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Understanding customer churn and how to prevent it—regardless of your industry

Published June 25, 2021

The process of losing a customer relationship can be lightning-fast or snail's pace-slow, but it will cost you, whether you realize it or not.

This study found that acquiring a new customer costs five times more than retaining an existing one. And it costs 16 times more to bring a new customer up to the same level as an existing customer. This alone shows why tracking and managing customer churn is so important.

Retaining customers is the main driver of revenue for any company. So, for a business to grow, owners and operators need to understand how to manage and prevent customer churn.

What is customer churn?

Customer churn—also known as customer attrition—is essentially the rate in which your customers stop doing business with you over a period time. In particular, subscription cancellations, like gym memberships and streaming service payments are examples of customer churn.

Regardless of your product or service, customer churn rate is an important metric to track. Depending on if it’s low, high or fluctuating, it can help you determine how many customers are happy with your product or service.

What causes customers to churn?

Simply put, dissatisfied customers churn. Of course, the root of their unhappiness is caused by different factors, but customers who are no longer happy with an aspect of your product or service simply tend to leave—without saying goodbye or why.  

One certain factor is your customer service. A PwC survey found that one negative experience can sour a great customer relationship. Research from Zendesk supports this, finding that half of consumers will actually switch to a competitor after one bad experience. It’s not enough to have a good product or service— the post-purchase relationship is vital to keeping customers happy.

And the other factors may be staring you in the face—without you knowing it. For example, you might be attracting the wrong customers who quickly discover your product or service isn’t for them. If your messaging isn’t clear and focuses too much on the wonderful features of your product or service rather than addressing what your customers need or want, that’s where you can address the problem.

Also, according to Retention Science (ReSci), lack of value is another top reason customers churn. And that doesn’t come down to how much something costs. In fact, 55 percent of consumers say they would actually pay more for better service and understanding what services they value the most is key to high customer satisfaction. 

4 ways to prevent customer churn in any industry

Fifty-two percent of dissatisfied customers say they would actively warn others away from a product or service. The more customers who leave—and avoid your business altogether—the less you grow. If you want to keep your customers, you need to address customer churn. Here are four ways to help you face potential problems.

1. Measure past customer sentiment to investigate current and prevent future churn

The easiest way to understand why a customer churned is to ask the customer. This can help you get detailed insights that help you prevent similar incidents from occurring.

Calling customers is a great way to find out what led to them churning. Superoffice found that 68 percent of customers leave because they believe you don’t care about them. A simple phone call can change this feeling and perhaps even bring the customer back.

But scheduling one-on-one calls isn’t feasible for many businesses. Instead send an offboarding email with a customer experience survey post-churn to gain insight.

2. Make the most of customer advocacy

The best brands have customers who advocate for them no matter what, and customers know that. An Edelman study found that trusted brands lead consumers to advocate for and stay loyal to them.

Another way to leverage customer loyalty is to engage existing brand advocates to talk about your products. One example of positive advocacy is how Notion’s usage among students and productivity gurus led to its rise in popularity. They leveraged this interest by sponsoring influencers who use and talk about the product.

Consider implementing a referral or loyalty program to take advantage of the power of loyal customers. A referral incentive program could incite more than 50 percent of people to refer new customers to your business. 

Related: Loyalty: Life beyond retailer metrics

3. Engage with them and track their satisfaction

In order to prevent customer churn, you need to keep an eye on customer behavior. Create a program to support users in order to prepare for any eventuality that could lead to churn.

Take time to identify those who are at risk of churning. Has a customer reached out to complain? Are they visiting your physical store less? Have their payments failed? Address these signs once you notice them because you might be able to keep them from leaving.

When you identify the reason the customer is at risk, consider ways to prevent them from churning. Imagine a restaurant owner who has a customer come in every Friday for two months and then the customer stops coming in. Calling or emailing them to find out why they’ve stopped coming is a way to prevent them from churning. A scenario like this is why it’s important for business owners to have a retention strategy for their customers.

The same applies to digital business owners. If a customer abandons their cart on your website, have a plan to engage and remind them about their purchase. And don’t leave them hanging if they do make a purchase. Send them a review/rating request to get feedback about the product and their experience. 

4. Iterate and improve your product/service regularly

Keep improving your product or service to provide more value to users. Again, a lack of perceived value is a major reason why customers churn. If you’re a restaurant owner, this could mean improving the menu and if you run an online retail business, it could mean switching suppliers to upgrade product quality.

Leverage customer surveys and user interviews to find out what parts of your business you need to improve. You may have blind spots your customers could catch. Implementing user insights in your business strategy can help you identify gaps you could fill or an audience you could serve.

Also, invest in research that tells you how your customers’ needs are evolving, then figure out how your business can fill those gaps. Don’t go overboard though— you don’t want to confuse customers and drive them away by changing too many things at once.

Learn from past customer churn to win customers back

Every business has growing pains, and customer churn is one of them. See losses as an opportunity to learn—but act on them. Find out why customers left, what they didn’t like (and what they did) about your product or service. Then implement strategies to prevent the same situation from occurring again. Consider offering a subscription service and providing good customer service to keep customers coming back. 

Remember, happy customers who keep coming back aren’t inspired by mediocre products or services—make sure you’re serving the right customers, delighting them at every turn to keep customer loyalty.

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