Customer Attrition Rate: How to Prevent it?

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Customer Attrition Rate: How to Prevent it? Non-leading survey
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Business fact – every company loses its customers over some time and it is the worst thing that affects the health of a company. The customer attrition rate in the US by industry is 22% for online retail, 18% for travel, and 21% for telecom/wireless. 

Some companies are good at retaining customers, while some depend on customer acquisition. But customer attrition is suffered by all companies. 

The customer attrition rate is caused by various factors such as the type of industry you are in, sales strategy, and basic financial realities. So how can you prevent customers from leaving you? 

In this blog, we’ll discuss customer attrition rate and how you can avoid attrition before it’s too late. 

What is Customer Attrition Rate?

Customer attrition rate, aka customer churn rate,  refers to the number of customers who quit utilizing your organization’s item or service. The attrition rate indicates the number of people who ceased to be your customer. 

The customer attrition rate is calculated by taking the number of lost customers and dividing them by an average number of customers at the beginning of a chosen period. Customer attrition rate gives a percentage as a whole.

Customer attrition rate helps keep an eye on the changes within the firm’s customer base and helps in strategies. A good analytics tool can help you calculate attrition rates and monitor trends to help you understand what’s causing the churn. 

Example of Customer Attrition Rate

Let’s assume a company had 700 customers at the beginning of November and 650 customers at the end. 

👉 Numbers of customers left = 700-650 = 50

       Customers at the beginning of November = 700

       Attrition rate =  50/700 X 100 = 7.14%

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Two types of customer attrition you should learn about. 

Active Customer Attrition:

This type applies to subscription-based models where a customer takes a conscious decision to cancel their subscription & stops being a customer. 

Passive Customer Attrition:

When customers simply stop buying from a company. There is no need to cancel any subscription. Customers just stop purchasing from a retail or grocery store. 

The customer attrition rate is a key metric that tells the brand if they are making correct decisions and if their efforts are successful. It is an indicator of the potential growth of your business. High customer attrition will lead to negative ROI. This means you need to prevent customer churn for your company’s growth. 

[Related read: How to Quantify ROI of CX Transformation?]

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Negative impacts of Customer Attrition Rate

Losing customers is bad for every business, but customer attrition is unavoidable. 

While you can’t avoid it, you can manage it by building an effective strategy to give customers reasons to stay. You can perform churn analysis to know about the customers leaving and why they do so. 

But before we discuss how to prevent churn, let’s look at the negative impacts it causes on your business. 

Let’s look at how customer attrition hurts your business; 

  1.  Less revenue 

This is the fact that, when customers leave, so does the revenue. The company revenue shows the viability of your customer retention strategy

When a customer churns, you not only lose a customer, but you also lose the ability to monetize that customer. It is essential to keep customer attrition at bay.

    2. Poor customer acquisition cost (CAC) 

A business must focus on retaining customers, so the lifetime value of customers is significantly more than the customer acquisition cost.

Average CAC is increased when a customer churn. When you spend money to acquire customers, and they leave before you can earn that money back, your company faces a negative ROI. 

  3. Bad reviews:

One of the reasons your customer is because they are dissatisfied with your service. This can lead to your company receiving negative reviews or word-of-mouth, damaging your brand value. 

Word-of-mouth is a powerful marketing tool and you don’t want it become a roadblock. 

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Ways to reduce Customer Attrition Rate

Customer attrition caused by certain reasons are unavoidable. But you can still prevent it by taking control of the factors you can, such as offering better services, understanding customer preferences, designing better product-fit, and more.  

Here are some ways to reduce your attrition rate:

1. Understand the cause of churn 

Understanding your customers is the first step to retaining them. Find out what’s causing them to leave. Is it customer support? Price of the product? Customer experience? Product quality? 

Communicate with the current customers and those who have left you recently to understand what they are upset about. This will help you pinpoint the reason for customer attrition and help you prevent it from happening in the future. 

Use email or SMS surveys, Telephone interviews, or website feedback forms to gauge their experience in critical interactions. You can also use exit surveys to gather real-time insights on why they want to stop doing business with you. 

2. Analyze customers and segment them

Identify the customers on the verge of leaving. 

You can use surveys to identify these at-risk or inactive customers from your current customer base. 

When you analyze your customers, you also know about the most valuable customers and can go the extra mile to retain them as they are your biggest sources of revenue.

3. Offer the best product/service

To retain customers, product/ services are the most vital thing. The quality of your product/service should surpass what your customers expect. 

For example, if your company’s product lacks in features and usability than your competitors, your customers will ditch you for them. If they have to return the same product 2 times, you need to conduct a thorough analysis and find the problem. 

The product or service must offer value to your customer’s life. It should help them solve their issue, not add more tension.

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Predict & Prevent Customer Attrition

Identify the key drivers of churn and predict the at-risk customers by combining operational data with customer feedback. Use predictive analytics, such as Voxco’s, to anticipate customer behavior and take proactive action to prevent churn. 

Combine operational data with experience data – like customer satisfaction – to understand churn drivers and predict each customer’s churn probability. 

Conclusion

You may not completely avoid the customer attrition rate, but you can certainly reduce it and take steps to prevent it. 

→Recognize and appreciate your customers.

→Understand customer’s pain point.

→Take action at every step of the customer lifecycle. 

→Ultimately improve customer experience. 

It is important to remember that your goal shouldn’t just be to save the at-risk customers but also to prevent it from impacting the future. 

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Hindol Basu 
GM, Voxco Intelligence

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