What Is Customer Churn and How to Prevent It
Any firm is a living organism undergoing various development phases over its life cycle. When you are just starting out, you need to make yourself heard. The more customers you can attract to your brand the better your chances of survival as a start-up or a small new company. This approach is usually reflected in the metrics you monitor daily, which is the correct strategy for this phase.
Unfortunately, many amateur marketers do not understand the concept of ‘growing up’ as a firm. At some point, you realise that attracting new customers costs you 4-5 times more than retaining the existing ones. Think about it. Your loyal customers are already there and are willing to purchase your products and services. New audiences may not know a single thing about your brand and will probably require a long ‘courtship’ procedure to develop similar trust levels.
Unfortunately, many businesses seem to completely ignore their existing consumers in favour of new ones and view consumer loyalty as something permanent. This is where customer churn hits them hard before they know it.
What Is Customer Churn?
On paper, customer churn is usually measured as the percentage of dissatisfied clients who stopped using brand products and services over the analysed time frame. It can be calculated as a difference in the number of customers at the start and the end of the selected period. With that being said, expert marketers also like to appraise the amount of lost value.
Losing 100 customers purchasing a $10 product per month may be less damaging than losing 20 customers purchasing a $100 product each. Hence, you need to appraise both figures to understand how severe your customer churn problems are and whether you are losing the most valuable audiences.
Why Is It Dangerous?
According to Bain & Company findings, a 5% increase in customer retention amounts to a 25% increase in profit. The truth is simple, returning clients tend to buy more. They generate positive word-of-mouth. They bring their friends and relatives with them to your stores during their next visits. They publish positive reviews on social media.
The problem is the reverse trend can be equally damaging to your brand. Unfortunately, it is also difficult to recognise early on. A 5% loss in consumer retention does not look like something crucial until you factor in the need to attract new customers to replace the leaving ones. From this point on, your marketing costs start to increase pretty quickly and can easily get out of your control.
This situation can be even more dangerous for small niche brands or maturing markets. When some customers choose to leave you, you may never see them again. A shrinking market niche implies that you must pay close attention to every client and keep them satisfied and loyal at all times.
How Do You Prevent Customer Churn?
While each case is unique, some general recommendations can be applied by most brands willing to prevent or reduce customer churn.
1. Be There for Them
Let’s be painfully honest, service failures are a cold hard fact of reality – you cannot avoid them. The difference between companies with high and low customer churn rates lies in their reaction to service failures. You need to maintain an effective customer review monitoring system to instantly identify any emerging criticisms and promptly respond to them.
Ignoring negative online appraisals is the best way to convince the affected consumer (and hundreds of other users) that your brand stops caring about its clients as soon as you have received their money. Whether you offer traditional physical products or something more unique, such as dissertation writing services, you need to be there for your customers no matter what.
2. Be Generous
Some consumers are excessively demanding and their unreasonable claims have to be politely turned down. Yet, this does not mean that you should see your customer services as an exercise in cost-cutting. Think of your consumer as a long-term relationship. Would you try to save $20 at the risk of disappointing your good friend or love interest?
This mentality helps you see the long-term effect of customer loyalty. A person encountering high-quality service tends to recommend you to their social contacts. Hence, investments in keeping a single customer satisfied can create a snowball effect covering the extra costs due to positive word-of-mouth.
3. Understand Your Customers
To understand the earlier mentioned idea of ‘customer value’, you need to understand who your loyal customers are. Big data analysis and feedback collection allow you to learn more about your key client characteristics such as age, purchase frequency, preferred purchase times, family status, etc.
This allows you to develop your marketing campaigns and product offerings with your loyal customers in mind and make them feel valued and recognised by your brand.
4. Know Your Enemy
Every leaving customer has their unique reason to give up on your brand. It may be the price. It may be a bad fit between your offerings and their needs. It could be a poor user experience or customer service experience. Whatever their reasons are, you need to know about them to reduce your churn rates.
Be 100% polite and ask your leaving customer to fill in a very brief feedback form (1-2 questions max, no 10-page quizzes). Just ask them what went wrong and how you can improve.
5. Prevent the Problem
The best kind of problem is the one you have managed to prevent from emerging. You can achieve this by establishing clear customer churn metrics. They can include consumer satisfaction scores measured during regular surveys, purchase frequency rates or suggestions that could increase consumer loyalty. Make sure to keep these forms short to not waste your clients’ precious time!
Consumer churn is a complex problem that may be difficult to address promptly. If you encounter problems in this sphere, they may require you to revise the whole customer journey. Start early and focus on the advantages you will reap from a loyal consumer base. Good luck!
- What Is Customer Churn and How to Prevent It - October 20, 2023
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