When you’re looking at different metrics to measure business health, it’s easy to focus just on the positive. Increase revenue, drive growth, improve satisfaction. Sounds great, right? However, businesses can benefit greatly by also tracking what’s not going so well. Customer churn in business might seem like a negative metric, but it’s extremely useful for anyone who wants to have a complete picture of their team’s effectiveness and product performance.
This article will answer your most pressing questions about customer churn, including:
- What is customer churn?
- Why is customer churn rate so important?
- How to calculate churn rate?
- How to reduce customer churn?
What is customer churn?
As much as we’d like to think otherwise, not everyone who does business with us will end up becoming a loyal customer for life. Customer churn, also known as customer churn rate and rate of attrition, refers to that percentage of customers who drop off over a defined period of time.
As a metric, customer churn analysis is most commonly used in SaaS and other subscription-based businesses, where it tracks customers who cancel their subscription. However, the customer churn meaning can also be used in e-commerce businesses as well, as long as you clearly define what a ‘churned’ customer looks like. For example, this might be when they close their account or haven’t purchased a product in a certain amount of time.
Why is customer churn rate important?
While it’s normal to pay attention to the number of new customers coming in, growth means nothing if those customers don’t stick around. It’s well known that it’s cheaper to retain your existing customers than to acquire new ones, so churned customers will cost you more money to replace. In a worst-case scenario, where you’re losing more customers than you’re able to bring in, you won’t be in business for long.
On the other hand, when you’re able to manage and reduce your customer churn rate, you can reduce costs and enjoy meaningful growth. Lower churn rates mean higher Customer Lifetime Value (CLV), leading to even greater returns on that initial customer acquisition cost.
As it is based on customers’ actions (rather than just their words), customer churn analysis is also a powerful indicator of what customers really think of your business. Even if everyone says they love your product, a high customer churn rate lets you know that there’s a problem you need to address.
How to calculate churn rate
The churn rate formula is simply a matter of working out the percentage of people who stopped being customers over a given period of time.
For example, let’s say you started the quarter with 500 customers. By the end of that quarter, 20 of those original 500 have quit using your business. Your churn rate for the quarter would be (20 ÷ 500) x 100, working out at 4%.
As mentioned, calculating churn rate for e-commerce companies can be trickier. When exactly does someone ‘stop’ being a customer? In that case, you’d have to look through previous customer data to work out how long the typical customer goes between purchases. However, as shopping habits vary between customers, this would have to be calculated on an individual basis to be accurate.
It’s also worth mentioning that churn in business can be calculated based on revenue, rather than customers. This opens up the possibility of negative churn, where extra revenue generated by existing customers (such as through upsells and cross-sells) exceeds the amount lost through churn. In theory, this means a business could carry on growing without ever attracting a single new customer.
How to reduce customer churn
At the highest level, reducing churn is a case of providing your customers with a high-quality product/service and a superior customer experience that they can’t get anywhere else. However, there are also some practical steps you can take to increase the chances that your people will carry on being customers for longer.
Optimize your onboarding process
Your product might be the absolute best in class but, if your customers don’t know how to get the full benefit, they won’t stick around. While a straightforward user interface, helpful customer service, and a comprehensive knowledge base are all important factors, it’s important to get your customers up and running as quickly as possible. That’s where your onboarding process comes in.
By walking your customers through the key features of your product and how to use them to get the best outcomes, they’re more likely to see positive results sooner and therefore carry on using your services. For example, customer success teams can use SnapCall’s screen sharing feature to help new users set up the product for their unique situation and to demonstrate how to get the most out of the product.
Attract and look after the right kind of customers
As great as your product is, it’s not going to be for everyone. Rather than trying to get as many customers through the door as possible, focus your efforts on drawing in customers who will benefit the most from your solution and are more likely to get meaningful results.
Likewise, when you see customers are churning, try and identify what kind of customer they are. Are they new customers who’ve joined through a promotion, tire kickers who were never going to stick around anyway? Or are they long-term customers who feel let down by recent changes? While offering a discount to a customer in danger of churning might be a good tactic, you could also be inadvertently throwing more money at a customer who was always going to churn eventually.
Instead, find ways to reward your best customers and keep them happy. For example, agents who use SnapCall decide which customers are able to get in touch with them via different high-touch channels, offering voice and video calls to their most important customers.
Prioritize communication at all stages
By regularly engaging with your customers, you’ll be able to quickly spot any who are in danger of churning. Throughout the customer journey, you reach out to your customers, learning about them and ensuring that they’re happy with your service. For new customers, ask them why they signed up. What features are they most excited about? What results are they looking for?
When someone indicates that they want to stop being a customer, communication is essential. Find out what it is that’s made them want to quit. You might find you’re able to resolve the problem and keep them as a customer but, even more importantly, you might be able to identify issues that are causing other customers to churn.
Communication should always be as simple for the client as possible. Rather than sticking to just one communication channel, SnapCall allows agents to use an omnichannel approach, where they use the channel that’s easiest for the customer or is best suited for any issue they’re facing. For example, if a customer cannot set something up on their account, they’d probably prefer to jump on a video call and ask the agent to share their screen and take them through the process.
It might seem negative to track all the customers that stop using your product, but customer churn in business is an incredibly valuable customer service metric. When properly managed, customer churn analysis can help increase revenue and identify any potential issues with your service.
By taking practical steps to improve the customer experience and help them reach their goals, customers are more likely to stick around. A solid onboarding process that helps them get set up for success, paying attention to the right sort of customers, and regular communication are all ways that you can reduce churn, increase customer satisfaction, and create a win-win scenario for you and your customers.
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