Businesses often look for ways to reduce customer churn. You don't have to be an industry guru to know that new demand generation for a business relies on keeping existing customers around.
It is sometimes harder (and more lucrative) to maintain existing clientele than gaining new ones. Here are some strategies you can use to reduce customer churn at your company.
Customer Churn
A customer churn rate is the percentage of customers who stop using your company's product or service after a certain period of time. You usually calculate it by dividing your lost customers by your started customers for a particular time period (e.g., the previous quarter).
Calculating Customer Churn Rate
Here's an example of how to calculate churn rate. The formula is outlined in the image below.
Let's say you started last quarter with 500 customers and ended the quarter with 475. That means you lost 25 customers.
To find your churn rate for the quarter, divide the number of customers you lost (25) by the number of customers you started with (500). Then, multiply the result by 100.
25 ÷ 500 = 0.05
0.05 x 100 = 5%
Your churn rate for the quarter is 5%.
Why Churn Matters
A high churn rate can negatively impact your bottom line, even if some customer churn is inevitable.
Your business's profitability is largely dependent on your ability to retain existing customers. A 5% increase in customer retention can increase profits by 25% to 95%, according to industry research.
Churn needs to be monitored and stopped before it escalates, which is why it's important to keep an eye on it.
Watch the video below to learn why churn matters and how to reduce it strategically.
The first step to stopping churn is figuring out what the underlying cause is. We'll discuss some common causes next.
Causes of Customer Churn
Customers churn for a variety of reasons, but most of them are common.
Below, we'll explore each.
Price
It is common for salespeople and customer success managers to object to price.
Churn may occur if customers find a cheaper solution to the problem they are trying to solve.
In order to make customers feel that the purchase is worth it, it is important to establish value and provide them with onboarding and education.
Product/Market Fit
One of the most common reasons for customer churn is a lack of alignment between sales and customer service.
When salespeople are hustling to hit quotas and are not incentivized to sell to good-fit customers, the result is churn within a few months of purchase when customers realize they cannot achieve their goals.
User Experience
Software or applications that are buggy, glitchy, or otherwise difficult to use will be less likely to be used regularly or recommended to others.
Customer Experience
Finally, if your marketing content or customer support team doesn't make a positive impression on your customers, they might churn.
It is important for customers to feel welcomed and valued by the communities they support. Your customers will not stay with you if they have a negative experience interacting with your company.
There are several types of customer churn you should be aware of in addition to these factors.
Your business might actually benefit from some churn.
Types of Customer Churn
Here are seven of the most common types of customer churn across industries.
1. Revenue Churn
Churn in revenue differs slightly from churn in customers, but it's still important to consider when analyzing this metric.
Churn refers to the amount of revenue lost within a given period of time. It doesn't necessarily mean you're losing customers, but rather you're making less money from your existing customers.
Downgrading to a cheaper subscription or version of your product can cause this. Your customers are still shopping at your business, but they are spending less money than they used to.
2. Competitor Intervention
It's inevitable that some customers will leave you for another company, and every business has its competitors. While it's not ideal, it does happen, so don't worry about it all the time.
Instead of trying to find out why these customers are leaving you for your competitors, you should focus on why they are leaving you. Are they a bad fit for your business? Does something you're doing push them away?
As soon as you determine the cause, you will be able to determine which customers you should try to keep and which ones you should let go.
3. Unsuccessful Onboarding
Some businesses experience customer churn at the beginning of the customer journey.
This is due to the lack of an onboarding program that teaches the customer how to use the product or service.
In other words, it's up to the customer to figure out how the product works and how it can meet their needs.
Rice is usually sold with directions printed on the side of the box.
However, if you're paying thousands of dollars for software that runs your business, you might expect more support and resources.
In today's enterprise organizations, 74% have dedicated onboarding teams. You can reduce churn with a good customer onboarding program.
4. Desired Feature or Functionality
The majority of consumers expect all experiences to be personalized.
Due to this desire for personalized experiences, many of your customers will expect you to develop new features or products that meet their needs.
There may be some customers who are disappointed when a new feature or product does not seem relevant to them.
It may be a great product for the majority of your target audience, but there may be a lingering segment that feels your brand is going in a different direction.
There are times when customer churn isn't necessarily a bad thing.
It is possible that some customer churn may occur if your brand is heading in a new direction. Don't let your churn rate get too high by actively monitoring it.
5. Company Closure
If you're a B2B business, then you may have customers that go out of business or merge with another company.
Most of the time, these instances are unavoidable and are part of working in a B2B environment. This is where your customer acquisition strategy becomes important as it balances out your customer churn rate.
6. Underappreciated Brand Values
It is possible that some people do not align with the values of your brand, much like a "bad fit" customer.
People may not value eco-friendly products if your company prides itself on providing eco-friendly products.
The customers are more interested in a low price point and fast delivery than they are in buying "green" products.
Do you give in to these customers and conform to their demands? What if you stood firm with your brand values?
Your flywheel is powered by your customers, but, like a car engine, you need the right fuel to run. Your brand will suffer if you conform too much to the wrong segment of your target audience.
Consider listening to your most loyal customers, as they will have a vision that aligns with yours.
7. Plateaued Growth
Your company changes as it grows. As your customer base grows, you hire more employees, and you offer more products and services.
It's great for your business to change, but it can sometimes result in churn among customers.
Imagine you originally offered a free product that, when packaged with another set of products, you realize customers would be willing to pay for.
In spite of the fact that this change will lead to more revenue, you might lose customers who only wanted the free product. Since they will now have to pay for it, they will move on to a company that does not charge.
This is another example of natural customer churn. At first, you may lose customers, but eventually you'll replace them with new ones who will pay more.
How to Identify Customer Churn
Churn can come in many shapes and sizes, making it difficult to distinguish what's natural, what's negative, and what's not.
Here's how you can identify patterns of customer churn at your business so you're aware of all types.
Establish customer churn metrics
To identify customer churn, you must first determine what churn means for your business.
Depending on your business model, churn may mean customers canceling subscriptions, uninstalling your app, or not returning to purchase your product.
It doesn't matter what your business is, you will need metrics to monitor customers who are at risk of leaving. As a result, you can determine when you should expect a customer to churn based on clear benchmarks.
It's easy to track these metrics using HubSpot's free Customer Service Metrics Calculator, which lets you know when churn is reaching unacceptable levels so you can take action.
Gather customer feedback
When customers are unhappy, they may tell you directly. You can use customer feedback surveys to give your customers a nudge in all other cases.
In addition to collecting quantitative feedback, surveys can help you figure out which customers are upset with your business and why.
Send your customers an NPS survey after a customer service case, so they can provide immediate feedback.
Check-in with your customer success team
Instead of waiting for customers to tell you how they feel, send your customer success team to find out.
Users who are unhappy with your product or service should be contacted by your customer service team.
Rather than customers contacting your support team, you can immediately resolve any roadblocks.
Customer success teams typically set up regular check-ins with their customers. Regardless of whether there is a problem to solve, these meetings are helpful for gathering up-to-date information about the user.
How to Reduce Customer Churn
1. Lean into your best customers
Solving for churn often means identifying a pool of customers who are most likely to cancel, and focusing your efforts on keeping them.
Nevertheless, Sunil Gupta of Harvard Business School suggests that this is an inadequate strategy.
As opposed to focusing on retaining any customers at risk of churning, Gupta recommends businesses focus on the most profitable prospects: "If I offer an incentive to customers most likely to churn, they may not leave the company, but will it be profitable for me?
The traditional method is focused on reducing churn, but we contend the goal should be maximizing profits, rather than only reducing churn."
2. Be proactive with communication
You demonstrate your commitment to helping your customers get the most out of your product or service by reaching out to them before they need it.
But not just any outreach will do. You should send them resources and messages related to the products or services they use.
Upon signing up for SEMrush, you received the following email encouraging you to check out a whole bunch of features you hadn't explored yet:
By surfacing these features early, SEMrush was able to ensure that you weren't overlooking the tool's capabilities — helping to keep you both interested and active.
3. Define a roadmap for your new customers
It can be difficult to get started with a new product or service.
In addition, if a customer has trouble navigating your product or service, they will lose interest quickly.
Establish a new customer onboarding process or roadmap that guides new customers through the features, functionality, and process of your product or service.
Your business' customers are less likely to leave if they feel empowered to succeed with your assistance.
Keep an eye out for snags or blockers in your onboarding process and monitor it constantly.
Need some inspiration? We received the following onboarding email from Grammarly after signing up:
Notice how the welcome email introduces a bunch of popular features to help warm you up to the tool.
4. Offer incentives
Offer special promotions, discounts, or loyalty programs to keep customers coming back.
When it comes to showing your existing customers how much you value their business, this small gesture can go a long way.
There are several factors to consider when determining when to surface these incentives.
First, consider the customer's timeline: If they're approaching the end of their contract and you're concerned they might not renew, offering a discounted renewal rate could be the incentive they need.
It is also important to consider the customer's needs. After receiving feedback from customers who were ready to cancel due to a lack of features, Baremetrics implemented the following strategy.
"We'd offer a discount on their next month of service to tide them over while we finished up what it was they were looking for," explains Baremetrics' founder Josh Pigford.
The impact? They saved 15% of the accounts that were about to be cancelled by this small effort.
5. Ask for feedback often
A lack of support or confusion about a product can lead to customer frustration, which can ultimately lead to customer churn.
However, those concepts are vague. Early and frequent feedback is crucial to getting to the root of the specific problems plaguing your business.
Setting up a customer feedback loop can be as simple as creating a survey or feedback form and sending an email. PayPal provides a great example.
Surveys and rating requests show the customer that you're committed to getting better — and that you're always interested improving.
6. Analyze churn when it happens
Once a customer leaves your business, it's too late to do anything about it. It is better to use data before customers churn in order to create strategies for proactively preventing it.
Any business will experience churn, no matter how much effort you put into the steps above.
By analyzing your churned customers (and your happy customers), you can predict key signs of customer happiness and dissatisfaction and engage with them before they leave.
Start by determining when churn typically occurs.
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What is the most common time when customers churn?
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Is it 30, 60, or 90 days after they first start using your product or service?
If customers go a specific number of days without using the product or service, does churn happen? After that, get additional customer feedback to determine why churn occurs.
Here's an email SoulCycle sends when you haven't booked any classes in a while:
SoulCycle most likely determined that a largegap in workout class attendance signaled churn, so they offer a free class to get you back in the door.
7. Stay competitive
Market conditions are constantly changing. As new technology and software enter the market, your customers' needs and demands will inevitably change.
In order to avoid disruption or "the next big thing," businesses should focus on what's next: trends, technology, and product advancements.
As important as it is to keep your product or service cutting edge, it's also critical that your customer success and support efforts remain relevant.
Consider your competitors' customer success initiatives to make sure they aren't lapping you.
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Do they respond to social media questions?
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Is their website equipped with live chat?
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Is their knowledge base extensive?
By taking cues from their strategy, your business can serve customers better and retain them.
8. Provide excellent customer service
Customer service is a great way to reduce churn.
When dealing with an issue or answering a question, your service reps should be empowered to resolve it on behalf of the customer. Making things right with a customer might require them to spend money.
Customers are at the heart of many of the big companies you think of, like Amazon or Zappos.
The best way to stand out among competitors and reduce customer churn is to offer excellent customer service.
9. Create a community around your customers
Those brands that have built a community around their products, services, and customers are more likely to be loyal to them.
In other words, your marketing team can engage with customers, create a Facebook group, or plan events for your most valuable customers as part of community management.
Creating a community will increase customer loyalty and reduce the likelihood of them churning when something goes wrong.
10. Dedicate customer success managers (CSMs) to your most valuable customers
Employing customer success managers who ensure your most valuable customers are taken care of is another great way to reduce customer churn.
The customer success manager will provide customers with tips on how to get the most out of your product or service.
Moreover, your valuable customers can reach out to them directly instead of waiting on hold for a frontline customer service representative.
11. Focus on attracting the right customers
When you engage with the right customers in the beginning, you're more likely to retain them.
When your product or service isn't a good fit for the consumer, churn happens.
Understand the demographic characteristics and purchase behavior of your target consumers by developing customer profiles.
You should be clear about the customer's goals and confident that your product can help them achieve them during the sales stage.
Customers who are engaged with your products, within your target market, and knowledgeable about how to work with you are the right customers.
12. Make it easy for customers to stay long term
Giving your customers a reason to stay is the key to preventing churn.
In some cases, this can be as simple as offering long-term subscription options or extended access to your product.
How does this look?
Besides monthly contracts, try offering annual and multi-year signup options. You could also give your customers unlimited access to your product specialists for a set period of time.
Regardless of what your business structure is, make sure that it encourages people to stay for a long time.
Stop Churn In Its Tracks
When you allow churn to take hold of your business, it can have a devastating impact on your business. You can reroute your company's trajectory by applying these tips today.