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Customer Engagement
8 min

The Ultimate Guide to Reducing Customer Churn

A recent survey points out that new customer acquisition costs five times more than retaining existing customers. A lot of effort, time, and dollars go into adding new customers. But if customers leave and say goodbye to your brand abruptly and unexpectedly, you end up losing a lot more than just revenue. It can dent your confidence and steepen the acquisition bill.

Customer Churn and its Importance

Customer churn also called the churn rate or rate of attrition, is when customers stop doing business with an organization. To grow the number of users for your app or website, the growth rate (number of new customers) must always exceed its churn rate.

It is essential to understand churn rates because:

  • Churn can act as a severe growth barrier. 
  • By knowing what the customers are looking for and identifying tell-tale signs of an impending churn, companies can operate proactively and take steps to convince such customers to stay. 
  • Focusing on reducing customer churn rate can help in exploding the average CLV or customer lifetime value.

Causes of Customer Churn

Churn is unavoidable for many reasons in any business, but that does not mean you cannot do anything to prevent it. You can reduce the churn rate if you know what is causing it. Here are some of the most common reasons customers abandon a brand:

1. Poor onboarding experience

When a customer downloads your app or visits your website, you must clearly and promptly communicate the value you are providing. You must do this through personalized emails, phone support, and product information/tutorials. In most cases, you can combine a series of communications to deliver the message that they are valuable to your business. A lackluster welcome or the total absence of it can increase the risk of churning and make the customer buy from your competitors the next time. 

onboarding-experience

The marketing company Encharge created a magnetic onboarding process. They put trial users in two buckets: automated email onboarding sequence and sales-driven cadence. They also use CRM to execute and track sales leads. 

2. Not keeping pace with changing needs and demands

Customer tastes keep on evolving. A product that is a runaway winner today may languish in your warehouse a few months down the line. It is essential for companies to monitor the changing needs of the marketplace and change their product and marketing strategies. Inability to do so can cause customers to drift away to brands that are always looking ahead and innovating accordingly.

3. Involuntary churn

Involuntary churn is the bane of many businesses, especially the ones that run on subscription-based models. This kind of churn can happen because of wrong or out-of-date billing information or expired cards. Strictly, involuntary churn need not reflect negatively on your business and is not a measure of your product or service competency. 

Usersnap worked on this to figure why so many customers were canceling after a month or two. They added a cancellation reason field to their unsubscribe page and gained valuable insights. 

Customer Feedback and learning from Involuntary Churn

4. Poor customer service

It is supremely important to value a customer. You must make them feel like a vital part of your organization. The only touchpoint where this experience delivers in good measure is customer service. Customer experiences influence purchases heavily. Studies reveal that 70% of customers stop buying from a business if the customer service is not up to their expectations. They will also share this experience with others and recommend them not to do business with you. It can mean a string of lost opportunities and lesser revenues. 

A cloud service provider company called CornerstoneOnDemand adopted a proactive approach, enhancing customer experience, and now has over 12 million users. 

5. Customers love your competitors better

You may have a great product and the best customer support in the industry, but if you cannot make your customers see how it can add value to their lives, you may lose them. They will quickly engage with your competitors and stay there unless you do something about it. You will continue to lose your market share to others and potential revenue too. 

For example, Zapier provides a 14-day free trial before purchasing the pro plan. They treat trial customers the same as those who subscribe to the premium plan, making it difficult for them to turn back. Airfocus openly shares its product roadmap so customers can see what additional features are on the horizon. All these are ways to ensure the customer values the brand.

6. Other Causes

Every customer churn instance is not your fault. Sometimes customers may abandon you for reasons beyond your control. Some examples:

  • Customers may go out of business.
  • Vendor switches may happen because of staff changes sometimes.
  • Some customers may outgrow your product/service and may need something different.
Why Do Customers Leave a Company

Calculating Customer Churn Rate

Customer churn rate is a measure of the number of customers lost over a specific period. A zero percent churn rate is ideal, but businesses do not operate in a perfect world. Every business, big or small, famous or inconspicuous, will lose customers. 

You can measure churn rates every month, quarterly, or annually according to your organization and business sectors’ preferences and policies. Annual tracking is the most commonly followed model, but most subscription-based businesses prefer measuring churn rates every month. It is vital to have a clear policy; to measure customer churn to remove any confusion and ambiguity resulting in erroneous churn data. 

There should be well-defined ways of identifying whether a customer is active, dormant, or gone for good. How do you calculate the churn rate? 

Calculating Churn rate

For example, let us say company A started with 10,000 customers in September. At the end of the month, 500 of them left. It means the churn rate is 5%. 

Example of churn rate

Some Interesting Facts About Customer Churn Rate:

  • Reducing churn by 5% can boost profits by up to 125%.
  • 70% of the reasons customers switched brands are entirely unrelated to products. Low service quality was the key factor in most cases.
  • Failing to respond to concerns raised by customers on social media can increase churn by 15%.
  • 39% of consumers do not deal with a vendor for over two years after facing a negative experience.
  • Businesses could avoid 11% of customer churn by the simple act of reaching out to the consumers. 

Is There a Good Churn Rate?

Customer churn is bad news for any organization. The perfect churn rate would be zero, but it is beyond the realm of possibility for any company to have 100% satisfied customers. So, churn happens, anyway. That’s why identifying a ‘good churn rate’ can help companies find out a churn threshold. If it goes beyond that, it should trigger an alarm.

It is crucial to pin down an average churn rate for the industry. Some reliable data is available on churn rates by industry:

  • American credit card companies report a churn rate of 20% on average.
  • Cellular companies operating in Europe experience a churn rate of around 20-38%.
  • SaaS companies report a churn rate of 5-7%.
  • Retail banks have a high churn rate of 20-25%.

A reasonable churn rate is difficult to define as different industries churn differently because of their varying business models. On average, a five percent churn rate may sound healthy and logical. It is natural for any business to lose some customers here and there.

Why is Predicting Churn Vital for Any Business?

Predicting churn rate must form an essential element of your business management efforts. You can protect a potential revenue loss situation if you can expect that a particular customer has a high chance of leaving. 

By leveraging the right tools and systems, you can:

  • Accurately identify the significant reasons for customer churn in your business
  • Pinpoint high-risk customers
  • Define churn thresholds
  • Trigger immediate action when a threshold breach appears apparent

Effective Ways of Reducing Churn

Now that you know nearly everything about customer churn and what it can do to your business, it is the right time to learn how to reduce customer churn. Let’s start:

1. Focus on delivering an excellent first impression

When customers come looking for a product, you must deliver something extra or unique that will register in their minds immediately and stay there for long. Experts say that the first few minutes are crucial because if you can create a substantial impact within that time, they are less likely to look elsewhere. It helps create that vital trust factor, which plays a crucial role in customer retention. 

Bonus Content

Average Customer Retention Rate by Industry

Sprout Social uses content to celebrate its customers. Their ‘Always On’ series highlights how customers help solve business challenges, making a favorable first impression. 

2. Promise more and deliver even better

Constantly exceeding customer expectations is a proven way of ensuring their loyalty. Every buyer has some expectations from a brand. You must not only satisfy that need but provide something of value to delight customers and make them stick to your brand. A word of caution here is not to oversell at the onset to make them buy. Be transparent and meet their expectations while upping the pitch a bit more when you can.

HubSpot offers inbound marketing and automation software. It exceeds expectations by providing helpful information on the usage of these tools. 

HubSpot offers inbound marketing and automation software

3. Floor them with some awesome customer service

It is an unwritten rule for any business. If you want your customers to stay with you for long, care for them. A recent survey identified some of the customer service related problems that respondents said are among the most irritating:

  • Repeating the issues they are facing to multiple representatives.
  • A negative interaction that cannot identify the problem faced by customers accurately.
  • Putting calls on hold for an inordinately long time.

Reddit provides exceptional customer service. They send out handwritten customer notes to their users from the company upon subscription. 

A proactive rather than reactive approach is necessary. Act before customers with negative experiences vent their frustration on social media channels and other public forums.

4. Listen carefully to what your customers tell you

If you think you know your business better than others do, you are in trouble. Consider the viewpoint of what customers tell you. Listen to what your customers are saying and take corrective action based on their views and suggestions. The focus should be on making the lives of your customers easy with practical solutions. 

A brand called Chanty reduced the churn rate by listening to customer feedback. They rolled out threads in chats to communicate. Having worked on the feature request, they got in touch with the customers. Their churn rate decreased from 9.75% to 7.5%. 

5. Take steps to win your customers back from competitors

You must act swiftly to bring back those customers who have engaged with your competitors recently. It is easier said than done, but you can make the first move by re-looking at the pricing part. Keep it competitive based on the value it delivers. Understand the pricing tactics of your competitors, how they sell their deals, and special offers.

6. Discover what makes your brand unique

Why are your existing customers sticking to you? It is clear because they find it convenient to do business with you. Find your USP and make it unbeatable. Focus actively and liberally on those Unique Selling Propositions in your marketing and advertising strategies. You will attract more customers and ensure their lasting loyalty. 

Moz has an excellent strategy to find out from its customers why they value the company. They run a guest-driven blog where customers can contribute. It helps build a long-term relationship and helps the brand maintain its uniqueness.

Conclusion

Customer churn can be the silent revenue drainer for your business. It is easy to ignore churn, but the consequences can be severe. Identify the drivers of churn for your business and create an effective retention strategy. By taking the appropriate steps at the right time, you can reduce churn rates drastically.

MoEngage is an internet company that offers cloud-based marketing services for consumer businesses. Clients can rely on us to create campaigns across multiple channels. We specialize in optimizing customer engagement.

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