What is Customer Churn and How to Reduce it?

In today’s competitive business landscape, customer churn rate has become a key performance indicator for businesses of all sizes. It is an important metric because losing customers can have a significant impact on a business’s revenue and growth. 

The average churn rate across all industries is approximately 5%. However, this number varies significantly depending on the industry and business model. 

In this blog, we will understand the meaning of customer churn rate also known as customer attrition.

A. What is customer churn?

Customer churn is the percentage of the customers that has stopped using the company’s product or service during a certain time frame.

 It is usually expressed as a percentage of the total number of customers at the beginning of that period.

To calculate churn rate, you need to divide the number of customers you lost during that time period by the number of customers you had at the beginning of that time period.

For example, if the number of customers is 400 at the start of the time period, and the end of that period it is 360, the churn rate will be 10%.

You can also calculate churn rate in one of the following ways:
a. Total number of customers lost during a specific period

1. Percentage of customers lost during a specific period
2. Value of recurring business lost
3. Percentage of recurring value lost

Anyways, investing in a good call monitoring software provides valuable insights into why customers may be churning.

By monitoring calls, companies identifies common issues that leads to dissatisfaction.

Enthu.AI is one such solution that helps you analyse areas where agent needs additional training or coaching, and uncover the trends that leads to customer churn.

By addressing these issues, companies can improve their customer service and reduce churn.

See Enthu.AI in action

B. Good and bad customer churn rate.

1. Good customer churn rate

A good customer churn rate would be below 5% per year.

For example, if a company had 1,000 customers at the beginning of the year and only 50 of them left during the year, the customer churn rate would be 5%.

This indicates that the company is retaining a high percentage of its customers and that customer satisfaction is likely high.

2. Bad customer churn rate

On the other hand, a bad customer churn rate would be above 5% per year.

For example, if a company had 1,000 customers at the beginning of the year and 100 of them left during the year, the customer churn rate would be 10%.

It’s important to keep in mind that the customer churn rate can vary by industry and that a customer churn rate of 5% may be considered good for one company but bad for another.

C. Why is customer churn rate important?

Knowing customer churn rate is important because a high rate leads to decrease in revenue. When customers leave your company, they take away their revenue as well with them. 

If you convince them to stay, then you can increase the revenue for your firm because they will spend 67% more on your company’s products and services.

Also, it has been observed that acquiring a new customer is more expensive than retaining an old customer. Therefore, companies should work on retaining existing customers.

It’s important to note that the customer churn rate can help you understand the health of your business, but it’s just one metric, and you should also consider other metrics like customer satisfaction and customer lifetime value when evaluating the success of your company.

D. Reasons for customer churn.

1. Bad customer service

Providing bad customer service is one of the main reasons behind customers opting out of the company.

Even an informed customer can run into problems with the product or service they are using. It needs to be resolved as soon as possible because otherwise, customers will start looking for replacement options.

In this situation, customers might not want to go through the knowledge base or interact with bots. They need to talk to real people who can solve the problem instantly. 

Therefore, a great customer service can help you reduce customer churn.

2. Difficult user experience

While using the product or service, customers want to have seamless experience.

Customers are using your product or service for their business and when they encounter bugs and glitches, companies lose productivity and revenue.

Therefore, companies need to provide the best user experience. 

If companies fail to do so, customers tend to find other companies who provide similar service or product.

3. Sold to wrong people

Companies tend to sell their products or services to people who never really want the product or service.

After using the product for some time, they understand that they do not need the product or service and they opt-out of the deal.

It is a major reason for customer churn. So, it is always better to bring in clients that really need your product or service.

4. Bad on-boarding process

One reason for customer churn is a bad on-boarding process. When customers buy your product, it is your duty that you help the customers to understand the product completely.

When that doesn’t happen, it becomes difficult for the customers to be able to use all the features of the product.

And as a result, they will stop using the product because they are not able to see the value of the product.

To encounter this, you need to provide full support to the customers through the entire onboarding process. 

You need to make sure that they understand how to use the product efficiently.

E. How to reduce customer churn?

Reducing customer churn rate is crucial for maintaining and growing a successful business. 

A high churn percentage indicates that a significant number of customers are leaving and can have a negative impact on revenue and customer acquisition costs. 

Here are some ways to help you reduce customer churn rate:

1. Understand the reason behind customer churn

By this method, you will be able to reduce customer churn to a great extent.

You just need to pick up phone and ask the clients the reason behind not using the product anymore.

This way you are demonstrating that you care for the customers and will be able to understand the reason instantly.

When you understand the reasons, it will help you correct your mistakes and make other customers stay.

To achieve this, you need to be quick in contacting the customers and asking for feedback. You have to be actively using all the feedback channels for that: phone, e-mail, website, live chat and social media.

2. Engage with your customers

Make sure that customers are actively using your product.

You have to make the customers realize the value of your product so that they begin to use the product on the daily basis.

Start by writing enough content that shows key functional benefits of your product and provide regular updates to customers regarding new offers, upgrades and deals.

Also, you can always ask for feedback from customers. Ask them what they like about the product and what more functions would they like in the product. This will help you understand whether customers are taking interest in your product or not.

 Ensure that your customers have a positive experience with your product or service. Address any pain points or complaints that customers may have, and make improvements to your offerings to better meet their needs.

3. Offer incentives

You need to provide offers and discounts to those customers who are likely to leave your product or service.

This is considered as one of the best tactic to reduce churn.

But make sure that you are offering incentives to only those customers that will bring in revenue for the firm, i.e, the cost of retaining the customers is always less than the profits you will be earning from that customer.

Do not waste your money on the customers that will not bring in the substantial revenue for the firm.

4. Make onboarding process smooth

Make the onboarding process smooth for the new customers, i.e, they must know how to use the product effectively and efficiently.

Because it can be overwhelming for new customers to start with new product or service.

If you fail to do so, you will see customers will start leaving your product.

To not let that happen, you must set up a new onboarding process that will make customers understand product’s features, functionality, and process.

Through this process, you need to make sure that customers see the value of your product for them and and if it happens, they will less likely to leave your product.

So, constantly keep an eye on the onboarding process and look out for snags or blockers.

5. Listen to complaints

When you listen to your customer complaints and make it a priority to solve them, then it reflects that you care for the customers.

It is important to solve customer issues because it takes one negative experience to make 61% of the customers stop doing business with the firm.

Also, when you solve issues of the unhappy customers, it is likely that they will become loyal to your firm and will even advocate for the product.

Regularly check in with customers to get feedback on their experience. Respond to their concerns and suggestions in a timely and appropriate manner to show that you value their opinions.

You can even record your agents – customer conversation to analyse whether the issue was solved or not.

By implementing these strategies, you can improve the customer experience, foster customer loyalty, and reduce customer churn rate.

Conclusion

Having new customers is good but retaining customers is even better for the company.

You have to make sure that customers understand the value of your product and realise that it is better to stay with your product rather than leave your product.

Also, it is good for financials because retaining a customer is less costlier than acquiring a new customer.

To reduce customer churn, all it takes is to understand the reasons behind the churn and act on them. Provide best customer service and have a clear communication with customers.

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Tushar jain

Tushar Jain is the CEO and Founder of Enthu.ai. In this free time he loves to read books.