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How to Reduce Cutsomer Churn: Strategies and Examples

author Ranee profile imageRanee Zhang
Feb 02, 20230 mins
What is customer churn? 

Customer churn, or customer attrition, is the phenomenon where existing customers decide they no longer want to do business with a company and stop purchasing their products or services.

The more customers that leave, the less your business grows. Not only do you lose the income from the current customer, but you also have to invest in marketing and onboarding a new customer to cover the loss. In fact, the cost of retaining an existing customer is far less than gaining a new customer. Yet, 2 out of 3 businesses fail to have a strategy that addresses customer churn. 

Developing a robust strategy to prevent customer churn helps to boost profits and grow your business. 

Our research has found that keeping existing customers is just as important as generating new leads for long-term, sustainable business growth.

In this article, we discuss the finer points of customer churn: the definition, analysis, and how to identify churn.

While managing churn may seem like a huge undertaking, it is an essential part of any long-term growth strategy.  We’ll walk you through a range of proven churn reduction strategies you can easily implement to ensure your current customers stick with you in the future. 

What is customer churn? 

Customer churn-also known as customer attrition- is the rate at which customers or subscribers end their relationship with a business during a certain time frame.

Essentially, the customer churn rate demonstrates how well a company is keeping their customers happy and engaged with its products and services. 

Understanding customer churn is essential, and there is a simple reason for this. It costs too much for businesses when customers decide to end their relationship with the company. 

What is customer attrition analytics? 

While calculating your churn rate is important, understanding the reasons behind your churn rate is essential. This is where the finer points of customer attrition analytics come in. Customer attrition analytics allow you to dig deeper into your customer data to understand not just how many customers you are losing, but WHY you are losing them. 

To perform an in-depth customer churn analysis you’ll need a segmented customer database that is broken down by product, region, client demographics, or other granular metrics specific to your company. This will give your team valuable insights and allow them to predict customer churn in order to reduce it in the future.

Obviously, each customer is unique and their reason for ending their relationship with your business will be too. However, they will usually fall under the following common categories.

Price

Price is one of the most common reasons that businesses lose customers. If a customer feels the product is not worth the money, or they can find an equivalent product or service for a lower price, they will likely churn. Therefore is essential to price your product realistically, and to continue to add value through onboarding and education. Further to this, ensure that your marketing team is using your unique selling proposition (USP) to differentiate your product from that of your competitors.

Product and Market Fit

Poor product and/or market fit is a common reason that customers churn. Usually, this occurs when the sales team prioritizes making a sale over making the right sale. While hustling to hit quotas is important, if these quotas need to be hit selling to good-fit customers is. If a customer finds their problem is not being solved by your product or service they will churn quickly, leaving your sales and marketing team back at square one. 

User Experience

For products and services in the digital ecosphere, user experience (UX) is essential when it comes to customer retention rates. Apps and software that are glitchy, buggy or contain too much in-app advertising are almost guaranteed to keep customers churning. In fact, 88% of online consumers are less likely to return to a site after a bad user experience. Further to this, online consumers are more likely to share their customer dissatisfaction on social media channels, meaning this can also harm the company's reputation and affect future sales prospects; 

Conducting a UX analysis can be a great place to start for SaaS companies looking to keep their customers happy and increase customer lifetime value(CLV)

Customer Experience

Ultimately customers want to feel valued by the companies to whom they are giving their hard-earned money. If a customer's interaction with a brand isn’t positive they will churn. 

This involves every aspect of the brand, from the marketing content,  to the social media channels, to the customer support team and the account manager. The bottom line here is poor customer service leads to poor customer satisfaction and loyalty, and for good reason. Everyone wants and deserves to feel valued.

Types of Customer Churn

Now that you understand the reasons for churned customers, let's look at the different types of customer churn you should be aware of.

1. Revenue churn

Slightly different from customer churn, revenue churn is nonetheless an important metric to analyze when it comes to maximizing customer retention. Rather than calculating how many customers are lost during a specific time period, it calculates the amount of revenue lost over a given period. Lost revenue doesn’t necessarily indicate that you are losing customers, but rather that you are making less money from your customer base than you were previously.

While your customers are still spending money with your business, they are spending less than they were before, often because they have been downgraded to a cheaper subscription. This is an important metric for your sales team to evaluate, particularly when it comes to customer loyalty.

2. Competitor invention

Competition in the market will always exist and ultimately all businesses will lose some of their customers to their competitors. While this is not ideal, it can be an informative metric for your sales team. Analyze which customers are leaving your business and why? Were they a poor fit to start with or is there something that you can improve upon?

Figuring this out with ensure your team focuses their energy on the right customers, rather than those who are likely to go elsewhere regardless of their efforts.

3. Poor or absent onboarding

Unsuccessful onboarding is one of the main reasons for losing customers early in the customer journey. This is particularly relevant for online consumers purchasing software and applications, which can often run into thousands of dollars. 

Without a rigorous onboarding process, customers are left to try and figure out how to use these products on their own. One of the best customer retention strategies is to offer an onboarding specialist in the early stages after the purchase- somebody to guide the customer through the product and teach them how it can be customized to meet their short and long-term needs. While this may require some financial investment in the short term, it will pay off in spades over time. 

4. Desired Feature or Functionality

Most brands operating in today’s fast-paced business ecosystem will be looking to continually improve their products and services by adding new features and functionality. For businesses with a diverse customer base, this can often mean that some customers feel these new products or features don’t suit their needs and may lead to a small customer churn rate. This is not necessarily a bad thing, particularly as these changes will likely be made under a larger marketing shift that has been carefully researched and implemented. In such cases, it is important to have a predicted churn rate that you can monitor to ensure it doesn’t rise unnecessarily.

5. Company Closure

For companies operating in the B2B space, clients will sometimes close their business, or merge with another company. This is simply part of working in a B2b environment and is largely unavoidable. Having a strong customer acquisition strategy and the sales process is essential here as it will help to counterbalance this largely inescapable type of customer churn. 

6. Underappreciated Brand Values

Tied in with bad fit customers, some consumers may not align with your brand values. For example, if your brand values are focused on sustainable supply chains and local production, this may not mesh with customers who are looking for the lowest possible price point.

Rather than changing your brand values to suit these customers and gain more revenue in the short term, it is wiser to accept this customer churn and look to acquire loyal customers who are likely to mesh with your brand values and stick with your company in the long term.

How to Identify Customer Churn 

Learning how to identify customer churn is vital for businesses looking to retain customers. Here are the top way to identify customer churn. 

Establish Customer Churn Metrics

Depending on your business model and vertical,  customer churn will occur for different reasons. For SaaS companies, for example, churn may be driven by customers downgrading or canceling their subscriptions or uninstalling an app.

By establishing a clear set of metrics, you can analyze which customers are most at risk of ending their relationship with your company. Once your team understands these benchmarks, they can reach out to these customers to see if there is anything that can be done to encourage them to stay on board. At this stage, it is essential to prioritize proactive customer service and customer engagement in order to reduce churn. 

Gather Customer Feedback

Sometimes, customers will reach out directly to let you know they are happy, or in most cases, unhappy, with your product or service. Excellent customer service is imperative here, and account managers or your customer service reps should respond promptly to any concerns, delving into how you can improve to meet their needs. This feedback should be collated to establish where the customer's pain points are and how you can address them.

Further to this, businesses should regularly ask for feedback via surveys in order to gather qualitative and quantitative data that speaks to common customer gripes. The importance of customer feedback cannot be underestimated when it comes to reducing customer churn. 

Leverage Your Customer Success Team

While feedback is a fantastic way to define customer pain points, often by the time this feedback reaches you, you have already lost a loyal customer to a competitor. This is where your customer success team becomes an invaluable resource in reducing churn.

It is the role of this team to monitor individual accounts and reach out to customers to establish any issues or roadblocks they may be having. This should start in the onboarding process and continue at regular intervals. By leveraging your customer success team you are not only building customer loyalty, you can also gain valuable information in order to fine-tune your company’s product for the future.

Monitor Community Forums and Third-Party Review Sites

Community forums are an invaluable resource for any business, particularly those in the digital world. It is a place where customers can come together to discuss your product or service, share information and find answers to any questions they may have. Ensure one of your customer service representatives is regularly monitoring these forums and contributing responses to questions and feedback.

The same goes for third-party review sites. Endeavoring to respond quickly to reviews will aid in reducing churn and assist in building customer loyalty.

How to Reduce Customer Churn 

With recent analysis showing that it costs 5 TIMES MORE to acquire new customers than it does to keep an existing one, learning how to reduce churn is essential in today’s fast-moving and highly competitive world of business.  

Here are the top ways to reduce churn, increase customer lifetime value and ultimately maximize your profits. 

1. Analyze This!

It cannot be stressed enough that churn analysis is the primary way that businesses maximize customer retention. Understanding your customers, their needs and primary pain points is the best way to keep valuable customers on board. And the best way to glean this information? Ask the customers!

Reaching out to your customers on the phone, via in-app messaging or surveys is the quickest, and most accurate way to understand your customers. With 68% of customers stating that they leave a business because they don’t feel valued, communication is perhaps the number one tool to ensure customer satisfaction. 

2. Offer excellent customer service 

Respond to customer inquiries and complaints promptly and professionally. This is important because it shows that you value your customers and are committed to meeting their needs. Consider offering multiple channels for customer support, such as phone, email, and live chat, to make it easy for customers to get in touch with you. You should also make sure that your customer service team is trained to handle a wide range of inquiries and is equipped with the tools and resources they need to resolve issues efficiently.

3. Provide high-quality products and services

Ensure that your products and services meet or exceed customer expectations. This means investing in research and development to create innovative and effective products and continuously improving your processes to deliver consistent, high-quality results. You should also consider offering a money-back guarantee or other satisfaction guarantees to give customers confidence in their purchases.

4. Offer incentives for loyalty

Consider offering loyalty rewards, discounts, or other incentives to encourage customers to continue doing business with you. For example, you could offer a rewards program that allows customers to earn points for every purchase they make, which they can then redeem for discounts or other perks. You could also consider offering a referral program that rewards customers for referring new customers to your business.

5. Foster a sense of community

Encourage customer engagement and interaction through social media, customer forums, or other online channels. This helps to build a sense of community among your customers and makes them feel more connected to your brand. You could create a customer forum or Facebook group where customers can ask questions, share feedback, and interact with each other. You could also consider hosting events or webinars to bring customers together and provide them with valuable information or training.

6. Personalize the customer experience

 Use customer data to tailor your marketing and communication efforts to the specific needs and interests of individual customers. This could include segmenting your customer base and tailoring your messaging to specific groups, using customer data to create personalized recommendations or offers, or using data to optimize the customer journey. Personalization helps to make customers feel valued and can increase the likelihood that they will continue doing business with you.

7. Stay in touch

Regularly communicate with customers through newsletters, email campaigns, or phone calls to keep them informed about your business and what you have to offer. This could include sending out newsletters with updates on new products or promotions, sending email campaigns with special offers or discounts, or using social media to stay connected with customers. Regular communication helps to keep your brand top-of-mind and can help in preventing customer churn.

8. Solicit customer feedback

 Ask customers for their feedback and suggestions on how you can improve your products and services. This could include conducting surveys, hosting focus groups, or encouraging customers to leave reviews or ratings on your website. Gathering customer feedback can help you identify areas for improvement and give you valuable insights into what customers are looking for. You should also make sure to respond to customer feedback and take action to address any issues or concerns that are raised.

9. Fix problems promptly

If a customer experiences a problem with your product or service, take quick action to resolve the issue and prevent it from happening again in the future. This could include offering refunds or replacements for defective products, providing additional support or training to help customers get the most out of your products, or making changes to your processes to prevent future issues from occurring. Failing to address customer problems can lead to frustration and a loss of trust, which can ultimately lead to churn.

10. Implement a customer success program

According to a study by Gainsight, companies with a customer success program in place had a 38% lower churn rate compared to those without one. A customer success program involves proactively reaching out to customers to ensure they are getting the most value out of your product or service, and addressing any issues or challenges they may be facing. By doing so, you can help to prevent churn and improve customer satisfaction and loyalty.

11. Offer personalized, relevant content

According to a study by Epsilon, personalized email campaigns can drive up to 6x higher transaction rates compared to non-personalized campaigns. By offering personalized, relevant content to your customers, you can improve their engagement and satisfaction, which can help to reduce churn. This could include things like personalized recommendations, customized email newsletters, or targeted marketing campaigns based on customer data.

Customer Churn Rate Calculation

Customer churn is usually calculated by dividing the number of customers lost in the quarter by the number of customers a business had at the start of the quarter, like so:

While most businesses note their churn rate as a percentage, it is important to state the number in a way that makes sense for your business and will ultimately help to facilitate customer churn reduction.

There are also several other ways you can evaluate churn, including:

  • Number of customers lost

  • Percentage of customers lost

  • Value of monthly recurring revenue (MRR) lost

  • Percentage of MRR loss

While the above equation is relatively simple, it becomes more complicated when you are looking to calculate churn over multiple time periods.

Customer Churn Calculation Example

Even when you have a constant churn rate, revenue loss is incremental in nature. 

Take the following example. Let’s say your business acquires 20 new customers every year who purchase $100 worth of services. Over five years, with a 0% churn rate, you will be making (20 x $100) + (40 x $100) + (60 x $100) =$12000.

Simple enough right? Now let’s look at how the churn rate affects this calculation. With a churn rate of 20%, this calculation then becomes: (20 x $100) + (36 x $100) + (48 x $100) = $10400.

In this case, the churn cost the company $1600, or roughly 13% of revenue. This lost revenue due to customer churn is the previously mentioned revenue churn.

While most companies pour money into the process of acquiring new customers, many fail to put the time, money, and effort into ensuring these customers stay the course.

As a business grows, it is even more important to leverage strategies to identify at-risk customers and facilitate reduced churn.

Why does churn matter?

There are two primary reasons why churn matters.

The first is the obvious financial losses that come with customer churn. With research showing US companies lose 1.6 trillion dollars a year to churn alone, understanding how to reduce customer churn is imperative for businesses looking to compete in an ever-saturated global marketplace. 

Furthermore, it costs companies 16 times more to bring a new customer up to the same level as an existing customer.

The second reason churn is so important is the revenue gain that comes from customer retention.  With research coming out of the Harvard Business School showing that a  mere 5% retention rate can result in a 25% – 95% increase in profits,  businesses can’t afford NOT to invest in reducing customer churn.

Final Thoughts

As you can see, customer churn - the rate at which customers are abandoning your product or service - is one of the most important key performance indicators of your business.

By performing regular churn analysis and implementing the above strategies, you can re-engage inactive customers, build customer loyalty and ultimately increase profits. 

Ranee Zhang

Ranee has worked in the SaaS industry for nearly ten years. She loves working with, learning from, and helping develop effective leaders and is willing to share her thoughts through words. Outside of work, you can find her dancing, hiking in the mountains, or reading in a cafe.

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