8 Strategies to Lower Your Customer Churn Rate

A high customer churn rate is a bad sign for your business, indicating customers are fleeing for some reason. Here’s what the metric means and how to lower it within your company.

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Getting customers is just the first part of the battle — you’ve got to keep them after you’ve won their business. Some businesses do well at the first part and struggle with the second.

Customer or user churn is a closely tracked metric in a business for good reason. It tells you how many customers are initially getting excited by your product and buying it, and then something happens and you never hear from them again. It’s the "something happens" part you’re trying to figure out, and the churn rate is the first clue.

But what does churn mean in business? It can portend very bad things for a company, but a smart approach to addressing the issue is to adopt some tried-and-true customer retention strategies. This could mark a turning point in a business struggling to get by. So let’s discuss churn, what it means for your business, and how to tackle it head-on.

Overview: What is customer churn?

Customer churn measures the percentage of customers who stop using your product or service over a given period. Basically, it measures how often customers are purchasing your product and then never doing business with you again.

This is a critical metric for any business that should not be ignored. Companies that struggle with customer retention may be headed for trouble later, so business owners should track this metric and be prepared to address it if need be.

How to calculate customer churn for your business

Calculating the churn rate for your business is a relatively simple formula, although it varies slightly depending on time frame.

1. Choose a time frame

The first step is to determine what time frame you'd like to track customer churn for. Quarterly is generally a good target that most companies use, but you may also track monthly, semiannually, or annually. Shorter time frames, weekly or even daily, are unlikely to yield statistically useful results.

2. Determine number of patrons lost

How many customers did you lose over this time period? You should have this figure readily available — if you don’t even know that, you’re running a disorganized outfit and may have deeper problems than churn rate.

3. Divide number of patrons lost by total number of customers

Now divide those churned or lost patrons by the total number of customers you have, and then multiple by 100 for the percentage. For example, if you have 1,500 customers and lose 250 of them, 250 divided by 1,500 multiplied by 100 is 16.7%.

What’s a high churn rate? That varies widely depending on the industry, but generally anything higher than 10% is a solid indicator that the customer experience needs improvement.

8 ways to reduce customer churn

Cutting down on customer churn ensures the long-term health of your business, but it’s easier said than done. Here are eight sure-fire tips to give you ideas on what to do next.

1. Do your homework

Why exactly are your customers churning? Discover why your customers are going elsewhere. Speak to them individually on the phone or even in person, if the pandemic situation allows. Examine possible issues with quality, new competition, or pricing. What are you missing, and have you even identified the right problem?

For example, sometimes customers will say, "The product is too expensive," leading you to believe that a price cut is what’s needed, when in reality what customers are communicating to you is, "You haven’t demonstrated the product’s value." You'll need to interview many customers and discuss with your team to get to the root of the problem.

2. Increase customer engagement

Better engagement is important not just for customer retention, but also customer acquisition. Churned customers are tough to win back, and it’s even harder to earn new ones as your reputation tumbles.

Talking about the product’s possible shortcomings hoping to improve it is one way, but engage with your customers to discover what's great about the product. Talk with your customers on social media, through your website, or through email. Keep the conversation going so they don’t forget about you.

3. Educate customers

Customers don’t know what they don’t know, so educate them on things they aren't aware of about your product. Launch a marketing campaign to highlight the benefits of your product and do a better job of distinguishing it from the competition.

Conduct webinars and produce YouTube video demonstrations. Offer free training and one-on-one help so they get the most out of your product and don’t abandon it in frustration after a few attempts.

4. Identify top customers

As the Pareto principle stipulates, 80% of your results come from 20% of your activities. Likewise, 80% of your sales are probably driven by 20% of your customers. Identify those top customers and focus more attention on them to reduce sales churn. Determine why they keep coming back while other customers are abandoning you. Make them brand ambassadors and leverage them for reviews and testimonials.

5. Focus on service

Bad service is a big reason for high churn. It’s an oft-cited reason why customers leave, and they may pass along that bad word-of-mouth to other potential customers, so it’s a double hit to your business. Respond quickly and place a priority on solving customer complaints. Adequately train your staff and incentivize them to go above and beyond.

6. Correct negative experiences

No one likes to focus on the negative, but bad experiences and poor customer feedback are some of the best ways to identify what your team is doing wrong. At least, you can identify ways to improve.

Don’t dismiss negative customer feedback, and don’t react with hostility — all it takes is one bad experience to lose a customer forever. Even if a customer is unhappy, using good customer service to turn the experience around could make that person a brand ambassador. And you'll have a blueprint for handling future customer complaints.

7. Be generous

Anti-churn marketing is all about showing what you can offer to the customer, so be generous. Offer incentives to encourage repeat patronage. Introduce loyalty programs that give them rewards the longer they remain a customer.

Frequently offer exclusive discounts, and hand out additional rewards when they refer new customers. This provides a financial incentive for a customer to shop with you rather than a competitor, and you make them feel they matter.

8. Use software

Sometimes, all it takes is a little more efficiency and organization to keep your customers. Customer service software will make your team more efficient and improve the overall quality of service to the point that customers start sticking around rather than bolting for competitors that do it better.

Software can also crunch customer analytics and produce reports that provide actionable insights that could mean the difference between success and failure.

Don’t ignore your churn rate

If you have high customer churn and a rock-bottom customer lifetime value, don’t ignore it. These signs point to serious problems in your business. Even if your business is doing fine now, these might be early red flags signaling you are ripe to be picked off by competitors that offer better customer service, a superior product, or something else your customers value.

Look at a bad churn rate as an opportunity to revolutionize your business and point it down the track for success. By approaching the issue from a positive angle, you’ll open up your business to new opportunities for growth, turning around a souring relationship with customers.

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