What is the customer churn rate? 

Most businesses that remain successful over long periods of time have a positive growth rate. A positive growth rate indicates a steady influx of new customers. But after winning customers over, there is no guarantee that they will use your services indefinitely. To that extent, it’s very important to loyalize them – otherwise, they may forego your products and/or services. The rate at which your customers leave your business is called churn rate – also known as attrition rate. For your business to remain profitable, you need to pay a great deal of attention to reducing customer churn.   

The growth and churn rates are factors that exist in an opposed state. As explained, the first one measures the acquisition of customers, while the second one keeps track of the loss of customers. The churn rate is especially relevant to industries where the revenue is rather more dependent on subscription-based models. 

The customer churn is usually expressed as the percentage of subscribers who discontinue their subscriptions within a certain period. For a business to expand, its growth rate must surpass its churn rate. In an ideal scenario, where all possible customer needs could be satisfied by companies, the perfect customer attrition rate would be zero and there would be no need for reducing their churn. However, regardless of the quality of your services and products, some customers will eventually be lost. 

Before thinking about how to reduce churn in your business, you need to be able to correctly determine your customer churn rate. 

How to calculate the customer churn rate? 

Needlessly to say, some industry sectors have higher churn rates than others. While it’s almost impossible to get an idea about average customer churn rates in your industry, as a whole, it’s certainly possible to calculate the rate of your company. To be noted: the churn rate includes more than customers discontinuing their subscriptions to switch to a more tempting offer, it also includes the scenarios where customers simply terminate service without switching (closure of an account).

What is considered a good or bad churn rate and the risk of churning itself will always vary from industry to industry.

To reduce the churn rate, one must gather data about the rate itself. What you want to look for is the percentage of customers who cut ties with your company within a given time, generally monthly, quarterly or yearly. You generally take the total number of customers who are leaving your business within the given period and divide it by the total number of customers you had at the beginning of the month, quarter or year:

  • Keep track of the total number of customers lost during a given period
  • Keep track of the percentage of customers lost during a given period

You can also calculate the customer churn rate based on your revenue. Businesses that approach the problem from the revenue angle are the businesses that typically use Monthly Recurring Revenue (MRR) as a baseline. You can either: 

  • Calculate your recurring business value lost
  • Calculate the percentage of recurring value lost

You need to compare your churn and growth rates to deduct if the overall tendency of your company was growth or loss. While the churn rate offers info on lost customers, the growth rate reveals all your new customers. If the growth rate is higher, the company experienced growth. If the churn rate is higher, the company experienced customer churn. 

Whatever test method you use to determine the current state of your customer base, if the growth is lower than the attrition rate, you have to reduce the churn rate. 

Why should reducing customer churn rate be a priority? 

If you reduce your churn, the higher your monthly, quarterly or yearly revenue will be. In the best-case scenario, reducing customer churn will also help your growth rate to remain positive.

Sunil Gupta, the Edward W. Carter Professor of Business Administration at Harvard Business School, states that “What’s missing from traditional methods is that they focus only on a customer’s likelihood to churn, but not on the overall profitability of that customer. In addition to determining customers’ churn probability, businesses should also calculate:”

  • How much they currently spend on your products or services
  • What is the likelihood for customers to respond positively to a retention incentive offer
  • How much will such an offer cost the business in terms of overhead revenue or lost revenue 

It’s clear that although you need to know what your churn rate is, you also need to know why customers stop doing business with you. Here lies the power to shift towards a stable, positive growth rate. Reducing customer churn rate needs to be a priority if you want to also benefit from stable, positive revenue.  

The most important question that remains is how to prevent customer churn? 

How to Reduce Churn Rate and Increase Revenue 

It is obvious by now that a high attrition rate affects your revenue negatively in more than one way. The measures you can take to reduce customer churn after it has been properly calculated form up what is called a customer churn strategy. This translates as a set of activities your business can take to retain existing customers. Successful strategies use an analytical and personalized approach that can change over time. 

A good customer churn strategy looks both at the number of leaving customers AND at what underlying reasons drive them to leave in the first place. Generally, you need to adjust your customer service approach or the way you interact with customers. To derive the right decision, actionable research must be undergone. 

Actionable research is a crucial part of customer retention that can help reduce churn rates dramatically. With the right support software, companies get access to information of value about how customer relationships falter and can detect the bad patterns that lead to business attrition.

Getting customers to stick with your company in an already crowded market can be a challenge. Here is a detailed list of strategies for reducing customer churn. 

Make a great first impression by overdelivering 

Overdelivering is extremely worth it in the long run. By offering more than the usual at first sight, all customers will be less likely to start looking around for better alternatives in the industry you’re in. If you win them over from the very first moment they encounter your business and offer them a great customer journey, their commitment will be enhanced. The chances of the customers that initially contributed to your growth rate churning further down the road will be significantly lowered as first-hand customer experiences increase in quality.

After you get a new customer/subscriber, it pays off to explain to them the value of doing business with your brand. For example, instead of being contemptuous with just selling your product, you could always send a beginner’s guide that explains to your buyer exactly how to use the product they bought – and perhaps even one or two more exotic facts about it. This may even lead him to tell other potential customers about your product or service. Making your customers feel genuinely interested in constantly finding new value in your product is very important for any business.

What you consider being a beginner’s guide will be different, depending on each customer segment. Some customers may not even consider themselves beginners and ignore your guide completely but could consider it a nice touch, regardless. Your goal is to encourage them to stick with your company in the long run, nevertheless.  

Exceed customers’ expectations through proactive communication

As seen in all industries, one of the fastest ways to lose your customers is by failing to deliver on an offer. Most companies hold this as common knowledge. Dissatisfaction and unmet expectations can rapidly lead to customer churn, and even more, it can hurt your company’s growth rate. Making a good first impression, although very important, is not nearly enough to reduce the churn rate. You need to constantly meet your ever-changing customers’ expectations – and exceed them, if viable.

To get to know your customer’s expectations, you will have to engage them in one or more ways. The engagement frequency and quality will help you get an idea about how to build their loyalty, thus reducing customer churn and increasing customer success, the guarantee that they achieve their desired outcomes while using your product or service. To achieve this as effectively as possible, you need to give your customers the liberty to decide how to act on this type of communication. It could be an SMS, an Online Survey, Messenger, Emails or other methods.

Your company should use surveys in combination with analytics to properly identify the channels where customers are more active. This will enable you to create a genuine communication plan which can be used to:

  • Send alerts to remind people about sold out products they wanted to buy that are back in stock, thus internally confirming what products are more sought out than others. 
  • Use surveys to collect feedback, thus better understanding the customer’s journey and the customer feel.
  • Promote products with an email or an SMS message, or send information about special promotions 
  • Send automated purchase and delivery notifications that can enhance the customer experience, such as “Thank you for your purchase”  

After making sure you are in touch with your customers’ true needs and you respect their customer journey, it will also help to directly reveal your product or service value to them with real examples and real statistics. 

  • Showcase popular features on the internet – and how to use them properly.
  • Send monthly newsletters with success stories to inspire and encourage product use.
  • Invite people to events where you can explain the value of your products 

The bottom line is to be honest about what your customers can expect, and consistently deliver what you promise.

Provide customer service and reward loyalty

Some companies don’t put enough effort into customer service. You don’t want to be those companies, as bad customer service will hurt your business by increasing the churn rate drastically due to low customer satisfaction. Learn to listen to your customers and their demands. Don’t simply push your products or services towards them. If a customer decides to close their account mentioning that your service costs too much, always remember that this could have been avoidable and can generally mean one of two things. Either they didn’t find the complete value of your product (that is why the beginner’s guide is so useful), which resulted in a misunderstanding of its real value. Or, it could mean that you are actually trying to sell an overpriced product or service. 

Don’t forget: you generally need to invest less to retain an already existing customer than to acquire a new one. Bad customer service is to be avoided, even if it means spending extra on professionals or on creating professionals via training sessions. If your employees benefit from a good onboarding experience, so will your customers.

Once you already provide good customer service, you have to realize that a good strategy to maintain your clients is to offer them boons from time to time – just for sticking with your company for a certain period. This is called having a customer loyalty program. Loyalty programs are an excellent way to engage your customers. Your company should implement one as an answer to how to reduce churn. With a loyalty program, your customers will be encouraged to spend more money in return for all kinds of benefits, like points, discounts or special offers. It’s the most basic of win-win situations. 

A high attrition rate hurts all types of businesses. Implementing strategies to reduce customer churn in your business is vital for its long term health. Managing it is also critical for the immediate success of your business. As discussed, there are plenty of ways to reduce customer churn and many, if not all of them, revolve around the need to actually build relationships with your customers. Ask for more customer feedback and approach them with good initial offers and subsequent loyalty rewards. Customer retention is generally cheaper than customer acquisition. 

A small improvement to your churn rate can make a significant impact on your long-term revenue generation. It may take some time and resources to perfect your strategies, but with patience, you’ll reap the benefits of keeping your customer base satisfied and loyal.