Why is churn important? This metric tells you how many of your customers are leaving. If you can reduce customer churn, you’ll be able to keep more of your existing customers and grow your business.

I remember when I was first starting in business, one of my biggest fears was losing a customer. Even just one felt like a huge loss at the time. So, imagine my horror when I realized that my churn rate was quite high! It’s no wonder that reducing customer churn is such an important goal for businesses. After all, it costs far less to retain a current customer than it does to acquire a new one.

Why is churn important? According to Bain & Company, a 5% increase in customer retention can lead to profits increasing by 95%. So if you’re looking to improve your bottom line, then reducing customer churn should be one of your top priorities. Here are five ways that you can do just that.

Why Is Churn Important?

Churn is important because it is a metric that can be used to track customer satisfaction and loyalty. By tracking churn, companies can identify areas where customers are not satisfied and make changes to improve the customer experience.

Additionally, high churn rates can be indicative of a problem with the product or service that a company is offering, and can prompt a company to make changes to improve its offering.

What is Customer Churn?

When customers stop buying from you, it’s called “customer churn.”.

Customer churn rate is the number of people who stopped being customers during a set period.

Customer churn is a big problem across all industries and the average rate of customer retention can be shockingly low. This means that many businesses have difficulty keeping their customers.

As of 2020, the average customer churn rate for general retailers is 25%. For online businesses, the customer churn rate is 21%. These rates are similar across industries, which means that all businesses have difficulty retaining customers.

Not only that, but the cost of acquiring new clients can be much higher than retaining old ones.

How do you identify when a customer is about to leave? And how do you take action?

Even if your once-loyal customers are losing interest in you, there are things you can do to keep them around.

In this post, we’ll discuss ways to prevent customers from leaving your business. We’ll go over the warning signs of customer defection, how to calculate the likelihood they’ll leave, and what you can do to stop it.

Understanding Customer Churn Rate

Here’s an example of what a customer retention rate looks like:

Business X lost 200 customers over a monthly period. It had 4,000 customers at the beginning of the month so it ended with only 3,800.

Using the formula [Lost Customers ÷ Total Customers] x 100 = Churn Rate, we can see that the monthly churn rate is 5% for Business X

By measuring this metric, you can turn it into a comparable number that helps you track your progress. You can also express your churn rate in terms of dollar value if that makes more sense.

When calculating your rate of customer turnover, it’s important to consider how long your sales cycle is. This is because some sales are longer or shorter than others. By knowing this, you can ensure that you’re on the right track and that your company is moving forward.

In industries where products are purchased less frequently, such as optical, companies may sometimes have customers who go long periods without purchasing. This isn’t because they aren’t interested or at risk of churn, but simply because the nature of their products doesn’t require them to buy frequently.

To avoid wasting your sales team’s time, it’s important to define your definition of “churn” in a way that makes sense for your product or service. That way, you can make sure you’re only contacting customers who are genuinely at risk of churning.

Why Does Customer Churn Matter?

Every customer that purchases from you isn’t guaranteed to be with you 5 years down the road.

But if your customer retention rate is high, or is showing a trend of increasing, then you don’t need to worry.

Retaining customers is hugely important for several reasons.

Unhappy Customers Can Hurt Your Brand Value

A dissatisfied or angry client is a customer who is likely to leave. Losing them means losing not only their revenue, but also any positive word of mouth, any positive reviews, and any increase in your brand’s perceived quality. For this reason, it’s worth reaching out to customers who are unhappy with your service to try to win them back.

If you don’t want to lose your customers, and the revenue they bring, it’s important to try and repair relationships with those who are at risk of churning.

Customer Churn Costs You More

It can often be said, that retaining existing customers is more cost-effective than finding new ones.

Customer Lifetime Value (CLV) is a tricky metric to calculate and varies based on who you ask. Some believe that CLV is more important than just calculating the cost of acquiring a customer.

But whatever your perspective, it is generally better to try to keep a relationship going than to write it off and start from scratch.

Keeping customers happy is integral to your business. If a large number of your loyal customers are leaving you, it’s affecting your bottom line.

Customer Churn Can Stifle Future Growth

If you’re considering launching a new product or service, your existing customers who are familiar with your company are probably your best bet. But if your rate of customer turnover is high, that could mean you don’t have the client base to support the new product.

A high rate of customers leaving your business can negatively impact your growth. To prevent this from happening, you should take steps to lower your customer turnover rate.

Causes of High Customer Churn Rate

There are many reasons why a customer might leave.

1. Your Service is Poor

If you’re noticing that your customers are churning, it may be time to reevaluate your customer support team. Your current customers shouldn’t be treated any differently than your new ones. By taking a look at your customer support, you can make sure that your entire customer base is getting the five-star service it deserves.

2. Your Product Does Not Fit Your Market

If your customers are churning, it could be a sign that your product isn’t a good fit for them. Perhaps they’re looking for something else, or you’re not marketing to the right target audience.

If you want to keep your customers from churning, make sure your products are a good fit for your market. That means developing products that meet their needs and targeting the right audience. Consider what features you’re missing that could be keeping customers from sticking around.

3. You Don’t Get Your Audience

Just because you’ve been in business for a while doesn’t mean you know everything there is to know about your customers.

Your customers might want features that you don’t provide, and that could mean that they need something that you haven’t thought of yet.

The only way to understand your target audience is by listening to their feedback and engaging with them over an extended period.

4. Your Pricing Isn’t Right

Your clients might have paid you a certain amount of money when they first signed up, but that may not be the same now.

If your prices are too high, you could lose customers to competitors. Make sure you keep an eye on the market and adjust your prices accordingly.

5. Your Competition Has Better Products

Even if you offer competitive pricing, if your competitors are more in tune with your target audience, they might be able to win them over.

If you want your customers to stay, you need to look at your company’s progress over time. This includes evaluating your customer experience not just at the start. Providing features that your consumers want and that competitors don’t offer is essential.

6. Your Market is Seasonal

Businesses that depend on seasonal customers, such as Halloween costume stores, will see a big increase in their customer base in the months before the holiday but may see a high customer turnover rate after.

If this is true, then looking at your annual customer turnover rate might be a better indicator of your customer retention than your monthly retention rate.

You can counteract customer attrition by diversifying your product line or expanding on your current offerings to make them more applicable to customers out of season.

7. Your Deals Are Not Enticing Enough

A big way to reduce your number of lost customers and increase your revenue is by making sure you’re offering your customers exactly what they need when they need it.

When the time comes to renew your service, customers may be choosing not to do so because other competitors are offering better deals.

How to Predict Customer Churn

To accurately identify which of your customers are at risk of churning, you’ll need to collect and analyze both quantitative and qualitative data about their experience. This includes things like their purchase history, their interactions with customer service, and any complaints they’ve made. Once you have this data, you can analyze it to predict which of your current customers are most at risk of leaving.

There are four main elements of predicting and preventing customer attrition:

1. What drives customer churn
2. Identify at-risk customers
3. Define thresholds for taking action based on the likelihood of churn
4. Create tickets and take immediate action for closed-loop follow-up

One method for predicting which customers are likely to leave is to build a predictive model that takes into account things like demographics, buying habits, and average order value. This helps you to build patterns by combining operational data (return visits and credit card usage) with experience data (satisfaction or likelihood to recommend).

How to Reduce Customer Churn and Improve Customer Retention

Saving an at-risk relationship from a point of no return is only a small part of reducing customer churn.

Reducing the conditions for churn can be done at all stages of the customer journey.

• Improve customer experience. Providing a great user experience is one of the best ways to get new customers and keep old ones coming back. Good CX makes your customers feel good whether they’re transacting with you for the first or 50th time.
• Educate the customer. Providing good customer service means helping your customers get the most out of your services. That could mean creating helpful guides and explainer videos for your website, answering customer questions promptly, or interacting with them through social media.
• Reward loyalty. Loyal customers can be your best asset. Offering them discounts and loyalty programs will make them want to come back again and again. This will also help set you apart from your competition.
• Recognize your best customers. Some customers are more valuable than others, and recognizing and valuing them accordingly can help you retain them, instead of losing them to churn.

Conclusion

Why is churn important? Churn is important because it’s the metric that tells you how many of your customers are leaving. If you can reduce customer churn, you’ll be able to keep more of your existing customers and grow your business.