What is customer churn and how do you reduce it?
Customer churn, or customer attrition, is the percentage of customers who stop using your product or service during a set time period. It is most frequently understood in the context of subscription based products or services.
Getting a handle on your customer churn, and reducing it as much as possible, is extremely beneficial. It’s easier to keep a customer than find and convert a new one. It’s cheaper too. Just a 5% increase in customer retention can increase profits from anywhere between 25% and 95%. It pays to give this some attention.
How to calculate your customer churn rate
Note there are many different ways of calculating churn. We have provided an example of one of the most common below. You can use whichever you think fits your business best but remember to use the same method each time when comparing!
So, take the total number of customers you have lost in a given time period (say 12 months) and divide this figure by the total number of new customers you acquired in the same time.
Finally, multiply this figure by 100 to give you a percentage.
For example, if you lost 50 customers in the last 12 months but gained 500 new ones, 50/500 = 0.10.
0.10 x 100 is 10%
Your customer churn rate is 10%.
What causes customer churn?
In order to reduce customer churn, you need to understand why your customers are leaving. Some common reasons are:
- Price
- Fit
- User experience
- Customer experience
How to reduce customer churn
You’ll need to address all four core areas in order to reduce customer churn. There are a number of ways in which to do this, some of which help more than one area.
1. Know your best customers and nurture them
Often, when discussing customer churn, businesses are advised to give the bulk of the attention to the most volatile customers; those most likely to leave. It actually pays dividends to focus on getting to really know and nurture your most profitable customers who may be at risk of churning.
By getting to know and understand these customers, you will find it easier to bring them back on board whilst also remaining profitable. Put your efforts into analysing why these customers fall victim to the churn. In this way, you’ll begin to figure out what causes customers to consider leaving, so you can head them off at the pass. It takes a strategic approach so that you can save the relationships worth saving.
Data worth analysing includes figuring out when they churn and why they churn.
2. Make communication your focus
The modern customer expects to be communicated with – seamlessly. They don’t expect to be doing the hard work. All communication should be tailored to the customer and how they use your product or service. This will entice them to remain engaged.
This should be clearly aligned with understanding the roadmap for new customers in different segments. The goal should be to meet their needs before they even know they have them. For example, do you find many people download your SaaS but few then use multiple features? Catch them with guides and tutorials at the right time. This is about so much more than a simple welcome email.
3. Incentivise
Loyal customers take work. They need to be encouraged to stay loyal through worthwhile incentives. Incentives show you value them. It could be something like a discounted renewal or subscription rate, or discounts on additional features or products.
Consider what the customer wants and needs, and tally your incentives to these.
4. Listen, listen, listen
Your customers have something to tell you: listen. Seek their feedback regularly but also at key points. Have they been in touch with an issue? Get their feedback. Have they just bought something new or changed their subscription? Get their feedback.
Getting feedback as soon as possible ensures you can iron out any problems. It’s excellent customer service too. Valuably, it’s also a chance to identify trends so that you can act on these to help reduce churn with other customers.
5. Offer value to stay competitive
When customer’s churn because of price it’s often because of the value they feel they are getting within the context of the wider market conditions. What’s more, market conditions change as new competitors and technologies come on board, as well as due to customer needs shifting over time.
Therefore, to reduce churn, you need to stay ahead of trends and what your competitors are up to.
It takes time and conscientious effort to understand and reduce customer churn, but it is more than worth it. Adjust your strategy and approach as you go forwards and you’ll be able to keep hold of the most important customers, and reduce attrition.
