According to Forbes, poor customer retention costs US companies $136.8 billion per year.
Being able to acquire customers is important to business continuity. But keeping them is more important for long-term profitability. That is why customer retention strategies are crucial for any company that wants to get it right. Studies show that acquiring new customers costs up to 10 times more, and existing customers spend 67% more than new ones.
But how do you keep your customers from jumping ship? In this article, we’ll talk about how to prevent customers to churn and present key customer retention strategies for 2023.
What is churn and why is it important to prevent it?
Customer churn, or attrition, is how customers end their relationship with your business and stop bringing in revenue. It refers to the rate at which your business loses customers. Depending on the type of business, it may be a customer canceling their subscription, not purchasing from you anymore, or uninstalling your app.
Customer churn is inevitable. But a high average churn rate can have a significant impact on your bottom line.
Your profitability largely depends on your ability to retain customers. According to Havard Business School research, a 5% increase in customer retention can increase your profits by at least 25 percent. That is why tracking your churn rate and finding ways to prevent your customers from leaving is important.
Besides the financial impact of reducing customer churn, it’s also important to reduce your churn rates for the following reasons:
Customer churn can affect brand image and positioning in the market,
You’re likely to spend more on customer acquisition if you have a high churn rate,
It’s an indicator of bigger problems within your business,
A high churn rate hurts your business valuation when you’re trying to attract investors.
The aftermath of customer churn is long-reaching and only helps your competitors. Always strive to prevent or at least reduce your churn rates. One major way to reduce your customer churn is by offering top-notch customer support throughout the customer journey- before, during, and post-sales.
Why is customer churn rate important to monitor?
Customer churn rate is a critical metric for any business.
Customer churn rate refers to the percentage of customers who stop using a product or service during a given period.
A high churn rate can be detrimental to a business, as it can result in lost revenue and diminished customer loyalty. Monitoring customer churn rate is fundamental for several reasons.
Firstly, acquiring new customers can be more expensive than retaining existing ones. Therefore, retaining existing customers can be more cost-effective than acquiring new ones.
Secondly, a high churn rate can be indicative of underlying problems with a product or service, such as poor customer service, low product quality, or insufficient customer engagement.
By monitoring and analyzing customer churn rate, a business can identify trends and patterns that can be used to improve customer retention. For example, by identifying the factors that contribute to churn, a business can make targeted improvements to its product or service offering. Additionally, by identifying customers who are at risk of churning, a business can take proactive steps to address their concerns and improve their experience.
Monitoring customer churn rate inform marketing and product development strategies
While customer churn rate is a critical metric for SaaS companies, it is also essential for businesses in other industries. Customer churn rate provides valuable insights into customer behavior, preferences, and satisfaction levels, which can inform marketing and product development strategies.
In the consumer goods industry, it is often more challenging to establish customer loyalty due to the high level of competition and low switching costs. Therefore, companies must work harder to retain their customers by providing high-quality products or services, excellent customer service, and engaging marketing campaigns.
By monitoring and analyzing customer churn rate, consumer goods companies can gain a better understanding of customer needs, preferences, and behavior. Collecting data on customers and improve the overall customer experience is a good way to improve the customer churn rate for companies in the consumer good industry.
Why do customers churn?
There are several reasons why customers churn. Some of the most common reasons include:
Poor customer service
Customers who receive poor service are likely to become dissatisfied and may take their business elsewhere. Negative word-of-mouth can spread quickly, and potential customers may be deterred from doing business with a company that has a reputation for providing poor customer service.
Competition
When a competitor's product or service is perceived to be better than a company's offerings, customers may switch to the competitor. This can happen for a variety of reasons, including better quality, lower prices, or a more compelling value proposition.
In today's digital age, customers have more access to information and are more empowered to make informed purchasing decisions than ever before. They can easily compare products and prices online, read reviews, and seek recommendations from friends and family on social media. Therefore, companies need to constantly innovate and improve their offerings to stay competitive.
Life events
Customers may churn if their life circumstances change, such as moving to a new location, changing jobs, or experiencing financial difficulties.
Lack of engagement
Customers expect a personalized and engaging experience when they interact with a company. If they feel that a company does not understand their needs or preferences, they may lose interest in doing business with the company and churn.
Personalization involves tailoring the customer experience to meet the individual needs and preferences of the customer. This can include personalized marketing messages, customized product recommendations, and tailored customer support.
Companies that fail to engage with their customers or provide a personalized experience risk losing them to competitors who offer a more tailored and engaging experience. Customers want to feel valued and appreciated, and personalized experiences can help build brand loyalty and foster long-term relationships.
Understanding the reasons for customer churn can help companies take proactive steps to prevent it and retain their customers.
The cost of losing customers
We’ve mentioned that poor customer retention costs US companies $136.8 billion per year. But what’s the true cost of losing customers? It extends beyond lost revenue. Losing customers causes a ripple effect throughout an organization, negatively impacting cash flow, time, and resource optimization.
The true cost of losing customers can be divided into four main categories:
Direct Costs
This is the $136.8 billion companies lose annually. It also includes the lost cost of potential account growth, which is often overlooked.
Acquisition Costs
The more customers you lose, the higher your customer acquisition costs. It costs up to 10 times more to acquire new customers than to retain existing ones.
Operational Costs
Losing a customer also comes with offboarding costs, such as refunding their subscription fees. That is a deadweight cost as you’ll make no revenue from the expenditure.
Social Costs
Many unhappy customers will share their bad experiences with other people. In fact, they are more likely to talk about your business to others than happy customers. 95% of customers will share a bad experience with their circle (offline and online), yet only 85% will share a good experience. So a lost customer is likely to translate into a bad brand image and standing.
How to prevent churn
Preventing customer churn can substantially improve your company’s bottom line. Here are five simple ways to reduce customer churn:
I. Understand your customers
No matter how great (you think) your product is, you’ll never be able to keep customers if it doesn’t meet their needs. The first step to reducing your customer churn is understanding your customers and what they need.
In today’s noisy market, where customers are exposed to various options, businesses that understand their customers succeed in retaining them and building brand loyalty. Build effective buyer personas and use them to make data-driven decisions on how to serve your customers better.
Understanding your customers will make it easier for you to implement all the other tips here.
II. Improve the customer experience
Improving the customer experience is crucial for businesses to retain customers and reduce customer churn rates. One way to enhance the customer experience is to streamline processes such as customer onboarding and registration.
Customers want to get up and running with a product as quickly as possible, so it's important to make the registration process as simple and straightforward as possible. Don't make customers jump through too many hoops or require them to provide unnecessary information. A smooth and quick registration process will leave a positive impression and encourage customers to engage with your product.
Product and user manuals are also a great way to improve the onboarding experience. By providing clear and concise documentation, you can help customers get started with your product quickly and easily. Consider offering interactive tutorials or walkthroughs to guide customers through the onboarding process. A virtual assistant can also be a helpful tool for providing real-time assistance and answering questions.
Another key element of improving the customer experience is providing exceptional customer service. Customers want to feel valued and supported, and providing timely and helpful assistance can go a long way towards building customer loyalty. Ensure that your customer service team is well-trained and equipped to handle a variety of customer inquiries and issues. Consider offering multiple channels of support, such as email, phone, and chat, to make it easy for customers to get in touch when they need help.
III. Use customer data to tailor the user journey
Personalization makes customers feel valued and important. It inspires brand loyalty and improves customer retention rates. The more personalized the customer journey is, the higher the chances of retaining the customer.
Collecting data on your customers is an essential step in designing a tailored experience. The product registration event is the perfect moment to collect relevant insights on your customers as the after-sales is the period when customers are most engaged, excited, and open to learning more about their new product.
Registration data is a valuable resource for brands as it provides accurate customer information. It helps in creating targeted marketing campaigns, validating audience modeling, and improving customer service. It provides insights into customer demographics, purchase history, and product usage, resulting in increased sales and customer loyalty.
IV. Communicate effectively
It might seem obvious that effective communication with clients is an integral part of business processes. But you’ll be surprised how many businesses ignore this. Many have adopted an “if it’s not broken, don’t fix it” philosophy toward customer communication. So if customers don’t complain, nothing gets done to track customer feedback and improve the customer experience.
Proactive and consistent direct-to-consumer (D2C) communication will make the difference between customers staying with you or moving to your rivals. Leverage all the available channels, including platforms such as Layerise, to communicate directly with your clients.
V. Build brand loyalty
Loyal customers are the key to high customer retention rates. However, you first need to give your customers a reason to remain loyal to your brand. Some of the ways of building brand loyalty include:
Simplify access to customer support
Engage your customers and invite customer feedback
Set up loyalty and referral programs
Overdeliver on your promises to the customers
Treat your employees as your first customers, happy employees make happy customers
Be consistent in brand messaging and imaging
Deliver high-quality products and services
Build a community for your customers- both online and offline
There are many ways to build brand loyalty. But there are only four drivers of brand loyalty- price (e.g., bargains and discounts), benefits (referral benefits, exclusive memberships), convenience (eco-friendly packaging, express deliveries, etc.), and satisfaction (excellent customer service, efficient complaint resolution).
Customer churn FAQ
What does churn mean in business?
Churn rates are an estimate number of customers who leave a company over a certain period. Alternatively, it may indicate the loss from the departure of employees in the business. Change in churn rates can be invaluable to assess efficiencies.
What is another word for customer churn?
Customer churn, also referred to as customer attrition, is a business metric that measures the rate at which customers stop using a company's product or service over a given period of time. It is an essential metric for businesses across industries as it directly impacts revenue growth and customer loyalty.
What does churn mean in process?
A periodic, quantified procedure that occurs over a time period when new customers come to the table or when existing customers have been lost or added. The most common problems are churns.
What is an example of customer churn?
New customers generate revenue for your business. If Company ADG had 500 clients by the first of the month but had only 550 customers by the end of that month, the clogging rate would rise by 10%.
Why is it called customer churn?
Customer churn, also known as customer attrition, refers to the amount paid clients who do not return. Churn can be a quantitatively determined rate in which change happens to existing customer at a certain time interval.
What are the 4 types of churn?
There exist four types of churn which are customer churn, revenue churn, gross MRR churn, and net churn. Maintaining a low churn rate is important as it leads to improvement in metrics like Monthly Recurring Revenue (MRR), customer lifetime revenue, and customer retention rate. For SaaS businesses, a good monthly churn rate is typically considered to be below 1%.
How Layerise can help you reduce churn rate
Losing a customer goes beyond just losing a single sale. The impact can be far-reaching. Once you understand the actual cost of customer churn, you start to understand how important excellent customer service and retention efforts are.
Providing excellent customer service isn’t about being the perfect business. It’s about being intentional with your customer retention efforts and making customer interactions with your business seamless. These tips will help you reduce your churn rates and improve customer retention. We can help you implement them by enabling you to connect directly with your customers.
If you’d like to see how your company can leverage Layerise to reduce customer churn rates, get in touch today.
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