Everything you need to know about Customer Churn1

Everything you need to know about Customer Churn

Customer Experience

Ensuring an excellent customer experience can be tricky but an effective guide can help.

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In today’s business world customers are at the center of it. Customers hold the power to direct your business either towards success or towards failure. One remotely bad experience and customers don’t hesitate to say “see you never!” to a business.

Losing customers is inevitable, but measuring it helps evaluate the growth of the business. Customer Churn may not be the most satisfactory metric to measure, but it gives you the hard facts and data that empowers you to make realistic decisions for the success of your business. Let’s explore more about Customer Churn and the significance of the metric in customer satisfaction and business growth.

What is Customer Churn?

Everything you need to know about Customer Churn2

Customer Churn, also sometimes referred to as Customer Defection or Customer Attrition, defines the loss or outflow of customers from a company’s customer base. The metric calculates the percentage of consumers who have stopped using the company offerings (products, or services).

Customer Churn is the end of the relationship between customers and a company.

The reason for customers to stop buying your services could vary; they may be dissatisfied or unable to purchase, or any other reason. There are two types of customer defections:

A) total defection where the customer has completely ended their relationship with the company

B) partial defection where customers interact less with the company but some form of the relationship still exists.

Customer experience

How to Calculate Customer Churn?

Everything you need to know about Customer Churn3

When you want to show the percentage of customers who have canceled their subscription or stopped purchasing your products, you calculate Customer Churn Rate.

Customer Churn Rate is simply calculated by dividing the number of customers you have lost by a total number of customers during a specific period of time.

CCR = No. of customers lost/ Total no. of customers X 100

If your business started with 200 customers in the first month and then you lost 10 customers at the end, your churn rate will be

CCR = 10/200 X 100 = 5%

This means you will say you have 5% of customer churn.

You should aim to keep your customer churn rate close to 0%. According to Baremetrics, a SaaS analytics company, SaaS companies with small or midsize businesses can aim for a monthly churn of 3 to 5%. On the other hand, companies selling expensive, enterprise products should aim for a lower churn rate; less than 1% monthly churn rate.

Example of Customer Churn and Revenue Churn

Calculating the churn rate gets a bit complicated when you bring in company revenue. Companies view the impact of customer churn in company revenue. In order to calculate customer churn rate along with revenue churn, you need the MRR (monthly recurring revenue) of your company.

Let’s assume you have three service plans:

For basic plan, you have 15000 customers at $100/ customers every month

MRR = 15,000 X $100 = $1,500,000

For advance plan, you have 5000 customers at $150/ customers every month

MRR = 5000 X $150 = $750,000

For premium plan, you have 3000 customers at $200/ customers every month

MRR = 3000 X $200 = $600,000

SO you have a total of 23,000 customers and $ 2,850,0000 MRR

Now let’s assume you have lost 500 basics, 350 advances, and 200 premium customers. Your customer churn rate would be

CCR = (150 + 70 + 50)/ 23000 X 100 = 4.5%

Now when you want to calculate your revenue churn rate you need to add in the amount;

Revenue churn rate = [(500 X $100) + (350 X $150) + (200 X $200)/ 2,850,000

= (50,000 + 52,500 + 40,000)/ 2,850,000 = 142,500/2,850,000 = 5%

Now you can see that your Customer Churn Rate is 4.5% and your Revenue Churn Rate is 5%. The revenue loss caused by customer churn is $142,500, i.e. 5%, which shows the impact of customer churn in the company’s revenue.

What are the reasons for Customer Churn?

Everything you need to know about Customer Churn4

In order to prevent customer churn, you first and foremost have to understand what causes customers to leave your company. As mentioned above there can be many reasons behind customer churn. We have mentioned some of the reasons.

Poor customer service

Poor customer service can affect your customer’s experience and journey which can make your customers leave your company. Research says that 68% of customers leave a company because they are upset with the service they receive from them.

Recommending your customers the wrong type of products can also result in churning. When you suggest products that are not a good fit for them, it invalidates the value of the product and service that you offered them.

It is important to focus on the customer support you provide along with the quality of products and services that you deliver. A gap in the experience can be fatal on how customers perceive their journey with you and lead to a high churn rate.

Week communication with customers

Communication is the key to a healthy relationship. It is true for a customer-company relationship as well. Engaging with your customers should not be an exhaustive chore for both the company and the customer.

Customers unsubscribe at a fast rate when they face delays in response as well as too frequent notifications from the company. Spamming your customers by blasting emails or notifications can frustrate them. Similarly, delays in customer queries can make them believe that you don’t care about their experience. In both cases, customers don’t find any value in the service you offer them.

Poor user experience

You may offer products or services with all functionalities that meet customer’s expectations but if the result is a bad user experience none of these matter.

  •         90% of users claimed to have stopped using an app because of bad performance.
  •         88% of users are less likely to visit a website again due to a poor user experience.

When your customers don’t know how to use your product or service, or it is too complicated to use, customers stop using the service and renew their subscription.

Great user experience is one way to ensure that your users keep coming back and reduce customer churn.

Lack of response to customer complaints

Customers are frustrated when they first contact you about an issue. However, when they don’t get any response and have to contact customer support over and over, it frustrates them even more. Lack of response from your side makes customers unappreciated. When a company does not respond quickly to their complaints customers decide to look for other companies to do business with.

Customer complaints and queries are your opportunity to improve their experience. Understanding their issue and responding to them are ways to build relationships with customers.

Why is it important to predict Customer Churn?

Everything you need to know about Customer Churn5

There are many other ways to improve customers and increase customer lifetime. However, reducing customer churn can make retaining existing customers much easier.

Uncover solutions: Having a good understanding of why customer churn is happening can lead you to solutions you can adopt to keep your customers from leaving. When you learn the pain points in a customer’s journey that affects their experience you can make decisions based on legitimate data and not intuition.

Save Resources: It is natural to lose some customers and gain some. But in the world of business, acquiring new customers costs more than retaining old customers. A 5% increase in customer retention can result in growth in profit by 25%. The more customer churn your company experiences the more money you will have to spend to recover the revenue loss your business faced.

Increase Company Revenue: Returning customers tend to spend more buying company offerings Returning customers are loyal to your company. This means that you don’t need to spend resources or effort to convince them to select your company. When your customer acquisition cost is at a low you can actively fight against customer churn while also saving company revenue. According to KPMG, customer retention is the most significant driver of company revenue.

Learn how to improve CX: Customer experience is often the key factor behind customer churn. Analyzing customer churn can help you gain a deeper understanding of why customers are not using your company offerings anymore. By uncovering the reasons that give them bad user experience you can decide which features to keep in your products and which to remove.

Prevent at-risk customers from churning: Measuring customer churn can help identify the at-risk customer and prevent churning before the situation worsens. By monitoring customer behavior you can predict customers who are highly likely to leave your company. You can reach out to them with a resolution before they even have the chance to leave you.

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How to reduce Customer Churn?

Everything you need to know about Customer Churn6

We have already established that reducing customer churn can grow your company revenue. Preventing at-risk customers to leave your service can be difficult. You need to carefully analyze customer issues and take steps that ensure a long-term relationship with your customers.

We have listed a few of the ways you can improve the customer journey and retain customers.

Engage your Customers with proactive communication

The best way to improve communication with your customers is to check up on them; how they are using the product and how you can help them. By showing customers the value of using your products or services and offering tips you can influence your customer’s decision to select your company.

  •         Provide them content to inform them about the functional benefits of using the products
  •         News updates like announcements, special offers, or updates on new products/services
  •         Leverage social listening to monitor and track conversations about your company. This way you can monitor the pulse of customer satisfaction.
  •         Your customer support team can engage with your customer by proactively approaching them via emails, telephones, SMS, or live chats.

Proactive communication can help create a better customer experience by providing them an immediate solution. You can reach out to initiate communication with customers who are at risk of leaving and ultimately reduce customer churn.

Talk to your Customers

  •         68% of consumers leave a company because they believe that the company does not care about them.

To reduce customer churn you want to know what is causing them to leave. The best way to understand customer issues is by talking to them directly. Reaching out to them via phone call or providing open feedback options can help you listen to what customers feel about their journey.

It’s better to just call your customers and learn from them in real-time how and whether your products solve your customer’s concerns. When you initiate a conversation with your customers you show them that you care about them. This helps in reducing customer churn rate.

Respond to customer’s complaints

  •         A business hears complaints from only 4% of its consumers. This implies that 96% of consumers won’t complain even when they are unhappy with the company.
  •         91% of customers simply leave the company and never return.

Customers rarely complain to a company but when they do it is because they expect you to take action against the issue. The customers are probably beyond frustrated from the issue which leads to them contacting the company.

When you take the complaints seriously and respond back to the customers to assure them that you are taking necessary actions it makes their effort worth it. According to Strauss & Seidel, dissatisfied customers are more likely to become your advocate and remain loyal when you attend to their complaints.

Responding to customer’s complaints is the fastest way to ensure that they are satisfied with their experience and also to prevent them from churning.

Bring your best people to save the day

  •         HubSpot reports, 73% of customers claim that they remain loyal to a company because of friendly customer support agents.

A good customer service agent can help build a strong customer relationship. To deal with some angry customers, all it takes is a good listener. Listening and empathizing with what the customer has to say can help calm the customer.

According to a survey conducted by Customer Service Group on customer satisfaction, customers claim that it is more important to be heard and respected than resolving their issue.

Figure out who among your service reps are excellent at handling customers. Service reps who can make customers feel appreciated just by talking to them over the phone or chat can help you win over the majority of your unhappy customers and prevent customer churn. Make use of their charisma, their experience, and their empathy, and give them the task to deal with unsatisfied customers.

Identify at-risk customers

Preventing customers from leaving is better for the health of your company than trying to convince them to come back. You are more likely to succeed in convincing an unhappy customer to give your company a second chance.

Salesforce research reports that 78% of customers will do business with a company again after a mistake if the customer service is excellent. Identifying at-risk customers is a strategy used by 35% of B2B organizations to prevent customer churn.

  •         Monitor customer behavior and changing patterns in their interaction with the company.
  •         Leverage social media listening to see which customers mention your brand with negative emotion.

By spotting at-risk customers you can prioritize them. You can contact them to learn more about their issue and provide a resolution. It could be that your customer filed a complaint but no proper action or follow-up was initiated. Understanding the reason for their churn you can determine whether any actions were taken or you can also figure out whether the resolution you have offered succeeded or failed.

Keeping an eye on such changes in customer behavior can also predict if any customer is likely to leave the company in the future.

Show how much you appreciate your customers

Making a customer feel appreciated and special is a simple way to stop them from leaving. Take some time out or dedicate employees to do something out of ordinary to show how much you value your customers.

  •         63% of customers claim that they are likely to go back to a company after a negative experience if they receive an apology from someone at the superior level of the brand.

Be it an apology/ thank you note, a customer recognition award (digital), or a discount/incentive, showing customers that you appreciate the time they spend with your company can help improve the relationship.

  •         49% of consumers claim that proof of enhanced customer service can also motivate them to return to a company after a bad experience.

When you go beyond to show your customers that you listen and care for their opinion and concerns, you drastically impact their experience. Taking time to know your customer’s names and making them feel special can please the customers with their experience and prevent them from leaving.

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Improve your Customer Services

This point shouldn’t come as a surprise.

Customer service is the department that interacts the most with your customer. It is the customer-facing employees and the service your agents provide can make or break customer relationships and company reputation.

Poor customer service is the top-most reason why customers leave a company. Slow service and incompetent staff are the two main reasons for customer churn according to Oracle’s report on CX. Poor customer service can set back the growth of your company.

  •         According to Qualtrics XM Institute, 1 out of 5 customers will forgive a company for the bad experience, if they rate the customer service as “very poor”.

Do a thorough analysis of how customers feel about your customer service. This can help you uncover issues that need improvement. Empower your customer service team with resources and knowledge to ensure that they can actively help the customers and make decisions promptly.

Your customer service has the most impact on the customer’s experience. How they behave to the customers influences customer’s decisions and perceptions of the company.

Offer additional support

Proactive communication and follow-up on customer complaints can help offer a satisfying experience to the customers. However, additional support can also empower customers which can build a deeper customer relationship.

Webinars, FAQs, Events, and Reports packed with information about your services or tutorial video demonstrating how your product works can educate the customers and make them feel more independent. This form of self-service means customers won’t have to wait for customer support to help them.

Customers who are educated about your company’s offering are more likely to have a good user experience. Such customers are also likely to churn.

Advantages of preventing Customer Churn

  •  Feedback from dissatisfied customers can open up opportunities to improve the company’s services and meet customer expectations. When analyzing the reason for customer churn in your business you can gather customer insights that can help you develop strategies to reinvent your services and prevent customer churn.
  •  Preventing customer churn can positively impact the company revenue. There is a 60-70% possibility to sell your products to an existing customer. The possibility of selling to a new customer is only 5-20%. Preventing your existing customers from leaving can grow your revenue.
  •  The surveys and market research you will conduct to prevent customer churn can be insightful to understand your target market. It will enable you to uncover deeper concerns that customers have and also learn market trends that may otherwise be hidden from you.
  •     Your effort to reduce customer churn may help you gain in-depth information regarding your customers, which can be utilized to prevent future customer churn.

How can you monitor Customer Churn?

For the most part of the article, we have focused on how imperative customer churn prevention is for the business, or how you can prevent it from happening in the first place.

In order to prevent it, you need to be able to read the signs to identify which customer may leave the company. The best way to reduce and prevent customer churn is to understand the health of customer relationships with your company. For this, you need to have deep knowledge and monitor customer journey, interaction, and various other touchpoints that impact a customer experience.

Identify customers based on user-experience

When you are designing your company’s application or products you must be well aware of the features that will deliver the most value to your customers. You can segment your customers based on who is using or not using these high-value features. As a SaaS company, you can identify who is renewing their subscription with the company and who is not.

  •  Figuring out why they are not using or renewing the company offering can inform you where your services are lacking. You can identify which features are causing trouble to your customer and work on fixing those.
  •  You can also take a look at the customers who are continuing to use your services. If some customers among them are not using the high-value features, it is probably because they don’t know how to use your product to its full potential.
  •  Lack of knowledge could also be the reason why customers are stopping using your products anymore.

You can prevent customer churn with the help of tutorial videos, demonstrations, or webinars on how to use the products or applications.

The track customer journey in the first 90 days of a relationship

Customer relationships with the company for the first 90 days is influential. In this period of time, you can win them over or lose them. This period is also an indicator of whether a customer is on the verge of leaving the company or not.

Track the customer journey to see:

  •  If they stopped using your application
  •  If they stopped logging in to your website
  • Their engagement rate with the website
  • Their complaints about the products or services

If you succeed in fixing any issue that customers face during their onboarding period it can show them the value you add to their business. Understanding the reason behind customer’s lack of interaction with your services or products can help you take suitable action to ensure an increase in customer lifetime. This will also help reduce customer churn, as you deliver value to your customers.

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Explore all the survey question types possible on Voxco

Conclusion

There is no universal standard on how you can reduce customer churn. However, preventing customer churn and promoting customer retention is an important part of the health of a business. Digging deeper into customer journey and experience to understand what factor leads to churning can highlight opportunities to develop a customer success strategy.

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Join 500 + global clients across 40+ countries