Customers for Life: What is Customer Churn and How to Reduce Customer Churn?

Today’s customers have a multitude of options to choose from a versatile of products that satisfy their business needs and a dire need of balance between quality and pricing model, causing companies to focus on customer retention and churn management eventually trying to answer the question:

How important is a single customer to a business?

Customers stop using a product or a service when they are unhappy with the product or the services provided which in turn affects the financial growth of the company. This not only affects the brand name and reputation of the company but also results in losses or bankruptcies depending on the average customer churn rate by industry.

The phenomenon where customers of a business no longer purchase or interact with the business is called Churn.

A 5% increase in customer retention correlates with at least a 25% increase in profit.

You can spend millions of dollars on advertising but without customers, you are just a company with a good product and no sales due to a lack of customers.

If your offering is not marketed efficiently and you have a big gap between product and customer expectation, you will have a hard time competing with companies that are spending millions of dollars on marketing to ensure less customer churn.

Customer churn is directly proportional to the amount of effort put into onboarding new customers. Consequently, if a company has customer loyalty to a substantial level and an increase in recurring business, then it stands to reason that the company will have lower churn.

Are you determined to be on a path that can increase your profits too?
Then let’s first understand the importance of Customer Churn and what it is all about.

Why is Customer Churn so important today?

One of the most important links to the chain of successfully running a business is obviously the customer. More specifically, a frequent, loyal, and returning customer. Retaining a hundred percent of the customers is highly ambitious and hence customer churn analysis comes into the picture.

Earlier companies used to focus on customer acquisition in order to reduce churn which resulted in the ‘leaky bucket’ approach - where you keep bringing in new customers without ever focusing on the leak.

On an economic point, it costs 5 times more to acquire a customer than to retain and enrich customers which forms the major reason companies must focus on reducing customer churn.

PWC found that 32% of the people they surveyed said, after just one negative experience, new and existing customers would stop doing business with a brand or company they previously loved.

This causes a ripple effect on the brand value of the company which results in iterated losses in turn proving the age-old saying "Customer is King".

Since 77% of consumers are more likely to buy a new product when learning about it from friends or family, customer churn should be given the utmost priority.

Further, how does one quantify the strength of customer loyalty? One way is by looking at customer churn, which is essentially the number of customers acquired over a period of time divided by the number of customers acquired under a particular brand name. The greater the churn the weaker the customer loyalty becomes.

Customers are less likely to choose a brand due to poor service or simply because they don't like the product anymore, they will move on to a company that better suits their needs which will increase customer churn. The significance of customer churn survival analysis is crystal clear given the nature of its incomprehensible effects.

Yet companies find it hard to understand and implement the methods and strategies in order to increase customer retention. The first step in this journey would be to delve deep and understand what customer churn is all about.

What is Customer Churn?

Customer churn also called customer attrition is calculated by the number of customers that leave your company during a certain period of time.

A high churn means that a higher number of customers no longer want to purchase products or services from your business.
  • It can also be calculated in terms of financial value lost or the business lost due to customers that exit.

  • It can also be calculated by looking into the recurring value lost by calculating the business revenue before and after the customers leave.

  • In simple terms though, it shows how well your business is doing in retaining valuable customers and keeping them satisfied.

Customer churn happens when customers decide not to continue using the product or service and want to end their association with the company. It develops as a parameter in the internal departments of the organization and must be tackled with efficient use of strategies that work towards customer retention.

It can prove to be a huge impediment to the growth and success of the organization and can eventually decide the fate of the company. The responsibility of customer churn management is usually handled by departments such as customer experience, user experience, customer retention, customer success, etc.

While one of their main objectives apart from analyzing feedback, developing strategies to retain customers and providing great customer support among others is to determine customer churn formula which eventually brings us to the question of,

How to calculate customer churn rate?

Firstly, the company needs to designate a period of time during which the number of customers acquired and churned is calculated.

Further, by taking the number of churned customers and dividing it by the number of total acquired customers, and

Finally dividing that obtained number by 100% we get the value for churn rate for that period.

Usually, companies calculate this on a monthly, quarterly, and yearly basis.

To illustrate further let us say your company acquired 1000 customers in the month of march and also lost 100 during the same period because of a product bug. If we take the churned customers (100) and divide it by the acquired customers (1000) and then multiply it with 100%, we get a 10% churn rate. 

Main reasons for Customer Churn

Statistics show that 53% of all causes of customer churn are due to three leading causes that are,

Poor onboarding
Weak relationship building
Poor customer service

These three areas are where the customers interact the highest with the company and hence form the major touchpoints.

Studies show that Customer Experience leaders in the technology industry spend 36% more time building customer relationships, and monitoring tech adoption than Customer Experience learners.

Simplifying the onboarding process, constantly interacting with customers, and answering customers’ questions in a timely and efficient manner makes a defining parameter that eventually decides the mechanics of customer churn calculation.

Customer Churn Reasons
Zendesk found that a colossal average of 66% of consumers had terminated their relationship with a company due to poor customer service.

This indicates the importance of keeping customers happy and consistently observing the customer lifetime churn rate. Attending customers in a proactive manner when problems arise rather than having bots as customer support assistants or pushing customers with enormous and confusing information goes a long way in winning the battle of retention vs churn.

Most of the time, it is still not enough to satisfy customers even if the three parameters are in place.

Do you know why?

It is because of a bad user experience. User experience and customer retention go hand in hand and something that companies must pay attention to. If users can not easily find features or services they need, they move on to other companies that offer the best alternate solutions.

Focusing on the needs and interests of your customers, the customer journey, and the overall useability goes a long way in providing a better user experience that eventually helps in customer retention.

How to reduce customer churn rate?

After understanding the meaning, importance, and reasons for increased customer churn let us now look at the solutions out there that can help in reducing customer churn.

According to a study by Kolsky, 1 in 26 unhappy customers will complain, the rest will churn.

This impacts your business in a negative manner and hence you should focus on reducing customer churn. To state the obvious, the first step in reducing churn is to determine and analyze the customer churn model in order to find out the root cause for why churn is happening.

Collection of data can be done by approaching customers who churn unexpectedly because of the customer churn survey or by personalized emails.

Alternatively analyzing customer feedback with SaaS tools like Pyoneer, can help in determining the key reasons for customer churn.

Further, analyzing churn by understanding and analyzing the customer segments clarifies where the churn is actually coming from.

For example, let’s say your churn rate is 10% and instead of tackling wholly you can break it down based on your customer segments. 
Looking into each of your customers from different pricing plans and customers obtained from different kinds of campaigns can show you how varied the reasons for customer churn can be. 

This helps to streamline and pinpoint the problem areas in a quick and efficient manner.

Subsequently, improving the onboarding process can help in reducing churn which is further illustrated by a famous quote by Maya Angelou

“People will forget what you said. People will forget what you did. But people will never forget how you made them feel.”

Communication can help to a certain extent but eventually, it is the process that a customer values and will remember. Tapping the opportunity at a stage where you can clearly explain the value that your product will add and observing the customer perception aids in reducing customer churn.

In a competitive world where your customers are constantly being bombarded by alternative products or solutions, it is extremely important to increase customer engagement which consequently helps in reducing customer churn and increasing customer loyalty.

To even step up the game and to be on the edge among the competition, it helps to plan and implement tailor-made programs to help understand the benefits of your products. Offering newsletters, webinars or Q&As helps in increasing awareness and hence aids in customer retention.

Apart from this, creating positive experiences that fuel long-term relationships. This can be achieved by providing exemplary customer support that works wonders in reducing customer attrition.

Being proactive in solving customer problems in a timely manner and with as little hassle as possible makes customers happy. On the contrary, delayed responses and shoving customers with bewildering support material can cause an adverse effect where the customer not only finds an alternate solution but also directs his/her colleagues against your product or service.

How to prevent customer churn with Customer insights from feedback?

When was the last time that you purchased something from an eCommerce website without reading reviews and viewing customer uploaded pictures of the product?

Feedback is a part and parcel of everyday life and can be attributed as the most important parameter that influences major consumer decisions.

73% of consumers think written reviews are more important than star and number ratings.

It is of huge importance to analyze such an important factor and get insights from them in order to efficiently strategize your objectives for reducing customer churn and increasing customer retention. Besides, feedback can be considered as one of the important sources for the collection of data points that are relevant to determine customer churn.

A data-driven customer retention strategy is more efficient than making assumptions based on recent customer behavior. With machine learning and AI providing immense functionality, creating a competitive advantage for the companies must be child’s play. Even so, companies fail to get insights from feedback which results in an increased churn rate.

Many SaaS tools rely on AI that helps in determining and analyzing feedback to identify customers in various states of unhappiness with your product or services. Further, the tools can classify and segment themes from multiple feedback and ameliorate the manual process identification.

Acting immediately on such insights can turn out to be effective in preventing the churn of customers who are not satisfied and are about to leave. Insights on a deeper level can help in improving customer pain points related to product bugs and features.

Technology advancements introduce us to such efficient tools, but putting them to productive use depends on the strategies that we formulate according to the goals that are set. Reducing customer churn is commensurate with the useful insights derived from customer feedback analytics.

Customers solely govern the existence of a business. It is even safe to say that customers are the lifeline and the reason why companies strive to provide services. Retaining customers play a significant role in not only increased revenue and growth but also help in acquiring new customers.

Using customer feedback analytics tools to identify and tackle customer problems will go a long way in preventing churn. A simple factor that has ripple effects to such magnitude must be approached with the right set of strategies like you learned today.

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