1. Figure out why customers leave.
2. Encourage them to stay.
These are the two critical pieces (albeit, boiled down significantly) to the daunting puzzle commonly known as “customer churn.” When a customer cancels service, fails to renew, closes an account, or simply stops purchasing, these are all examples of churn at work.
Obviously no business wants this. But it happens. A lot. And while some churn is normal, studies suggest that the vast majority of customer churn is preventable, especially when companies focus on providing the best customer experience possible.
This post will explore the basics of customer churn, plus six great strategies to help you minimize it.
How to Calculate & Reduce Customer Churn
How to calculate customer churn rate
Before we get into the nitty gritty, let’s clear up one common point of confusion. “Churn” is different from “churn rate.”
customer churn = total # of customers lost
customer churn rate = total # customers lost / total # customers to begin with
Why are there so many options? Well, churn means different things to different companies. It can represent the number of customers lost, the percentage of customers lost, the value of recurring business lost, or the percentage of recurring value lost.
But let’s stick to the most basic representation:
# churned customers this month / # total customers at the start of the month = % churn rate
Let’s say those numbers are 200 and 1000, respectively. That would give you a formula that looks like this:
200 churned customers this month / 1000 total customers at the start of the month = 20% churn rate
If you need some additional help calculating your own churn rate, Andrew Chen created an easy-to-use spreadsheet that makes it pretty simple. And Recurly proposes an even better way to calculate your churn rate that accounts for customers gained each month.
What’s a good customer churn rate?
Customer churn rates vary widely by company and industry, so it’s difficult to say definitively what a “good churn rate” looks like. Plus, industry churn rates aren’t always a reasonable benchmark. It’s best to compare your current performance to your previous performance last month or last year in order to focus on steady improvement.
Here are some guidelines to help you understand the landscape:
- Software-as-a-Service (SaaS) companies have monthly churn rates around 5.4%. (Clement Vouillon of Point9).
- Experts say that churn rates above 10% are considered too high.
- Credit card companies usually have customer churn rates that are around 20%. (Forbes)
- Verizon has reported super low churn rates, such as 0.84% in Q2 2012. (Phone Arena)
Lincoln Murphy has a great post on what an acceptable churn rate looks like. But whatever your churn rate is, there’s likely room for improvement. Unchecked customer churn can have devastating effects on an organization.
The consequences of high customer churn
If you have a high customer churn rate, this means, in the most basic sense, you’re losing revenue. So in order to maintain growth, you have to:
- Acquire your target number of net new customers.
- Replenish the customers you lost due to churn.
It’s easy to see how the revenue gap becomes tougher to fill as churn increases.
But here’s the kicker: besides revenue, you’re also:
- Losing potential brand advocates.
- Potentially sending a new group of detractors into the market every month.
- Losing out on more potential business because of the negative word-of-mouth.
Think about it: It’s unlikely your churned customers are raving about your product as they go. They’re more likely sharing the negative experiences they’ve had in person and online. So on top of fighting churn, you also have to worry about your online reputation taking a hit—not to mention the offline reputation you can’t really attach metrics to.
Customer advocates are a huge contributing factor to growth. They help you acquire customers organically. Without them, customer acquisition becomes more costly, because you rely more on paid channels to hit new customer targets. Overall, high customer churn creates an uphill battle.
6 ways to reduce customer churn
Like we said, some customer churn is inevitable. But when churn is on the rise and you’re not focusing on customer retention, your customer relationships are probably taking a big hit. Maybe your product is lacking key features, customer support is subpar, pricing is too high, or customers don’t see long-term value in your offerings.
If you’re not working to understand these issues, you’re leaving money on the table and putting your brand reputation at risk. Thankfully, there are some straightforward tactics that help combat churn and boost customer retention.
1. Be proactive.
Customers will often let issues fester rather than reach out for help. They might have a minor problem and think contacting support is more trouble than it’s worth.
No matter how awesome your support team is, they have to overcome the world’s negative perception of customer service. Maybe the customer expects a lengthy resolution time or, worse, no resolution at all. Either way, they’re not initiating the conversation. Instead, they end up fuming in silence.
This is a huge problem for many companies. Some reports suggest that 91% of unhappy customers simply churn without complaining, leaving the company none the wiser and compounding the issue. The good news? There’s a simple solution: be proactive.
Check in with customers on a regular basis. Ask them how they’re doing. See if they have suggestions. Find out if they need some help.
You can even automate these processes by integrating customer surveys with Salesforce. For example, many companies set up a Salesforce workflow that triggers the Net Promoter Score survey—a trusted measure of customer loyalty—after specific events or on a predefined schedule.
A SaaS company might use NPS with Salesforce to track and benchmark customer loyalty after 30 days, 90 days, 6 months… The timestamped feedback can quickly reveal common fall-off points when customer satisfaction and loyalty begin to wane.
Bottom line: If you build a tight, consistent customer feedback program, you’re far more likely to catch issues before they escalate. Plus, you can turn unhappy customers into valuable resources—or even better, into happy customers.
2. Make it easy to share feedback.
Part of being proactive is providing a convenient channel for customers to voice their concerns. Along with the NPS survey, product surveys and transactional customer satisfaction (CSAT) surveys effectively monitor customer sentiment.
Like NPS, you can easily automate CSAT and product survey distribution and map the results onto customer records using Salesforce. For example, a retailer might integrate post-purchase satisfaction surveys with Salesforce to follow up on orders automatically. These surveys could catch issues with order fulfillment, delivery, or even the online purchase process itself.
Here are some quick tips to help you simplify customer feedback collection:
- Keep customer surveys short whenever possible. By sticking to essential questions only, you’ll boost survey response rates and generate more reliable data.
- Use mobile-friendly surveys to maximize customer engagement. Everyone lives on their phones these days—surveys should too.
- Make sure your survey design is on-brand and easy-to-read. User experience is just as important when you’re collecting feedback as it is when you’re selling and marketing.
- Include open-ended questions so customers can expand. You’ll get the greatest value out of customer feedback when it’s both quantitative and qualitative.
Bottom line: The easier it is for customers to share feedback, the more input you’ll get. Follow online survey best practices to provide the best experience possible.
3. Learn from customers who leave.
Customers leave for a reason. Maybe they think a competitor can serve them better or they just don’t see a need for your solution.
Though it’s not ideal, customer churn can teach you a whole lot about your business. Ask churned customers what compelled them to cancel or what stopped them from renewing. For reporting purposes, it helps to give them a drop-down list of predefined reasons (e.g. too expensive, no current need, dissatisfied with service). But, again, you should also allow for open responses so they can share specifics.
An attrition survey is more than a post-mortem though. Beyond revealing opportunities for product and service development, a churned customer’s comments could actually help you win them back.
Maybe they left because they needed a feature or service you don’t offer… but, wait, you do offer it! This happens more often than you’d think, particularly with larger organizations that sell a huge variety of products and services. And the only way you can catch it is by asking.
Bottom line: Feedback shouldn’t end when a customer cuts ties. In fact, it’s a critical time to get input. Their feedback can shape your retention efforts or even stop them from leaving.
4. Make your customers feel appreciated.
You work hard to provide a product that customers like, but do you work hard to keep them around? Customer appreciation is fundamental to customer retention. People like to know their business is valued.
Here are a few ways to show appreciation:
- Act on feedback. When you come out with features and services customers have requested, they’ll see their feedback is valued. On the other hand, if your product is stagnant, they might start shopping for alternatives.
- Offer incentives. Loyal programs are great for—you guessed it—customer loyalty. They encourage repeat purchases, keep your company top-of-mind, and add some fun to the buyer experience. Coupons, loyalty gifts, and exclusive events are great too. When customers hit a benchmark, send them a T-shirt or offer a discount on their next renewal.
- Create a customer advisory board. This builds stickiness with a core set of customers and creates a candid dialogue that can inspire new ideas and add perspective.
- Simply say “thank you.” It’s a small gesture, but it can go a long way. Send customers an email thanking them for their loyalty. Or, you could even go old-school and send a letter.
Bottom line: When you value your customers, they’ll return the favor. Customer appreciation doesn’t even have to cost much. It can be as simple as a “thank you.”
5. Figure out what types of customers churn.
All customers are not created equal, and some are more likely to churn. If you can figure out who, you can focus on ways to retain them, or even determine which customer segments are not ideal for your business.
For example, you can calculate the customer churn rate for different advertising channels or product lines. You might find that customers who signed up for your services through a Pay-Per-Click (PPC) ad have a much higher churn rate than those who came in through a third-party marketplace. You can then increase your marketplace efforts and reduce paid spend.
This applies to many customer demographics, from industry and company size to department and role. So get granular with your churn reporting. You’ll likely identify trends that inform your marketing and sales efforts, helping you focus on customers who are most likely to stick around.
6. Create (and automate) a retention process.
Even without the data, you can probably guess at some of the key moments when customers decide to cut ties. Create a retention program that hones in on these key periods. Use engagement methods—like nurture emails, customer surveys, special offers, and personal touches—to keep customers from ghosting.
Also, remember that not everyone will stay. The consolation prize may just be insight that helps you keep the next customer on board. Once you’ve mapped out a flow for at-risk customers, automate the process as much as possible. Use your CRM, marketing automation, and any other tools at your disposal to create a professional, engaging customer experience that demonstrates value.
No company wants churn, but it’s an inevitable part of business. You can make the most of it by learning from each lost customer. Churn presents new opportunities to refine retention efforts, bolster your feedback program, and adapt your offerings.
This is about more than excellent customer service. True success comes from proactive communication and a company-wide focus on developing customer relationships.