Acquiring a new customer requires a lot of work and energy. The last thing you can afford is to lose a customer after you onboard them. In fact, customer churn is one of the more costly issues a business can have (particularly during early growth phases).
What is Customer Churn?
According to HubSpot, “Customer churn is the percentage of customers that stopped using your company’s product or service during a certain time frame. You can calculate churn rate by dividing the number of customers you lost during that time period – say a quarter – by the number of customers you had at the beginning of that time period.”
In other words, if you have 100 customers at the beginning of Q1 and you end up with 90 customers at the start of Q2, your churn rate is 10 percent. This means you lost 10 percent of your customers.
This is just one simplified way of calculating customer churn. Some businesses find it more useful to calculate churn based on the value of recurring business loss or the percentage of recurring value lost. It’s up to you to determine which specific metric is most telling for your business and its goals.
The importance of your customer churn rate can be summed up in one simple truth: It costs more to acquire a new customer than it does to retain an existing one.
Research shows that a small five percent increase in customer retention can lead to a 25 percent increase in profit. So while it may seem like a minor deal in the moment, any statistical improvement in churn rate is going to produce exponential returns.
4 Tips for Halving Your Customer Churn Rate
Reducing customer churn begins with an intentional plan. And while every business is different, the following process is universal in its application. By tailoring these suggestions to your specific circumstances, you should be able to dramatically reduce churn and bolster the bottom line. Take a look:
1. Collect the Right Data
The first step is to collect the right data to quantify how customers feel in relation to your business, products, and service. The best way to do this is by gathering insights and calculating a Customer Satisfaction Score. This score should be tracked and charted regularly to give you an idea of whether things are trending in a positive or negative direction.
2. Ask the Right Questions
It’s not enough to know what percentage of your customers are satisfied versus dissatisfied. It’s important that you understand why.
If a customer is happy, you need to ask questions that get to the heart of why the customer is satisfied. If a customer is dissatisfied, targeted questions can be used to probe why the customer doesn’t feel engaged. These insights will help you respond in a proactive way.
3. Observe Certain KPIs
Speculative action won’t take you very far. You need a way of quantifying customer churn so that you can identify dissatisfaction as early as possible.
“Whatever it is for your business, you’ll need a set of metrics to monitor customers that are at risk of leaving your company,” customer service expert Carly Stec writes. “That way, you can set clear benchmarks for when you think a customer is about to churn. Once a customer falls below any of those benchmarks, you can reach out to see if there’s anything you can do to make them happier.”
As is the case with Customer Satisfaction Scores, it’s helpful to track and plot these KPIs over time to get a feel for which direction things are trending.
4. Improve Customer Service
At the end of the day, exceptional customer service can right a lot of wrongs. By implementing a customer service strategy that goes above and beyond, you can foster greater loyalty and win your business the benefit of the doubt in questionable situations.
Adding it All Up
Some churn is natural. But if you have an elevated customer churn rate, you’ll find it much more difficult to scale your business at an efficient and cost-effective rate. There’s never been a better time to focus on reducing churn and enhancing customer loyalty. Take the next few weeks to emphasize this aspect of your business, and you’ll set yourself up for accelerated (and sustainable) growth.