Losing customers is never welcome news for a business. However, some customer churn is unavoidable, so should your company just take it on the chin and invest more heavily into customer acquisition to make up for the losses? It’s not a simple case of “you win some, you lose some”. For starters, marketing is far more costly, especially for a small business with a tight budget. Recruiting a new customer can be up to 11 times more expensive than enticing an existing customer to make another purchase or to renew their subscription. The loyal members of your customer base are also far more valuable to your business than your recent acquisitions: they are more likely to try new products, to spend more, and to spread the word about your brand.
Reducing customer churn is an important goal, and a key part of an effective business strategy—and it begins with gathering and analyzing data. Through understanding your customers’ journeys more thoroughly and by monitoring certain key metrics, it’s possible to spot indicators of customer churn early and to take targeted action before you lose another customer.
Measure your customer churn rate
To quantify your losses and to have a better idea of just how much customer churn is impacting your business, start by calculating your customer churn rate. First you need to decide how you are going to define a customer that has been “lost”. For a retail company, for example, a lost customer could be someone who hasn’t made a purchase for 12 months. Find a definition that is meaningful for your business and based on the behaviors of your existing customers. For instance, if you know that most repeat business happens every 6-9 months, it doesn’t make sense to mark a customer as “lost” 3 months after their last purchase!
There are several ways to calculate your churn rate. You could measure it by tracking the total number of customers that have left during a specific period of time, or by working out what percentage of your customer base was lost during that same period. You could also measure the revenue that was lost due to the reduction in repeat business. Again, while there are plenty of ways you can look at this data, the important thing is to determine a metric that works for your business and act on your findings.
Looking at the number of customers leaving can give you some useful insights, such as how soon after acquisition your customers tend to be leaving. Looking at the loss of revenue, on the other hand, represents more accurately how large of an impact customer churn is having on your bottom line — regardless of which customers are leaving.
The average churn rate for one industry can be wildly different compared to the next — a typical churn rate is around 16% in Business Services and around 37% in Media. So do some research to determine where your company stands relative to other similar businesses. This will help you estimate how much of your churn rate is likely to be preventable, and therefore how much effort you should be putting into stopping your customers leaving. Looking into your strongest competitors may give you an indication of a realistic target to which you can aim to reduce your levels of churn.
Identify the customers who are at a high risk of churning
The next step is to gather information about the behavior of your customers in order to identify those who are at a high risk of churning. A key metric to record is customer satisfaction, which goes hand in hand with customer retention.
Monitor customer satisfaction with frequent feedback requests (both general and transaction-specific) and combine this data with other insights, such as how often your customers decline repeat purchases, spend a lot less than usual, or opt out of services. Try to build as complete a picture as possible of the key indicators of potential churn (while observing data protection regulations), so that these can be flagged up and responded to. Ideally, you will be able to identify a few factors which have the biggest impact on churn and look at ways to address these.
Understand why your customers are leaving
In order to prevent customer churn, you’ll also need to better understand why your customers are leaving. Analyze your survey results and the responses to your feedback requests to reveal any recurring issues.
A very common reason for churn is poor customer service. Depending on your industry, good customer service may include responding quickly, demonstrating deep knowledge, and resolving an issue in a minimal number of interactions. First-time resolution may be tricky to deliver, but it’s a noble goal. Consider that customers are often not very forgiving when their expectations are not met, driving more and more customers to abandon a company solely based on poor customer service.
Even a simple failure to reply to customers on social media can increase churn by up to 15%. Other common problems that can lead to customer churn include technical issues during an online purchase and a lack of payment and delivery options. If any of these issues crop up multiple times in your data, addressing them should become a priority.
Choose your targets carefully
The final step of your churn prevention strategy is to choose which customers to focus your efforts on. Not every customer is worth fighting for! When making your decisions, consider both the likelihood of a customer churning and their profit margin potential. There may be little point spending time, money, and effort on convincing an infrequent low spender to make one last purchase — but a previously lucrative customer who’s at risk after a bad experience could be a prime target. When using incentives, you’ll want to target those customers who are likely to provide a high return on your investment if you can convince them to stay.
Once you have identified your targets, reach out.
Have your customers grown more distant over time? Incentives are usually an effective strategy to entice people back: 75% of customers say that they’ll often make another purchase after receiving an incentive. Do also check in via email if possible — a brief “hello, we’ve missed you” message at the right time can help a customer to reconnect with your brand again.
And what if there’s a specific issue that is pushing some customers away? If a problem has been flagged, be proactive and resolve it as soon as possible. Timely action is important: as many as 25 out of 26 customers choose to take their business elsewhere rather than make a complaint. Show your customers that you value them, and that you’re putting effort into making things right. This can encourage them to give your company another chance instead of turning to a competitor.
In the end, you’ll neither be able to prevent every customer from leaving, nor need to. Instead, make sure that your customer churn prevention strategy has the greatest impact on your bottom line by gathering the appropriate data, identifying the highest value targets, and taking swift, positive action.
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