Knowing and Reducing Customer Churn

“Customer churn is caused by customer feelings of poor treatment 68% of the time.” –

Customer churn is a reality – an agonizing one – in any business. This in turn leads companies to acquire constantly new customers, which keeps the cycle of churn and acquisition a constant. However, if companies do not take measures for reducing customer churn, the time, effort and resources they spend on acquiring new customers would go to waste. Without efforts made for reducing customer churn a company could find itself staring at lowered revenue, narrowing profits and possibly dissolution of the company. Irrespective of size, stature and success, every company faces the harsh reality of customers leaving. Reducing customer churn is possible by understanding customers – their needs, likes and dislikes – and will be the reason that customers remain loyal and lead to sustainable success.

Understanding and reducing customer churn would happen only when a company puts in place retention strategies and measures the churn rate of their company. Through structured and robust strategies a company would be able to encourage customers to increase spends thereby enhancing the company’s bottom line. When customers cease to do business with a company in any manner and leave to engage with a competitor – this is customer churn and by calculating the number of customers that leave during a given period, a company can ascertain its churn rate. Companies measure this either monthly, every quarter or annually and monitoring this rate and the reasons can help companies in reducing customer churn.

Customer churn is possibly one of the biggest obstacles in the growth of a company and could be the reason for its downfall. Reducing customer churn is quintessential to the success of any company – it is a known fact that it is a lot easier and cheaper to retain existing customers than it is to acquire new ones. In order to increase retention, a company must first know the churn numbers and the reasons for the same. Without this information, it would be tough for companies to know which strategies would work better to ensure a higher retention rate. It would be prudent on the part of the company to measure churn rate, both before and after they implement the retention strategies, to gauge the effectiveness of the strategies and make any changes if required. The main outcome of the retention strategies must obviously be reduced churn rate and if not, the strategies would need revamping. In fact, companies must be ‘intelligent’ enough to predict customer behaviour especially those that would seem ‘high risk’.

Reducing customer churn is a huge earning potential as well as massive cost saving for any company. A retained customer would continue to provide business and a company would save the on huge costs required to acquire new customers to replace the ‘churned’ customers. New customers would take time to become profitable both in terms of spends and brand advocacy, whereas existing customers would have already reached this stage of profitability and losing them could spell trouble. When customers leave, they do not leave alone – negative comments and sharing of poor experiences, could potentially influence other existing and potential customers, compounding the customer churn problem and drastically increasing the churn rate.

The ideal situation for companies would be reducing customer churn to the extent of completely removing it. However, the business world is far from ideal and companies would need to make consistent efforts to reduce customer churn. Irrespective of a company’s efforts in terms of customer service excellence and product quality, customers would leave for one reason or another. While ‘banishing’ churn is not possible, reducing customer churn to the minimum is a possibility. Some industries have a higher customer churn rate than others – it just goes with the territory. However, despite this it is essential for every company to take adequate measures aimed at reducing customer churn. What is the churn rate for your company and what steps do you take to keep it to the minimum? We have mentioned in an earlier exposition, that it is extremely crucial for a company to make a great first impression and one that lasts. Customers tend to provide repeat business when they receive service that exceeds their expectations in the early stages of their ‘journey’ with a company. Experts suggest that the first 5 minutes spent with a new customer would decide whether they come back or not.

The premise of great service is that customers see value in associating with a business from the start, since this would be an indication of what follows. Giving customers great first experiences will engage them and make them more amenable to provide repeat business – thereby reducing the churn rate. Repeated and consistent pleasant experiences would make willing brand ambassadors of customers leading to an increase in business and a reduction in the churn rate. Post a great first impression, it is imperative that a company is able to meet and exceed the customer’s expectations. Failure to keep promises and meet expectations are sure-shot ways to lose customers and statistics reveal that these are the top reasons for high churn rate in any company. As mentioned, the key differentiator in today’s competitive business environment is a company’s ability to provide top class customer service – without this a company might as well shut shop. At least 35% customers reportedly stopped business with a company post a single negative experience and at least 16% of such customers would vent their frustration via social media, negatively influencing at least 60% of the readers. These figures are scary and it seems rather foolish on the part of companies to ignore them and do nothing about reducing customer churn.

Companies would be more successful at reducing customer churn if they adopted a proactive approach. If they wait until customers decide to leave, it may be extremely hard to prevent them from leaving. The reason we mentioned that a strategy is required to understand churn rate is because sometimes despite every effort, customers do leave and in fact it would be beneficial for some customers to leave. As mentioned, not all customers are equal – meaning that some would be more profitable while others would be problematic without the same amount of benefit to the company. Such customers prove to be a burden for companies and it would be best to let them go – this is one kind of customer churn that actually benefits a company!

What we are saying is that a balance is required but even then reducing customer churn should be one of the top priorities of any company. Companies need to ask customers what they are doing wrong and be prepared to hear some criticism. By listening to and acting on customer ‘advice’, companies would be more successful in their attempts towards reducing customer churn. By asking customers directly, companies will receive feedback that is accurate and free from ambiguity making it simpler for them to put in place strategies to remove the insufficiencies and understand the most common reasons for customer churn.

If a customer decides to leave and despite best efforts you cannot prevent it, ensure that you give them many opportunities to present the reasons for their decision. This would be crucial data and would help to prevent similar instances. Make sure that you let customers know that you are unhappy at losing their business but would be willing to do whatever it takes to get them back. Churn rate can never be zero but reducing customer churn is a possibility for every company.

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