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What is Customer Churn & Why Should You Analyze It?

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In the competitive business world, customers are central to business growth. Customers hold the ability to drive your business toward progress. One awful experience and customers make it a point to “see you never!” to a company.

Losing customers is unavoidable, yet evaluating it can help them grow and accelerate the business. Customer churn may not be the most palatable measurement to quantify. Yet, it gives you the hard realities and information that enables you to settle on reasonable choices for the progress of your business. 

In this blog, we will explore what is customer churn, the reasons it happens, and the importance of reducing customer attrition. 

What Is Customer Churn?

Customer churn refers to customers who stop using/buying your brand’s product or service. The churn rate indicates the number of customers you may have lost or are unlikely to make another purchase. 

Usually, you should measure this metric at a particular timeframe, e.g., monthly or quarterly. This allows you to track the percentage of customers you lost at a specific time. 

A higher churn rate implies that your customers are unsatisfied with your brand and offerings. It can help you understand whether you are targeting the wrong audience or are unaware of the customer’s pain points. 

Evaluating customer churn can help you learn where you are falling short and what changes you need to make to reduce churn and improve retention.

How to calculate the customer churn rate?

Customer churn rate is determined by isolating the number of customers you have lost by an absolute number of customers during a particular time frame.

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

If your business began with 200 customers in the principal month and, you lost 10 customers toward the end, your churn rate will be

CCR = 10/200 X 100 = 5%

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

Now that we have defined what is customer churn and the formula to calculate churn rate let’s explore the importance. 

Related reads: How to quantify ROI of CX transformation?

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Why should you analyze customer churn important?

You might be asking why it’s important to compute the churn rate. Usually, you will lose a few customers, and 5% doesn’t sound awful, isn’t that so? However, it is not a good attitude, especially in a competitive market. 

Tracking customer attrition rate as a KPI can help you ensure that you are making effective business decisions. Implementing strategies to rescue churn in your customer experience program is important. 

Understanding what is customer churn rate for your company can show how you are performing in comparison to your competitors. Let’s see the importance of customer churn analysis. 

1. Lower churn improves brand reputation: 

Unhappy customers are likely to tell more people about their bad experience with your brand. This can result in negative word-of-mouth and hurt your brand value. 

Reaching out to customers at the risk of churning can help you mend the bad customer-brand relationship. Satisfied customers can help expand your market reach, improve brand value, and increase business ROI.

Leverage survey software to close the customer feedback loop on passives and detractors. 

2. Lower churn boosts ROI: 

The larger your customer base, the higher your ROI will be. 

When a customer churn, you lose the opportunity to monetize that customer. Moreover, when you spend company revenue on the acquisition, it equals out, and you don’t make a profit. 

This makes it essential to retain existing customers. These customers are familiar with your brand, have a better relationship, and have more loyalty. All these factors result in repeat purchases and an increase in revenue. 

3. High churn rate increases CAC: 

It costs less to manage existing customers. Instead, they bring more value, higher sales and profits, and more customers. Therefore, existing customers leaving your company affects the bottom line more.

On the other hand, you spend more to acquire new customers, i.e., customer acquisition costs. . Moreover, often, the acquired customers churn before you can gain back all the investments you made to attain them. 

 It makes more sense to retain the current customers than to look for new customers to fill the spot. 

4. Lower churn encourages business growth: 

Churn rate is a clear indicator of the growth potential of your brand. A higher churn rate shows your business is not expanding at the right pace. This means you need to start retaining customers and optimize your retention and experience strategies. 

Marketing new products or services to existing customers is a common strategy. After all, your existing customers are most likely to purchase your new offerings and introduce prospects to your brand. 

A higher churn rate can hurt your business growth and halt future success. 

Related read: How to calculate customer lifetime value from churn rate?

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What causes customers to churn?

It is not only important to learn what is customer churn for your company. But also important to identify the reasons customers are churning. Here we explore some of the common reasons for churn. 

Voluntary attrition:

This happens when customers decide to stop being your customers. It can happen for many reasons. For example, they may no longer need your product because it has resolved their issue. Or they don’t see the value in your product anymore. 

Anything that pulled in the customer, in any case, is no more. Whether that is organization values, item quality, or the price tag at which the item was first acquainted with them.

Involuntary churn: 

This happens when customers leave your company without actively deciding to do so. For example, expired credit/debit cards, failed payments, or the end of a subscription can often cause delinquent churning. 

Poor customer experience:

This can result from a bug in the app, poor communication, or subpar customer support. Whatever the reason is, small issues can add up to being the bigger problem that poorly impacts customers’ experience. 

Gather customer data on their experience at every interaction to understand what’s causing poor experience and address them with the right solutions. 

Customers find better alternatives: 

This is presumably the most widely recognized, as customers are generally keeping watch for an ideal arrangement.

It is not good to assume you are the only player in the market. More businesses are likely to sell the same product. You may have a well-engineered product, but if customers think your competitors’ products are superior, it is enough reason for them to churn. 

Attracting wrong customers: 

This means that the product does not meet customer needs. Often customers buy or sign-up for products or services that they don’t understand. This leads to churning because the customer soon finds out the product doesn’t fit their need. 

A poor customer-product fit can be harmful to the bottom line. Preventing this depends on having a complete understanding of your customer’s needs. This allows you to create targeted messaging that explains what your product does and the problem it solves. 

It is important that the prospects understand how your product can help them. And your marketing copy should help them assess and determine if the product fits their need. 

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What are the ways to reduce customer churn?

Concentrate on your best customers:

Rather than just focussing on offering motivating forces to customers who are thinking about churning, it very well may be much more advantageous to pool your assets into your faithful, productive customers.

Examine churn as it happens:

Utilize your churned customers to understand the reason why customers are leaving. Examine how and when churn happens in a customer’s lifetime with your organization, and utilize that information to establish pre-planned measures.

Show your customers that you give it a second thought:

Rather than holding back from associating with your customers until they contact you, attempt a more proactive methodology. Speak with them about every one of the advantages of your proposition and show them you care about their experience, and they’ll make certain to keep close by.

Related reads: Top strategies to reduce churn and improve NPS.

How to conduct churn analysis?

In this discussion of what is customer churn, it is important to ensure churn analysis is not only a job for the customer success team. It requires effort from every department that, in some others, impacts the customer experience. Churn analysis is a collaborative and cooperative effort from the entire organization.

We have explained some simple ways you can conduct churn analysis.

Gather feedback from customers:

Involve your customer in your CX process. They know what they want and will tell you that in exact words given the opportunity. Giving them the platform to share their opinion can help you see clearly who they are & how you can win them.

According to Microsoft, 77% of customers say that they like and favor a brand that asks for their feedback.

Customer feedback will tell you about the reasons for churn or retention; you just need to hear them out.

Gather customer feedback by using a platform that helps you listen to the voice of customers. Use a survey platform to create CSAT, CES, NPS, or CX surveys to collect what customers need to share.

Contact customers when/after they leave:

Contacting customers at the moment of their leaving can help you see what they had to put up with from their perspective. While it is good to contact the customers who are repeat purchasers, the ones who are leaving or have left will help you see the harsh truth.

The customers who have left you are not obliged anymore to be nice to you. The existing customers may soften the truth. In contrast to them, the customers who have left will tell you exactly what was wrong and what you need to fix.

These customers are your most significant source of truth. They will give you constructive feedback and tell you where you stand compared to the competitor. They will tell you what made them leave your company for a different brand.

Contacting the already churned customers can help you put into perspective the gap between your brand and the competitors.

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Uncover key insights: 

Customer feedback gives you unstructured data, but analysis gives you facts and actionable insights. The churn analysis will help you identify the pain points and uncover the opportunities for improvement.

The analysis tool, such as the sentiment analysis tool, reveals the reasons for – why customers are leaving & why they are staying with you. It is important to learn not only why customers churn but also why they stay. The insight will help you understand what strategies are working and which are more important.

Why customers leave:

  • 50% of American customers say that they have canceled an order/purchase because of bad service.
  •  74% of Millennials claim that they will switch retailers due to receiving poor customer service.

Why customers stay:

  • 55.3% of customers say they remain loyal to a company because they love its products.
  •  93% of customers are more likely to purchase again from customers that provide excellent customer service.

Act on what you’ve learned:  

Now that you have identified what or where you are lacking, it’s time to act on them.

Revaluate your business process, conduct internal sessions with other teams to make strategic decisions on how you can deliver on customer expectations, and stop customer churn.

Monitor & track customer engagement, relationships, support tickets, and financial alerts to see how any changes you have made are impacting.

Conclusion

This concludes our article on what is customer churn. Knowing the percentage of customers you are losing, the reasons, and its impact on your business can help you make the right decision to drive business.

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