Customer Churn: How to Measure and Minimize It
Every customer has a long-term economic value to your business. Customer churn, also known as customer attrition, erodes profits and can even lead to reputation damage when unhappy customers tell others their reasons for leaving.
That’s why it’s so important for marketers to be aware of customer churn and take steps to measure and minimize it. In this article we’ll take a look at what customer churn is, how to effectively measure it, how to reduce it, and what tools are best for managing churn long-term.
What is customer churn?
Customer churn is the percentage of customers who stop doing business with a company within a given time period. This is an important metric to monitor because it indicates the health and sustainability of the business.
Low customer churn is a good indicator of customer satisfaction and loyalty. Likewise, a high churn rate shows customers are dissatisfied and lack loyalty to your brand—factors that will greatly impact the growth and sustainability of your business.
Marketers can use churn rates to measure the success of their buyer’s journey, customer lifecycle marketing efforts, and even omnichannel campaigns.
Types of customer churn
Customer churn can be broken down into a few primary types:
Contractual churn: Contractual churn is the most common form of customer churn. It occurs when customers cancel their subscriptions or contracts. This type of churn is most relevant to businesses with recurring services or subscription-based models.
Involuntary churn: Involuntary churn occurs when customers are unable to keep using a product or service due to technical or other issues. This type of churn is most relevant to businesses providing digital services or products.
Voluntary churn: Voluntary churn occurs when customers opt to switch to another product or service. This type of churn is most relevant to businesses that offer products or services in competitive markets.
Attrition churn: Attrition churn occurs when customers no longer use a service or product due to inactivity or lack of engagement. This type of churn is most relevant to businesses with recurring services or subscription-based models.
Involuntary churn is the hardest to control because the customer’s reasons for leaving are often not deliberate. Perhaps the customer lost their job, moved, or simply no longer needs the product you offer due to personal or lifestyle changes.
It’s best to focus your efforts on the types of churn that can be prevented.
How is customer churn measured?
Churn calculation is an easy way to benchmark how well your customer retention efforts are working.
Customer churn is measured by calculating the percentage of customers who have stopped doing business with your company over a given period of time. This calculation is based on the total number of customers at the beginning of the period and the number of customers who left during the same period.
For example, if your company had 500 customers at the beginning of the year and 100 of them left during the year, the customer churn rate would be 20%.
Use this equation each year (or even each quarter) to see how your marketing efforts are paying off. Naturally, the lower your customer churn percentage, the better you’re doing overall in retaining your existing customers.
But it isn’t enough to simply measure customer churn—it’s also critical to know how to predict it, so you can prevent it.
How can you predict customer churn?
According to Statista, the average churn rate across some of the biggest industries in the US hovers around the 25% mark. Analyzing historical data markers is one of the best ways to predict customer churn. By understanding past customer behavior, it’s easier to uncover patterns that suggest a customer may be likely to churn in the future.
Here are some indicators to keep an eye on:
- Customer engagement
- Purchase frequency
- Click-through rates (CTRs) from promotional emails or campaigns
- Customer account changes
By evaluating customers’ interactions with your business, you can begin to understand how they feel about your brand—and how likely they are to stick around. Armed with this information, you can set measures in place to lower your churn rate.
Strategies for reducing customer churn
The antidote to customer churn is customer loyalty. If you aren’t nurturing the customer journey, you risk lowering your retention rate and increasing churn.
Here are six things you can do to build stronger customer relationships:
1. Provide excellent customer service
Providing excellent customer service is one of the best ways to prevent customer churn. Being responsive to customers’ needs and addressing their concerns goes a long way toward making customers feel valued, hence nurturing brand loyalty.
For example, a customer might be having an issue with your product or service. If your customer service team is quick to respond with solutions and takes the necessary steps to solve the customer’s problem quickly and efficiently, then that customer will more likely stick with you rather than switching to a competitor. If you have too high a volume of customer interactions to keep up with personally, you may want to employ tools like chatbots to help you respond in real time.
2. Track customer feedback
Being proactive about tracking customer feedback is a great way to show your customers you’re listening, even when they aren’t reaching out to you directly. As a brand, it’s up to you to keep your finger on the pulse and stay updated on customer sentiment, what they’re saying, and how well they’re enjoying your product.
Here are some key channels to monitor for customer feedback:
- Customer reviews
- Social media posts and comments
- Historical customer service interactions
- Survey responses
3. Offer incentives and upgrades
Offering rewards does a lot to nurture customer loyalty. A loyalty program where customers can earn points for every purchase and redeem them for rewards like free shipping or exclusive products provides long-term dividends.
Customers who engage with a rewards program are more likely to stay with you in the present and return to you for their future needs.
4. Tailor your product or service to customer preferences
Let’s say you own an online coffee store. You’ve noticed that a large portion of your customers prefer vanilla coffee beans. By tailoring your product pages to include more vanilla coffee bean varieties, you can cater to the preferences of your customer base.
This will make customers more likely to frequent your web store, because they know they’ll find what they want. It will also increase customer loyalty and satisfaction as customers feel that their needs and desires are being met.
5. Stay in regular contact with customers
Staying in regular contact with customers is a great way to prevent high churn rates. By maintaining communication through channels like email or social media, you can create a greater sense of connection between customers and your brand.
For example, if you have a subscription-based product or service, you can use SMS or email marketing to stay in regular contact with subscribers and update them on new features, products, or promotions you’re offering.
Keeping customers up to date and showing them you care about their experiences will make them more likely to remain loyal to your brand. Regular communication builds a sense of trust and encourages customers to remain engaged with your product or service.
6. Create personalized experiences
Creating personalized customer experiences is a great way to reduce churn. When customers feel that you understand their particular needs and preferences, they’re more likely to keep doing business with you.
Let’s say you have a retail store and have started sending customers personalized emails with products they may be interested in based on past purchases. This will make them feel like you understand their preferences and value their business, which will encourage them to keep shopping with you.
By combining all the above strategies, marketers can create positive customer experiences that increase customer loyalty and reduce churn. But in order to implement them, you’ll need a good way to manage your customer data.
Collecting and analyzing customer data
A data-driven approach will give you deeper insights into customer behavior and preferences, helping you identify customer needs so you can create tailored marketing campaigns or products to meet them.
But how do you collect customer data from all your touchpoints across different platforms? And how do you unify all that data so it forms a complete picture you can actually act on?
Activating your data with a CDP
A customer data platform (CDP) gathers and unifies customer data, helping marketers gain deeper insights into customer behavior and tailor marketing tactics accordingly.
With data at the forefront, you’re able to create personalized marketing campaigns to strengthen customer-brand relationships and re-engage customers who are likely to churn.
One way to do this is with customer segmentation. Perhaps some customers respond better to discounts or free shipping, and others do better with a loyalty or rewards program. You can use this data to break them up into segments and create personalized marketing campaigns that speak directly to each group.
A customer data platform empowers you to wield your customer data as you see fitting. Here are a few of the many ways you can make a CDP work for you:
- Analyzing customer data to understand buying habits and preferences
- Tailoring marketing campaigns to specific customer needs and interests
- Tracking and analyzing customer feedback or satisfaction issues
A robust CDP fueled with customer data is an invaluable tool for increasing customer retention and lowering churn.
The consequences of customer churn: How can it affect your business?
Customer churn can have a significant impact on business growth. The following are just a few of the ways customer churn can affect your businesses:
Loss of revenue
Unhappy customers—or those who have found a better alternative—are less likely to remain loyal to your company or product. That’s a no-brainer, right? The problem is, accruing enough unhappy customers can get expensive in the long run.
It is far more cost-effective to maintain the customer relationships you’ve already established than to build new ones. Customer acquisition is costly and will quickly eat into your monthly recurring revenue (MRR).
Diminished brand reputation
Customers who choose to leave your brand may share their negative opinions or experiences with others. In an age of social media, it only takes a few seconds for a disgruntled customer to share their dismay with the whole world. Sometimes it can even go viral.
Consider that a tarnished brand reputation is incredibly costly—and downright difficult—to repair. It may take even more work and resources than building the brand itself.
Decreased market share
Without the necessary customer insights and data, it is difficult to identify trends and create strategies that enable your business to grow its market share. And in a competitive marketplace, if you’re not gaining ground, you’re losing it.
Ensuring customer loyalty and lowering churn rate is a must for companies that want to optimize for long-term growth.
Lowering churn rates with Simon Data
Customer churn is an important metric because it indicates the sustainability of your business. It’s essential to measure, predict, and reduce customer churn in order to maintain a strong customer base and promote growth.
By providing excellent customer service, offering incentives and rewards, and tailoring products and services to the needs of customers, marketers can effectively reduce churn and improve business performance.
Simon Data’s audience management and cross-channel orchestration solutions provide the tools you need to gather, unify, analyze, and action your customer data, so you can reach your customers with the right messaging at the right time.
Request a demo today to see how Simon CDP can help your business lower its churn rate—and keep it low.