No company wants to lose its clients. In reality, many firms invest as much time and energy into keeping their current clientele as they do in attracting new ones. But cultivating customer loyalty is not an easy task. A customer eventually decides to discontinue doing business with you.
Then, what happens?
Do you venture out to discover new clients? Do you try to determine what might have gone wrong during their buyer’s journey or customer experience?
It is crucial to understand customer churn and how it might impact a company’s health. Let’s look at the leading causes of customer turnover and what you can do to comprehend high-risk clients better. We’ll also go through some tactics you may do to lessen this customer churn.
What is Customer Churn?
Customer churn is the percentage of clients your business lost during a predetermined period. For instance, if you started the month with 100 clients and lost 10 of them, your month-over-month customer churn was 10%.
SaaS and subscription-based businesses with recurring income frequently customer churn. Consumers have “churned” once they close their account or stop making subscription payment methods. Your turnover rate will decrease the more clients you keep.
The more consumers you have to seek to replace the ones constantly leaving, the harder it is to build your business.
It would help if you kept your client turnover rate as low as possible while gaining new ones to create sustainable development. However, it’s essential to remember that every company has some client attrition. Not everyone will be a good fit for your product, and that’s okay. Your responsibility is to make every effort to maintain your churn as low as possible.
Alternate names for churn: logo churn, customer attrition, customer turnover, customer defection, client churn
Types of Churn
Contrary to what many people think, not all churn is the same.
Customers who are churned go into one of two categories:
- This is voluntary churn when consumers cancel their accounts because they no longer wish to use your product.
- This is involuntary churn when a customer’s payment is declined and they forget to update their billing information.
Involuntary churn, as its name implies, can occur accidentally. Any billing-related issue, such as your customer’s credit card expiring, getting a new card without updating their billing information, etc.
Because the customer isn’t actively quitting their subscription, it is “involuntary.” However, they are regarded as churned customers if a specific amount of time passes without paying.
Many startups have strategies to lower voluntary churn, but fewer take steps to stop forced churn. A little later, we’ll get into some suggestions for reducing both types of churn.
What Causes Customer Churn?
We’ve reached the crux of the issue: why do clients cease using your goods or paying for your services? Some of the typical reasons for client churn are listed below:
One of the most frequent reasons for client churn is poor customer service. A customer is more likely to discontinue purchasing your goods or paying for your services if they have a negative encounter with your company. According to estimates, poor customer service costs businesses $75 billion annually.
Customers frequently recall negative encounters more vividly than positive ones. Negative reviews on your website, other review sites, and online directories can also result from a bad client experience. Reviews are a vital resource for prospective consumers when making decisions. If they see negative comments about your company, they might decide not to do business with you.
There is also no denying the intense competitiveness in today’s market. With so many options available to consumers nowadays, it’s simple for them to locate alternatives to your giving. The clients you lose may wind up doing business with your rivals.
Service rate or product price
Whether or not a customer will do business with you may depend on your prices. If they discover something more affordable, they will choose that good or service instead.
Poor user experience
Customers may leave if a service or product is subpar or has technological problems. Nobody wants to own a device that quickly wears out, has a steep learning curve, and is challenging to use. Your clients may start looking for alternatives if they have a terrible experience with your offer.
How to Recognize Churn and Increase Customer Retention
Getting new customers can be expensive. Acquiring new consumers is five times more costly than keeping your current ones. Customer retention is not only a more economical technique, but it may also increase income.
Your earnings can improve dramatically with even a minor increase in customer retention. This is because repeat customers frequently make larger purchases and are more inclined to recommend your company to their friends.
The truth is that losing consumers may be expensive for your company. You can determine your company’s present situation by knowing your current churn rate. Additionally, it aids in developing strategies to maintain or boost client retention rates in place of methods to lower the churn rate.
Calculating Churn Rate
Divide the total number of customer churn you initially had during a particular period by the number of customers you lost to arrive at your churn rate.
To calculate the percentage, multiply the outcome by 100. You will have something that appears as follows:
(Original number of consumers during the same time – number of clients lost during that time)
Churn Rate = x 100
You might estimate the churn rate for a quarter, for instance. One thousand customers visited you during this time. However, due to a bad customer experience and relatively high costs, you lost 250 clients.
Your rate of turnover would be:
250 x 1000 equals 0.25 0.25 x 100 equals 25%
The recipe is flexible, so you can change it to suit your needs. You can also base your calculations on a lost percentage or ongoing business value. It can be challenging to calculate the overall number of clients for a specific time frame.
Determining the precise timing of a churn would be another challenge. Does it occur when a client cancels?
Or must you wait for them to cancel their subscription or stop using your services before you can say they’ve churned? Additionally, you’ll need to consider various customer segments, each of which may have multiple attrition rates.
2 to 8 percent is considered a “good” churn rate.
Higher attrition rates can hurt your revenue, profit, or bottom line, control your growth and bring up issues with business health.
Ways to Reduce Churn
There are strategies to lessen churn, a problem that firms must deal with continually. Finding and concentrating on your high-risk customers is one strategy to stop it. The following are some things you can take to combat churn:
Learn Why Customers Are Churning
Understanding why consumers are departing is the first step in keeping them. And asking is the simplest way to achieve that!
An exit survey or form to gather cancellation reasons should be a part of your cancellation procedure. Even setting up pricey tools is not necessary to begin. When consumers cancel, Pigeon’s founder Pat Walls sends an email requesting feedback. We can use a tool like SurveyMonkey to create a questionnaire as well.
Look for trends as you go through the findings when they come in. After that, make a growth plan and a product roadmap based on your research. For instance, you would know what to build next if most consumers canceled because a particular feature was missing.
If a consumer contacts you for the first time as they are canceling, there’s a potential that, had you intervened earlier, you may have stopped them from leaving. Your startup’s growth depends on limiting churn; therefore, work to stop it before it happens.
Here are some options for you:
- Contact inactive accounts: If you use a product analytics solution like Amplitude or Pendo, you may observe when consumers haven’t logged in for a while. If there is anything you can do to assist them, get in touch with them.
- Send material after onboarding: Many businesses know the value of sending informative content to trial users and new clients. However, the emails frequently slow down or stop altogether after around two months. Consistently offering them hints and suggestions on maximizing their membership will keep them interested in your product.
- Utilize NPS surveys: NPS surveys can be a helpful tool for identifying patterns in the general opinion of your customers toward your product. Please use them to reach out to dissatisfied consumers before they go.
These are only a few suggestions. To convey as much as you can is the key goal. You don’t want your customers to leave you because of something you might have avoided at all costs.
Keep your customers engaged.
One of the best ways to stop churn is to engage with your consumers actively. Provide customers with valuable material on various platforms highlighting your product’s qualities or advantages. Offer discounts or launch a newsletter where customers can get regular updates on your products or services. Keep their curiosity and interest. Could you give them a cause to return frequently?
Find ways to educate your customers.
Because they don’t understand how to use your product or don’t recognize its value, customers frequently depart for this reason. Use this as a chance to inform your consumers to understand your product’s full potential and how it may help them.
You can educate your clients in a variety of ways. You can impart instruction, demonstrations, or tutorials. Making these things accessible to them is crucial in this situation.
Provide Amazing Customer Support
Have you ever had a bad enough encounter with customer service to quit doing business with a company?
It’s not just you. According to a report, roughly 20% of Americans would abandon a brand they adore after just one negative encounter.
After numerous negative experiences, that percentage nearly triples to 59 percent. Make every effort to provide clients with a beautiful experience anytime they interact with your company if you want to reduce customer churn. And wherever possible, go the additional mile.
Conduct real-time analysis of customer churn
Please don’t put off studying churn until it is too late. How late is too late? When you wait for a client to go before taking any action. Before churn occurs, it is best to assess it so that you can prepare and take the appropriate steps to keep consumers from leaving.
Every firm experiences customer churn. It can be crippling and negatively impact the expansion of your company. You may, however, lower your churn rate.
Utilizing data is crucial in this situation, which involves knowing your churn rate and identifying the most at-risk clients.
You can create a strategy that enables you to develop better relationships with your consumers by actively engaging them, educating them about your product and its value, and studying their behavior.