How to reduce your customer churn rate? Are you struggling to retain customers? Is your business experiencing high customer churn rates? Do you think you’re doing everything possible to keep your customers? The question you must ask yourself is, are you really doing all you can do to stop this turnover?
The concept of customer churn is a simple one: how many customers did you have at the beginning of the year, and how many do you have now? If more customers have been lost than won, you have a problem.
This post will help you with that question and explain the various tactics you can deploy to lower your customer churn rate.
Customer Churn Definition
The number of customers who leave your business in a given period is called churn. Churn can be analyzed at the customer, account, product, or service level. Customer churn rate, not the same as revenue churn rate, is the frequency at which individual customers leave a business in a specific time period.
It can also be looked at by product/service or at the account level. According to the Chicago Booth Business School, there are four main reasons for churn: lack of loyalty, lack of a reason to stay, poor customer service, and technology risk.
Your customer churn rate can be calculated by dividing the total number of customers at the beginning of the year by the total number at the end.
This way, if you know you had 25 customers at the beginning of the year and, after that, 15 left, your churn rate would be 15/25 = 0.42.
Dividing this number by your total number of customers for the year could show you how many new customers have left in comparison to those who remain with your company.
Keep in mind that the 0.42 number is an approximation and shouldn’t be used for precise analysis, but rather to provide an idea of your average churn rate.
For example, if your customer churn rate is 0.42 and you have four active customers in a month, the average number of active customers per month is 0.42/4 = 0.21.
Your monthly churn rate would then be 21% – or 1 out of every four active customers leaves within a month.
In general, companies growing their business at 10%+ annual rates usually have very low average customer churn rates (less than 5%).
Whatever the breakdown, it’s essential to quantify your churn so that you can understand and manage it.
Churn should be measured at all levels of an organization – this helps determine whether something is going on that could be costing the business money and time, and identifies factors that may be contributing to increased or decreased churn.
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At the same time, remember, not all churn is bad. Churn can be both good and bad. Good churn occurs when customers leave because they are moving to a different product or business.
It could also be a case of customer misfit. Not every new customer is an automatic fit for your product or service. Bad churn, on the other hand, occurs when customers leave because of poor service or a poor product, perhaps losing money on the deal.
A positive churn rate is excellent. When the growth rate exceeds the churn rate, the company has grown, and so it is positive churn. A company experiences customer losses when its churn rate exceeds its growth rate.
You can estimate how many customers you will have in the future with some simple math, provided you have a good retention rate. This is expressed as an “average customer lifetime value” or ACLV.
So you take the amount of money that a customer spends with you and divide it by their churn rate. You then multiply that number by the number of customers you have.
Understanding Your Customer Churn Rate
If you’re struggling to retain customers, it’s critical that you understand the reasons why.
Every business experiences churn. Obviously, you want to lower your customer churn rate and work toward keeping more of your customers, because higher retention means higher revenue and profitability.
Achieving a lower customer churn rate means understanding what is driving your current turnover and how you can eliminate the causes. When you’re trying to reduce your churn rate, three important questions need to be answered:
- Why do customers leave?
- What can you do to help prevent leaving?
- How will you measure the results of your changes?
Keep in mind that it’s alright if some customers leave; you will want to try to reduce the number who do.
Why do customers leave? Your customers may be leaving for different reasons, but in the end, your job is to help prevent their loss.
Two main reasons can make a customer move away from your business:
Reason #1 – The customer becomes frustrated because he/she feel their needs are not being met. Whether it’s a problem with your product or service, or a billing issue, customers may become frustrated and leave.
To make matters worse, some customers may feel they are not receiving the respect and service they deserve.
You can avoid this by tracking your customers’ feedback and addressing their concerns promptly. If you think your customer left because of a problem, you can reach out to them directly by email or phone.
Reason #2 – Customers are looking for a better deal elsewhere. Maybe the customer tried you out, but they are tired of being tied to you. Maybe your services no longer meet their needs.
Now, this might be because the customer wants to save money, or maybe they believe that they are getting a better deal elsewhere. If your services are good enough, then it shouldn’t be too hard to entice them back.
There are a couple of ways to do this. A common way is to offer them a better deal. Let’s say you charge $300 for your one-month service, and the customer’s monthly bill is $500.
Offer to provide your services for $250 for a full year. This is one way of increasing your customers’ lifetime value.
What can you do to help prevent customers from leaving? First, if you are online, your website should be well-designed and easy to navigate. Next, you should educate your customers about the benefits of your product.
Example: Let’s say you are a web hosting service, and you have just upgraded your basic web hosting package from 2GB to 10GB this month.
As a customer, it isn’t easy to understand the benefits of this. Therefore, they don’t know that a 10GB package would be more beneficial for them.
On the other hand, if you have a website that has a lot of content on it, you’re automatically going to lose some customers because people may think that the content is not important enough for them.
For that matter, if your website's UI is poor, you can quickly lose potential customers, too.
How will you measure the results of your changes?
There are many ways, but the key to all is to document the changes. For example, you may create a short survey for customers who visit your website.
Ask them why they came to your website, whether they wanted to leave, and if they did, what made them leave. This will be one of the most important metrics for your website.
It’ll let you know why your site isn't performing well and help you understand what needs to be done to increase conversions. Once changes have been made to the website, monitor traffic closely to see whether visitors are spending more time on the site.
Factors Influencing Customer Retention
Factors influencing customer retention include the customer’s experience with the company, their perception of the value they receive from the company, the quality of the service provided by the company, and the company's ability to meet their needs.
To retain customers, a company must first provide high-quality service that meets their needs. Customer retention is difficult, as many factors influence a customer’s decision to purchase from a particular company.
One factor that can significantly affect customer retention is the customer's satisfaction level after the purchase.
The value a customer derives from a specific company depends on a range of factors, including experience with that company, the quality of service, and the type of product purchased.
If a customer has a poor service experience, he/she may not trust the company again and may subsequently decide to purchase from a different company.
The length of time that customers stay with a company depends on how long they feel that the company provides good value and satisfying experiences.
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12 Proven Strategies to Reduce Customer Churn Rate
A success rate of zero (0) percent customer churn rate is the most desired result in the business sector, but is it even possible? With a wide variety of strategies and tactics available, this is ultimately what you’ll aim for when working on retention.
Read below to learn how you can reduce customer churn rates:
The average churn rate can be used to compare an individual company's industry performance with that of others. In this way, it can help identify industries with above-average and below-average customer retention.
It also helps identify ways to improve customer retention in these particular industries.
Every business needs customers to be profitable, and what better way to do that than to keep customers coming back?
When it comes to retention strategies, many rely on cross-selling and up-selling tactics to increase the customer base, which in turn helps grow their revenues.
While it is important that your strategies incorporate retaining and growing your customer base, it is equally important that you differentiate yourself from the competition to succeed.
There are various ways you can do this, but here are some methods to consider when starting your retention strategies:
- Offer your customers the opportunity to upgrade their accounts
- Create value for your new customers
- Improve customer onboarding
- Innovate
- Keep growing
- Cater to market demand
- Check out the competition
- Improve customer engagement
- Collaborate with other companies
- Increase customer personalization
- Conduct surveys
- Have a dynamic pricing strategy
Offer your customers the option to upgrade their accounts: This is a great way to increase their lifetime value. Think about ways you can give more or offer them something they didn’t get before, and watch the value of your customer jump significantly.
For example, we worked with a client who had a rather complex pricing structure. They had the option to pay the same amount for 12 or 18 months.
We started offering half-price upgrades to 18-month plans. Suddenly, our monthly recurring revenue jumped more than 10% and the lifetime value of the customer also improved significantly.
This is a great way to increase your customers' lifetime value.
Create value for your new customers: The whole point of a retention strategy is to bring customers back. If you can create something valuable for your new customers, they will not only return but also be loyal.
One way to offer value to your clients is to create a set of products or services that can attract new customers. For example, allow your customers to file their taxes for free to convert them into paying customers.
Improve customer onboarding: Your onboarding process is the single most important stage of your customer’s relationship with your company. It is what creates trust and builds your reputation. Take your time to get it right the first time. In the long run, it’s worth it.
Innovate: For many companies, innovation can be a dirty word. The idea of going against the status quo can be frightening. In reality, innovation is necessary to survive in a world where companies battle for survival every day.
Keep growing: What do you want your business to be in 10 years? Or 20 years? Making large-scale, long-term decisions will involve significant risk. But you should always be ready to take the risk to reap the rewards.
Cater to market demand: Ensure your business meets market demand. If you’re not, you’ll find it difficult to survive the harsh realities of industry competition.
Check out the competition: Be aware of what's out there. Once you are well aware of your business environment, you can take measures to ensure your business is not knocked down by others.
Don’t be afraid to check up on your competitors to see what they’re doing in terms of advertising, product line expansion, and more. You might find that it’s time to change up your strategy.
These measures might include:
– Assess your competitors’ strengths and weaknesses. You can do this through market research and surveys, as well as by analyzing the company’s financial and marketing reports and its current and past performance.
– Identify new trends in the industry. These trends may directly impact your business.
– Work with local or regional trade associations. These associations often host meetings and workshops that focus on a particular industry. Use this resource to learn how you can increase your brand awareness in the marketplace.
Improve customer engagement: Consider ways to increase the frequency with which customers reach out to your company.
Create a page on your website that allows users to submit comments, questions, and feedback, and to register for contests, sweepstakes, and other promotions.
Create a newsletter that reaches your customers monthly and encourages them to take advantage of any offers you’re currently running.
Collaborate with other companies: Many companies work in tandem to increase brand awareness in the marketplace.
Increase customer personalization: The goal is to give each customer the type of treatment that would best fit their personality. This means giving customers exactly what they want, even if it doesn’t match the company’s branding.
For example, if you run a custom pizza place, it would be essential to try and tailor the experience as much as possible.
You could provide unique discounts for customers who order at certain times of the day, such as ” Buy an extra pizza for under $20 and get 2% off with this coupon .”
Learn just what to customize. Here are a few examples of specific customizations you can make to help improve conversions:
- Offer an alternative to paying cash
- Provide a discount on the regular price for loyalty
- Customize your coupon text to offer an additional discount
- Special bonus in case of any in-store purchases in the past month
- Special discount is only available to new customers
- Extra discounts for business clients
- Optimize checkout experience
- Optimize the offer for mobile. If you have a product that allows customization, this is a good place to start.
Conduct a survey: The best way to figure out how many customers you have is to carry out a study of your most active customers.
Most businesses do not have the resources to conduct this sort of analysis regularly, but a smaller company can be efficient at it.
Have a dynamic pricing strategy: Discounting campaigns can help boost churn. This approach appears to work, but there is still debate over whether it works for all customers.
Conclusion
High churn rates and the difficulty of retaining customers are enormous challenges for businesses.
One way to combat churn is to identify and address the factors driving customer churn. Another strategy is to work with businesses experiencing high churn and struggling to retain customers.
This allows them to be proactive and prevent churn. This post also examined the causes of high churn and the strategies that can be deployed to address it.