Losing customers is never a good sign. Although it is normal for a business to lose about 5-6% of its customers every year, any more can prove to be troublesome, as losing customers translates into a loss of revenue.
Customer churn is the rate at which clients or brands stop doing business with you.
Why do you need to focus on extending a customer’s lifetime value and reducing churn when you can find new customers instead?
Well, research shows that businesses need to spend five times more effort and resources to acquire new customers than retain existing ones.
Moreover, if customers are not satisfied with your business, it is implausible that you will get good recommendations on the market. This will reduce your reputation in the market, reducing the chances of acquiring new leads.
Not to mention, increasing customer retention rates by just 5% can increase profits by 25% to 95%.
How do you calculate customer churn?
Calculating customer churn is easy. There are two ways you can calculate churn, one in terms of customers and another in terms of revenue.
Customer churn is determined by calculating the remaining number of customers at the end of the period by the number of customers you had at the start of the year.
For example, if you had 300 clients at the beginning of the quarter, onboard 20, and churn 60, that means you have 260 left at the end of the year.
So, if you divide 260 by 300 and multiply by 100, you have 86.66% left. Almost 14% of customers have churned, which is your churn rate. You could also do it in the following way –
You can also calculate revenue churn in the same way. Just figure out how much MRR you have left at the end of the month and divide it by the total MRR you had at the start of the month. The percentage of whatever is left will show you how much you have churned or improved.
So let us say you started the financial period with an MRR of 2.8 million USD. And you lost 0.8 million dollars through a client but gained 0.5 million from new ones later in the year. Your churn would then be
Total revenue at the end of the year = 2.8 – 0.8 + 0.5 = 2.5 million USD
Revenue churn =
= (0.3/2.8) million = 10.7% churn.
Now that you know all about the basics, let’s look at some of the ways you can reduce customer churn –
- Analyzing why there is churn –
The first and most basic way to stop churn is to know why it is happening. Eliminating the cause of the problem is the first step anyone should take.
Take feedback. Understand why our customers are leaving you. Is it because there is a new competitor on the market? Is it because of lousy customer service, product issues, etc.? You must reach out to customers asking why they are leaving to be able to trace the root of your problems. Especially if you provide local services such as Toronto movers, it’s important to get customer feedback to improve your services.”
Another great way to analyze the source of churn is to reach out to churning customers directly or to send out exit surveys. Calling them and directly reaching out to them will show them that even though they are leaving you, you still care and want to continue your relationship with them. This will keep a good reputation when others ask about your company to one of your churned clients and give you an idea of what to fix immediately.
A lot of churned customers don’t even complain. 91% of customers who churn never raise a complaint during their time with the business. Therefore, it is critical that you reach out to them and not expect it to work the other way around.
- Improving Customer Service –
Unparalleled customer service is essential for reducing customer churn. Almost 80% of clients say that just one bad customer experience is enough for them to consider doing business with competitors.
To improve your customer service, try incorporating automation into your marketing strategy. Immediate response can make a ton of difference in improving your customer service.
When working on resolving a problem or answering a question, your support representatives should be enabled to solve it for the consumer. This might imply spending money to make things right with a consumer.
Another way to improve customer service is to use customer relationship management software. CRMs can track your customer’s activities, personalize information, and help you know them better. Tracking and combing information from multiple sources enables you to understand when a customer is unhappy or shows early signs of why they might churn. You can take appropriate action immediately.
CRMs also help shorten turn-around times to requests, and since they can track feedback, your customers give or show you common complaints or issues, you can use them to update your FAQ sections.
Many of the significant firms you think of, such as Amazon or Zappos, are huge because they have always prioritized customer service.
- Optimize the Onboarding Process –
After signing the deal, now comes the time for your salespeople to ensure that you onboard your customers smoothly. Usually, if the onboarding process is not smooth or good enough, there is a 40-60% chance that they do not use your product again.
Therefore, you must effectively communicate and teach your clients thoroughly to avoid this problem. Here is what one expert had to say about the onboarding process –
“It’s a healthy process to get in touch with the customers weekly or monthly. Utilize this chance to understand their product usage and any challenges they may face. These calls help businesses with a recurrent purchase model because you can justify their purchase and encourage them to revise their subscription or upgrade it for the next quarter.” – Akhil Pandey, Team Manager – Revenue Assurance, LeadSquared, Source
Each customer is unique, and so should each onboarding journey. Make the road map tailored to each of your clients. The clear and defined steps of the roadmap can make it easier for you to keep the client’s interest levels, as they feel empowered to succeed when they can keep track of their everyday progress in the onboarding process.
- Prioritizing and using the best –
One of the most important things you need to understand is that you cannot prevent every customer from churning. As Sunil Gupta, a professor at the Harvard Business Administration, points out, focusing on preventing every customer from churning might be possible, but would the churning client be really profitable to your business?
He states that for a lot of businesses, solving churn translates to identifying a pool of customers that are most likely to cancel and trying to keep them tied to your business. However, according to Mr. Gupta, that should not be the case.
He further explains that while reducing churn is good, you should not lose sight of the real goal, which is maximizing profits for your business as well. Therefore, knowing which customers you can’t let churn under any circumstances is essential so that your revenues do not take too much of a hit by losing significant clients.
Using the best essential means utilizing your best resources to keep a customer from churning. Give it your best shot by allowing your best salesperson to try. Pull out all the stops for the customer if you absolutely don’t want to let them churn.
Sometimes all it takes is a good listener who is ready to put themselves in the shoes of their consumers to turn things around. According to Customer Service Group’s customer satisfaction study, the majority of respondents responded that being heard and appreciated is more essential than having their issue fixed.
- Keep evolving with the market –
You snooze you lose. As new technology emerges, market trends change, and the customers’ needs will also inevitably shift.
By focusing on the next big thing, your business can avoid disruptions in the market, and be prepared well in advance to adapt to the changing needs of your clients.
Apart from adapting to new technology, you need to make sure that your support team is thorough with it to provide customers with adequate support. Tweaking your business so that your customer success stories are in line with the current tech is also a smart move to help keep your customers.
Keep sending product updates, what is going on in the market, and take feedback on technological strategies customers believe your business should adopt. You can also try social selling techniques to stay in touch with your buyers across different channels.
- Offer incentives and Discounts –
Instead of giving your customers short-term subscriptions, why not try extending them to longer periods? Placing discounts at strategic times can incentivize a customer to buy your product’s usage for extended periods of time, ensuring that there is more retention of your customers.
Loyalty programs can also help your clients stay as they will be more motivated to claim the higher amount of benefits that you provide them, and this also helps you bring in more customers as loyal clients are more likely to bring in referrals, provide you with great customer success stories, invest more on your cross-sell and upsell attempts, etc.
One of the biggest things to consider when a customer is going to cancel is the customer’s need to provide incentives. If you think that your client is canceling your product or doing business with you because they find any use for it, or that your product does not suit them, then reach out and incentivize them to stay onboard till you build features or a strategy that will help your clients.
This is how an analytics company called Baremetrics was able to save 15% of accounts that were ready to churn. They built new solutions taking in the feedback of the clients that were churning.
These are some ways you can reduce customer churn. While customer churn is sometimes inevitable, it is crucial that you have a good retention rate (reduce customer churn) to ensure you save on resources, have greater profits, create a strong community around your product, and make yourself indispensable to your clients.
Hey, I am Abhishek Rao, a content writer for LeadSquared! When I am not writing these blogs, I am busy studying the latest sales and business techniques, watching tech videos, or teaching. I absolutely love writing about sales, business, and tech!
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