Customer Churn: What Is It and How To Prevent It
What is Customer Churn?
Customer churn, also known as customer attrition, is when someone chooses to stop using your products or digital services. In effect, it’s when a customer ceases to be a customer.
Customer churn is measured using customer churn rate. That’s the number of people who stopped being customers during a set period of time, such as a year, a month, or a financial quarter.
What are the Causes of Customer Churn?
Price
Competitors sprout and challenge your price. And when customers find a more cost-effective product or service they need, they churn.
Product fit
Product fit is a common reason for customers to churn. When a customer realizes that the product or service is not what they need, it’s natural for them to not re-purchase or renew a subscription.
User experience
When a customer experiences friction with your marketing product or service, they may search for a replacement online or via referral by friends. Customers have a lot of options, so they’ll churn when they’re not satisfied with a product or digital service.
Customer experience
Consumers have high expectations from the brand they purchase from. When deciding what to buy, 83% of consumers say good customer service is the most important factor (besides price and product). When their expectations are not met, chances are, they’ll churn and switch to a brand offering a better customer experience.
How to calculate the Customer Churn Rate?
Before you jump into the math part, it is critical that you:
A. Quantify actions that led to the attrition.
B. Analyze what defines customer attrition for your marketing business.
Once you’ve done the above, you can calculate your customer churn rate by factoring in the:
- The total number of customers lost during a defined time period.
- Percentage of customers lost during a specific period.
- Recurring business value lost.
- Percentage of recurring value lost.
In simplistic terms, the churn rate formula is:
Number of churned customers / Total number of customers = % of churn rate
Note: There are multiple ways to calculate the churn rate. You can measure based on a month, a quarter or a year. The above-mentioned formula is the most widely-used one.
How to reduce Customer Churn?
Understand the driving factor behind customer churn
As obvious as this suggestion may seem, it is important that you first get to the ‘why’ aspect of customer churn. It may be prudent to ask yourself these questions to dive deep into the customer’s psyche and understand their actions and behaviors with respect to your brand:
Why are my customers consistently canceling their subscriptions?
Are they switching to my competitors? Who are my competitors?
Do the customers no longer need my solution? What’s changed that led to a dip in customer demand?
First impression’ matters
Take this as a thumb rule: The first five minutes with a new customer can make or break your business. Seems like an exaggeration, but it’s true.
We live in an era where customers wish to view brands as an extension of their personality. They connect better with brands that exhibit human-like behavior. Plus, conversing in a witty and warm tone and style can drive quality user engagement and turn new customers into brand loyalists (with time). So, when communicating with your target audience, make sure to view every interaction as an opportunity to create a first impression.
Go the extra mile to offer an exceptional customer service
In theory, every company wants to deliver an exceptional customer experience. But practically speaking, few end up offering an amazing customer experience out of fear of added costs and unnecessary spending. However, this does not need to be the case.
Live chat, if used correctly, can act as a trusted advisor for your customers, whereas establishing a strong omnichannel experience helps to boost revenues while retaining profits. This makes sense, as at the heart of a truly omnichannel experience is customer convenience and customer-centricity.
Ask for feedback and take appropriate action
Truly listening to what your customers might have to say about the gaps in your business can turn out to be a game-changer. After all, honest and authentic feedback is difficult to come by.
Capturing customer feedback and acting on it has innumerable business benefits – from enhancing your product’s offering to improving the customer experience. Instead of dreading rolling out CX surveys and polls, B2B brands should actively embrace this strategy.