Strategies to Reduce Customer Churn

In a perfect world, every customer would stay with you for life. However, we all know this is easier said than done. In reality, customer dynamics are complex, influenced by constant competition and shifting preferences.

The loss of customers, known as churn, can significantly harm an organisation's revenue and strategic development. Recognising the critical importance of tackling customer churn, this article explores insightful strategies aimed at not just understanding but effectively reducing customer attrition and actionable approaches to fortify your customer retention efforts.

What is customer churn?

Customer churn is the number of customers you lose during a specific time period. It gives you a good indicator of customer loyalty and how successful your business is at retaining customers. It is calculated by dividing the number of customers you lost during a specified timeframe by the number of customers you had at the beginning of it.

The goal is to retain customers who bring value to your business for as long as possible. You will have the highest possibility to do this if you offer products and services they want or need at a price they see value in. Mastering this balance optimises the probability of prolonged customer relationships and ongoing business success.

Why does churn matter?

Ultimately, customer churn matters because losing customers costs a business money. A high churn rate can seriously dent revenues, making it crucial to keep this rate as low as possible.

Acquiring new customers costs five to twenty-five times more compared to retaining existing ones. Therefore, reducing churn becomes a key strategy to prevent significant revenue loss. It emphasises the importance of focusing on customer value rather than just chasing more customers, as retaining current ones is often more cost-effective.

Analysing customer churn is essential. It helps identify customer groups being lost and potential reasons behind it. Recognising recurring issues allows you to address them, implementing strategies to retain customers and safeguard your business' financial health. If you spot a recurring reason for churn, you can attempt to rectify this and put a strategy in place to keep them.

Why do customers churn?

They don't see value in your price: A common reason for churn is that customers don't think you offer value for money. If they can find a cheaper price elsewhere for the same or a similar service or product, you may lose customers.
Doesn't live up to expectations: Customers purchase products and services with expectations and if it doesn't do what they expected, or they feel promises aren't being kept, there is a chance of churn.
Other competition: If you offer a product or service that is similar to what your competitors offer, there is a chance a customer will churn where they can get a better deal of they want to try something different.
They don't need it: If a customer decides they no longer need your product or service, then they will likely churn. Offering different options can give customers a choice which may encourage them to switch to something else rather than losing them altogether.
They don't feel valued: If a customer doesn't feel like they are important and valued by your business, they may find someone else who they feel can provide them this.
A difficult buying experience: If customers find your products/services difficult to purchase due to things like a badly designed website or a lack of stock, there is a chance they will find somewhere else that offers a soother buying experience.
Poor customer relationship: Having a bad relationship with a customer can influence churn. This can be due to a variety of factors, which may or may not be your fault. Some customers will never be satisfied and unreasonable expectations can lead them to being unhappy and churning.
They're not the right customer for you: If you're attracting customers that aren't a good fot and don't suit or understand what you offer, they're highly likely to leave very quickly. Being as clear as you can about how your products/services help a customer or solve a problem, along with offering trials for new users, can avoid this.
The customer ownership is bad: This can happen for a number of reasons on your customer's end for things like internal restructures, lack of budget, or simply not paying attention to things. This can lead to a contract not being renewed or product not re-ordered because they haven't noticed it.

How to reduce customer churn

Analyse why you have churn

If a customer chooses to cancel a service, you can ask them why they're leaving. If they do this online, a great way is to have a form that includes multiple options for why they're cancelling, such as 'too expensive', 'found alternative product, etc., along with an option to leave any comments they may have. This is another form of feedback, but directly relates to customers that have churned. If you notice a common theme, this is something you may want to improve.

Find out who your most valuable customers are

Identifying the customers who bring the most value to your business is crucial to ensure you focus significant energy into keeping them. Customer lifetime value (CLV) is a great way to work this out by looking at what customers have purchased, how frequently they buy, and estimating how much you expect them to spend over their lifetime with you.

Offer a personalised service

A service (or product) that feels tailored to a customer can help them feel more valued. You can segment customers based on their needs and preferences and prodive them with a personalised post-sale service. This could include a follow-up to ask for any feedback on how to improve your product/service or buying experience, related product recommendations which would compliment their purchase, and product support.

Improve your buying journey

If your buying journey does not offer a good experience for your customers, this can increase the chances of churn. This starts with having a good website that runs well and is easy to navigate, and ensuring sales and marketing channels align with this. Users should be easily able to find contact information and email you any queries. If you can order products and services through your website, the checkout process needs to be clear and straightforward. Most customers want it to be quick and easy, so you should look at making this step as efficient as possible with multiple payment options to suit buying preferences.

Optimise your onboarding process

Once a customer has made a purchase, you want to make sure the onboarding process goes as smoothly as possible. Make sure there are clear instructions and guides available if your product or service has anything that may be remotely technical. You could offer a bespoke product demo to help your customers get to grips with any software or systems. It is important that you have dedicated customer support for any questions or problems that customers may experience.

Listen to customer feedback

You should try to regularly get feedback from your customers to improve the products or services you offer. Usually, feedback from customers is valid and can reduce the risk of churn if they see their suggestions being taken onboard and implemented when possible. Responding to any feedback is important to show that you value your customers' feedback and haven't simply ignored it, even if its not something you are able to do. You can set up surveys and send emails to customers asking for their feedback, which shows you're a business that cares about your customers and wants to improve.

Offer exceptional customer service

If your customer support is not up to scratch, getting customers to renew or continue to buy your products is far more difficult. If customers contact you with questions or request support, you need to respond to these in a timely manner. Whether its a simple FAQ or a technical issue, customers will expect a quick response.

Having a designated customer cae team who are trained to deal with issues will ensure that every query is seen and dealt with appropriately. You should have a FAQ page that already answers common questions people are likely to ask, and could even consider adding an AI chatbot to answer these or point users to the right place.

Price things accordingly

You need to ensure your pricing is competitive for your products or services. If you have competition for what you offer, you need to make sure you don't price yourself out. Pricing should be researched so its fair and sustainable. You shouldn't necessarily look to be the cheapest as somone will always try to offer a lower price than you, but its vital that customers feel they are getting value for money.

Offering different price points and pricing plans is also a useful tactic and can accomodate different customer groups so they can pay for what they want and require. This allows you to set prices for specific services rather than charging one set price for everything.

Offer incentives

You could also consider offering discounts and promotional deals occasionally. This is especially useful if you've identified a group of customers who are likely to churn. You just need to make sure the offer is still beneficial to you and that financially, you are not hurting your profits. Keeping customers that don't bring value to your revenue is not worth your time.

Don't chase value-destroying customers

Some new customers will actually forecast a negative lifetime value. These customers have a high cost to serve, high cost of acquisition, and high churn rate. They are common in the telecoms industry, with one in five forecasting negative CLV. These customers are mainly interested in finding the lowest price and have no loyalty.

Reducing customer churn

Our Value Based Management platform can help you focus on building customer value and reduce customer churn. This will allow you to plan your marketing strategy and make informed business decisions that will return the best results.

Using our Value Based Management platform can help you:

Identify your most valuable customers: Our customer segmentation feature helps you find the groups of customers who spend the most money and have the biggest impact on your revenue.
Understand customers to target: We'll help you with customer investment by understanding the cost of acquiring and retaining customers at both an individual and aggregated level.
Predict a customer's tenure: Calculate how likely a customer is to churn based on their attributes.
Forecast billing figures: Predict how much individual customers are likely to spend annually.
Calculate in life cost managament: Work out the cost of managing customers on an individual and aggregated level.

Get in touch with us to see how we can help you improve churn and increase your customer retention rate.