Get Your Customer Churn Rate And Lower It Today
32% of the leaders of the biggest companies in the world don’t know their company’s churn rate. That’s millions of customers and trillions of dollars being lost every year that could have been preventable. This might not materially dent the finances of those big companies, but customer churn must be addressed for most companies.
Every business faces customer churn, as it is unlikely that all customers will stay with one company forever. But not trying to keep customers will fester into more significant problems eventually. It is also far simpler and less expensive to keep current customers than to acquire new ones. One Harvard Business Review article says that acquiring a new customer is actually anywhere from 5 to 25 times more expensive than retaining an existing one. And it is even less costly to persuade them to stay than to get one to return. The true cost of customer loss includes direct costs, acquisition costs, social costs, and operational costs. All these costs add up quickly against your financials and brand. So understanding and preventing customer churn is essential for a healthy business.
What Is Customer Churn?
The best place to start is to know exactly what is customer churn, sometimes also referred to as customer attrition. Customer churn is the percentage of customers that cancel your company’s product or service during a specific period. It is a percentage calculated by dividing the number of lost customers by the total number of customers at the start of the time period multiplied by 100. This period could be a year, quarter, half-year, or month. For example, if you had 100 customers at the beginning of the quarter and 95 at the end, your churn rate would be 5% for the quarter, e.g. (5/100) x 100 = 5%.
Over time, a growing customer churn rate indicates your business is unhealthy. A shrinking one shows things are doing well. Customer churn analysis can provide a business with an early warning signal to look into what is happening with its operations, such as management, sales, customer service, and marketing.
It goes without saying that your business should strive for a churn rate as near to 0% as is feasible. By constantly monitoring its churn rate and treating it as a top priority, strategies can be made to reduce customer churn.
5 Reasons Why Customer Churn Rate Is Important
A 5% customer churn rate doesn’t seem that horrible, does it? You can expect some customers to leave and try other things, or their needs may change. But if losing a customer could have been prevented, a business should at least try.
Customer churn is important for many reasons, including:
- Customers lost that was preventable.
- Decrease in recurring revenue.
- Lower customer lifetime values.
- Less products and services sold.
- Cost and effort of finding new customers.
Related Links: The Why, What, And How of Customer Lifetime Value
Start Slowing The Leaks Today
How to start reducing customer churn? Here are three actions to take:
- Focus on finding the source of the problem.
- Rather than simply offering incentives to customers considering leaving, find the reasons and drivers why customers are considering other solutions.
- Learn from those who left.
- Use your churned customers to understand why future customers may leave. Analyze why churn occurs in a customer’s journey, and use these insights to put into place preemptive measures.
- Show your customers that you care.
- Instead of waiting for customers to reach out or leave, try a proactive approach. Communicate with customers the perks offered to loyal customers and show them you care about building long-term relationships.
Related Links: Customer Retention Strategies For Practical Profitability
Build Stronger Partnerships
As your customer churn rate improves over time, the company’s finances and customer experience will continue to improve. There is little cost in keeping track of customer churn, but the benefits can change how the business functions and grows. Who doesn’t like loyal and happy long-term customers? Start tracking customer churn today.