accepting their negative feedback. And go for the extra mile with indentation to provide unique customer experience.
Picture 1. Reasons why customers leave
5. Have better attention on complaints
Complaints are significant when it comes to customer feedback. Customers are not always ready to complain, but when they do, have in mind that there is a bigger problem there.
Be aware that 1 negative experience can stop 32% of customers to doing business with a brand that they have been loyal for a long time.
We advise you to take complaints seriously and act on them, and in this way prevent churn. Because as Strauss & Seidel claims, dissatisfied customers whose complaints are attended to are more likely to remain loyal, and even become advocates, than other average customers.
Calculate, Reduce, Improve
After you read all these potential problems that can cause customer churn, we hope you have a bigger picture of how significant is customer churn in business. The business needs to have in mind all aspects of how to prevent customer churn and how to reduce it.
Customer service is one of the top reasons why your customer leaves your brand, and it’s all on you to provide the best service and try to minimize the possibility for customer churn.
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