Your business thrives on continued relationships with high-value customers. The opposite of this brings high churn rates and a lot of uncertainty for your business’s future.
Customers who are unhappy with what your brand has to offer will drift apart and leave you for your competitors. Some will have the specific behavior of a dissatisfied customer, and others will just leave silently.
Looking only at customers’ signals means you are only reacting to what’s happening with your business, and it might be too late to avoid churn. That’s why you have to be proactive and look for the leading indicators of churn.
So, let’s see what customer churn is, what causes it, and how you can identify and prevent churn.
What is Customer Churn?
Customer churn or customer attrition refers to the percentage of customers that stopped buying from you during a specific period. Churn happens when customers stop buying from you after one purchase or several individual orders or do not renew their subscription.
How can you calculate churn?
The simple formula for calculating customer churn is:
Churn Rate = (The number of customers you lost in period / The number of customers you had at the beginning of period) x 100.
Let’s see an example of churn or attrition.
An online fashion store starts the year with 25,000 customers. By the middle of the year, the same store has 24,400 customers. By applying the customer churn formula, we find that the store lost 2.4% of the total customers during the past six months.
You might be tempted to look at churn benchmarks, but don’t fall into the comparison trap. The churn rate is just the tip of the iceberg, and you’ll have to dive deeper to identify what’s leading to it (we cover this part in the article).
Analyzing churn helps you know what has gone wrong in the past. But churn analysis without a clear understanding of leading indicators, analyzing the customer journey, and building customer loyalty programs won’t make any difference in preventing and reducing customer churn.
While churn occurs naturally for any business, high churn rates are never a good thing, especially when there’s so much you can do to prevent or stop churn.
Remember how hard and expensive it is to bring in new customers. You don’t afford to let existing customers go away when they fit your ideal customer profile, being high-value or high-potential customers.
> Not all customers are profitable in the long term. Learn how to identify and focus on those who bring the most value.
Types of Customer Churn
Based on customer intention, we can split customer churn into two types: voluntary or active churn and involuntary or passive churn.
Voluntary (active) churn
Voluntary churn or active churn happens when a customer consciously decides to stop buying from you or cancels the subscription.
There are multiple reasons why customers actively choose to end the relationship with your brand:
- Fred used to have a subscription plan to an online coffee store but canceled his subscription when he received a better offer for his budget from another store.
- Justin placed only one order and left forever because this new fashion store convinced him they had high-quality clothes, but he was disappointed by the quality he actually received.
- Carolina used to be a loyal customer of a bio food store. After receiving expired products in her order and opening a ticket that customer support ignored and didn’t solve, she decided to stop buying from them.
You can prevent and reduce voluntary churn by optimizing customer experiences, constantly monitoring satisfaction, and having proactive customer support.
Involuntary (passive) churn
Involuntary churn or passive churn occurs when a customer hasn’t deliberately decided to stop buying or end their subscription. The source of involuntary churn is payment failure, which leads to canceled subscriptions or abandoning orders on the checkout page:
- Michael’s subscription-based food supplements package didn’t arrive on time, so he contacted customer support. By the time the support team reached back, telling him that it was a card expiration problem, Michael had already ordered similar products from a competitor and stuck with the new brand.
- Kate wanted to re-order her favorite beauty products from the same online store she has been ordering from for a year now, but the payment failed after multiple attempts. As she needed the products, she went to another shop, ordered the same products, got a better price, and never turned back to the previews brand.
You could avoid involuntary churn by proactively monitoring processes or payment systems that might fail and building various notifications to inform or ask the customers if they encountered any problem during their latest interaction with your brand.
What Causes Customer Churn
Loyal, high-value customers are the ones that help your business thrive. While customer acquisition is vital for winning market share, your loyal customers kept through customer retention efforts bring profitability and sustainable growth.
All your acquisition efforts are in vain if you don’t keep the customer experience levels high and invest in nurturing lasting relationships.
Many companies fall into the same trap. They focus all their efforts on customer acquisition and believe they’re on the right track when looking at the revenue. What these companies ignore and really put the future of the business in danger are high customer churn rates.
But what causes customer churn?
We’re listing here some of the most common causes of churn you should be aware of:
You nailed the messaging in the latest ad campaign, and the new audience you targeted was convinced that you offer more than a product or a service. They were happy with the pre-purchase experience, and you got the first purchase, but you didn’t meet their desired outcomes, so they never placed a second order. Some of them were high-potential customers that you lost due to poor CX.
A valuable category of dissatisfied customers are those who used to be loyal to your brand because you offered great CX, but you didn’t manage to fix their problems on the latest interaction, so they left your brand, disappointed by the treatment. The churn of loyal customers is the most harmful type for your reputation and bottom line.
Attracting bad-fit customers
Not every customer will fit your ideal customer profile, and that’s ok. But if you keep attracting customers who buy once and never return or only buy when you have discounts, you might deal with churn caused by targeting and attracting the wrong audience.
Poor customer support
Nothing is more frustrating than having a problem you need to fix and dealing with a business that cannot support your needs and offer a solution. An unprepared team, an annoying chatbot, confusing tickets responses, or an exchange of emails can lead to churn that you could avoid.
You might have better products and services, but if your current customers are convinced that your competitor could deliver more value and a better customer experience at a lower price, you have a retention problem. Your loyalty program isn’t strong enough to keep customers from leaving when they see a better offer in the market.
Technical problems lead to involuntary churn. While they might not sound like a big deal, they represent a threat, especially when you have a lot of subscription-based customers or when bugs persist without anyone in your team noticing that there’s a problem with the payment or on the checkout page.
Don’t worry. You won’t end up blinded by high revenues or face severe cash flow problems. We’ll show you how churn can be identified and reduced.
> Can you see the red flags? Learn how to identify churn risk factors in an eCommerce business.
How to Identify Customer Churn
Customers don’t decide to leave your brand without a good reason. Their intention to leave you can be predicted if you pay attention to the right details.
Measuring customer churn means measuring damage that has already happened. But if you are paying attention to the leading indicators, you can see enough warnings before churn happens.
Purchase recency and frequency dropped
When purchase recency and frequency drop below the average rate, you’re looking at customers who might drift away from your store silently. When these numbers drop, loyal customers become at-risk customers.
Customer engagement decreased
Silence and lack of engagement are never a good sign. The decrease in activity on your website or the app, unsubscribing to email communication, fewer support tickets, or customer feedback responses are all forerunners of churn.
Customer complaints and negative reviews increased
A dramatic increase in customer complaints and negative reviews means the future of your relationships and reputation are in danger. Customers are already annoyed when they submit a complaint, so you have to deliver a stellar customer support experience if you want to prevent churn.
Net Promoter Score dropped
As the Net Promoter Score is a predictor of future customer behavior, if your company’s NPS score drops dramatically among various customer segments, it’s a clear sign that customers aren’t happy. You must do something ASAP to boost their trust and increase satisfaction before they start looking for alternatives.
How to Reduce Customer Churn
Your customer churn strategy would actually include elements of effective acquisition and retention strategies. Churn is, after all, just the opposite of retention. So, if you want to reduce churn, you have to concentrate on what keeps your customers happy and loyal in the long term and what you have to do to attract more customers like your best ones.
Constantly measure and monitor NPS
Measuring and monitoring NPS before and after delivery helps you identify if your customers are happy in these two essential moments of their customer experience.
The feedback that you collect via NPS surveys is extremely important because it helps you act in real-time based on first-party data and prioritize the activity of your customer support teams.
Keep a proactive approach
Having a real-time response to NPS and customer complaints helps you restore trust and increase satisfaction despite the latest negative experience. You can still improve customer satisfaction even after a poor experience.
You can set a blueprint for your customer support team based on NPS responses and implement a flow that allows you to prioritize the best customers first to keep these high-value customers happy.
Integrations between your NPS tool and the customer support solution help you implement your strategies for reducing customer churn. Read this article on the real-time response to learn what benefits this type of integration can bring.
Treat your best customers better
Engage with your customers not just when you have something to sell or they complain about their recent experiences. Existing customers (especially the most profitable ones) should get the VIP treatment.
If you don’t want your top customers to leave you at the first competitor’s discount, you need to give them solid reasons to stick with you. That’s why building a customer loyalty program and optimizing it based on customer feedback helps you reduce churn.
Loyal customers are also promoters of your brand, so make sure you reward them with exclusive offers and advantages.
You know first impressions matter. If you want a good start with your newly acquired customers, you have to nail onboarding. The key to the second purchase (and third, and so on) is how they make them feel around their first purchase.
Do you want to retain customers longer? Help them see the value they get beyond the products or services that you offer. Be genuinely interested in finding out how their first experience was and make sure you meet customer expectations if you want to transform them into repeat customers.
Attract more customers like your best customers
The quality of the customers you attract has a direct impact on customer churn. If your target audience is “everybody that needs my products,” you might end up spending your customer acquisition budget on the wrong people.
What you can do instead is create lookalike audiences based on your best current customers, those who purchase frequently and place high-value orders. This approach helps you focus your efforts on people that are more likely to become your repeat customers, allowing you to increase customer lifetime value and keep the churn rates low.
> Learn more about optimizing your customer acquisition strategy by targeting more customers like your current best customers.
As you see, customer churn happens naturally in any business. Some of your current customers won’t stick around for a long time. It is inevitable and can be a blessing when it’s represented by bad-fit customers, who were only causing more problems.
The real efforts for reducing customer attrition are represented by a smarter acquisition and retention strategy and optimized customer experience. In the end, those are the areas that you should also focus on if you want a profitable business sustained by a large customer base of loyal customers that are also your promoters and bring more business because they’re happy with what you have to offer.
If you want to dig deeper into this metric and its effects on your business, we encourage you to join the CVO Course, where our instructors show you how to tackle retention and churn.
Frequently asked questions about customer churn
The most common causes of customer churn are customer dissatisfaction, attracting bad-fit customers, poor customer support, strong competition, and technical problems during payment or checkout. The key to reducing the churn rate is to look for leading indicators.
If you want to approach a churned customer, you have to keep in mind that your first goal should be to find the reasons behind their decision. Only then can you create a win-back approach with the customer’s needs in mind and increase your chances to reactivate them.
Customer success reps can minimize churn by prioritizing helping top buyers first, having a proactive approach when dealing with low NPS, and asking for customer feedback at any interactions to detect problems in the early stages.
If you want to reactivate a churned customer, you should use the same channel they used to purchase from your brand. Identify their preferred media and reach out to them to identify what made them leave your brand. After getting your answers, build a creative approach to revive the customer relationships.