The concept of customer churn is thrown around a lot in the world of business. While it is commonly accepted to be fatal for small businesses, it is all too frequently misunderstood. Below is everything you need to know about customer churn, from what it really means to how to avoid it.
What is Customer Churn?
The term customer churn refers to the percentage of customers that stopped using your company’s service or product within a specific time period. To work out your business’s customer churn, take the specific timeframe you are working with – for example, a quarter – then divide the number of customers you have at the end of this period by the number you had at the beginning. This is your macro customer churn. It is possible to get a more detailed understanding of your customer churn by marking each individual customer and comparing your churn with your retention. Some industries naturally have high levels of both churn and retention, while some naturally have very low levels (compare buying your favorite newspaper every week to buying a specific book once in your life).
Why Avoid Customer Churn?
To a certain extent, some amount of customer churn is to be expected; however, a business can easily run into big problems when the customer churn percentage starts to grow. There are many reasons that motivate companies to encourage returning customers. Primarily, it’s cheaper to sell to an existing customer: on average, it will cost 6 to 7 times more to sell to a new customer.
Not only is selling to a new customer much more expensive, but it is also statistically less likely that you will achieve that sale. Your chance of selling to a returning customer is 60%-70%, while the chance of getting that same sale with a new customer lies at just 5%-20%. Since a loyal customer is worth, on average, 10 times more than their first purchase, the reasons to avoid a high customer churn rate are pretty startling.
How to Avoid Losing Customers?
It should be obvious that the outcomes of a high customer churn rate are undesirable for any business. When it comes to how you can decrease your company’s churn rate, however, things can become a little less clear cut.
One way to start to lower churn rates is by focusing attention on the customer experience, from the moment they first interact with your business, to ensure their experience is one they wish to repeat. Identifying customer touchpoints is vital for you to put yourself in their shoes, so start by composing a list of every interaction that your brand (not just service) has with a customer (from initial advert to after-sale care).
One of the more effective ways of reducing customer churn is to introduce CRM software into your business. This software stores all interactions between customers and the business, while automating the best processes between sales, marking, and customer services teams. Rewarding loyal customers is another great way of avoiding churn. Offering incentives (such as discount codes) to loyal customers, rather than those who are likely to churn, is a great way of pooling your resources into an outcome that will prove more profitable in the long term. Try to foster a communicative customer relationship that continues after the sale is completed (this is known as aftercare). This method can be easily completed through automated emails and is a great way of fostering brand loyalty.
Customers who have already churned aren’t lost forever, but examining why they churned can prove to be a valuable resource. By analyzing your data, you can learn more about what it is that makes customers unlikely to return and use this to take pre-emptive measures.
It is true that having a strong base of loyal customers can make or break a business; however, it doesn’t have to take up all your time or resources. By utilizing specifically designed systems, you can free up time to focus on business growth and profitability.