Businesses depend on customers. Companies of all types need a large number of regular customers to grow successfully. Unfortunately, acquiring customers is hard work.
One quote says, "It takes months to find a customer, but only seconds to lose one." Businesses work very hard to attract new customers and keep them long-term. However, churn is inevitable.
The customer churn rate is an essential metric for businesses to calculate. A business will be in trouble if the churn rate is higher than the new customer acquisition rate.
Understanding churn rates will impact the way owners make business decisions. But it is even more vital to reduce churn rates. Reducing churn is crucial to the growth of a business.
There are many factors beyond the control of business owners and managers that cause customers to leave. Still, there are also numerous steps a business can take to reduce churn.
This article analyzes what the churn rate is. It also gives important tips to reduce churn.
What is the Customer Churn Rate?
The churn rate is the number of customers that stop using a service during a specific period. Customer churn is a way to assess customer retention and satisfaction. It is commonly used for subscription services or SaaS companies.
The churn rate represents how quickly customers cancel a service. Here is how to calculate it: divide the number of customers leaving the business with the number of customers still using the product. Do this over the same time period.
The churn rate is significant because it costs money to lose customers. Businesses need to analyze their churn rate and reduce it to be successful.
How can a business reduce customer churn? Consider the following strategies.
13 Tips On How To Reduce Customer Churn
- Determine what is causing churn
- Stay apprised of customer engagement
- Remind customers of your product’s value
- Educate customers
- Know which customers are at risk
- Offer incentives
- Add value to the product or service
- Create negative churn
- Improve the product or service
- Improve customer support
- Regularly collect customer feedback
- Have qualified employees take care of cancellations
- Know the churn metrics
Tip to Reduce Churn #1:
Determine What is Causing Churn
This seems like an obvious step, but it is one of the most important things a business can do to reduce churn. When someone decides to leave your service, do not just let them walk away. Find out why they are leaving. This is especially important for startup companies.
When a customer leaves, it provides a golden opportunity to receive honest feedback on improving the service or product. Communicating with previous customers is one of the best ways to analyze churn.
How to know why churn occurs:
The easiest and best way to find out why customers are leaving is to talk to them. There are several ways to receive customer feedback.
Businesses should be using all the channels available to them to communicate with customers. This includes the phone, email, website, social media, and live chat.
- The Phone
The first option to get in touch with previous customers is to call them on the phone. It is easier to understand how they feel when speaking directly to them. Calling on the phone is also a good way to show customers that you care about their needs.
Another way to determine the cause of churn is to send an email asking for feedback. Many businesses often use bulk emails, but personalized emails are the better choice. Send a personalized email saying that you are sorry things didn’t work out and ask what went wrong.
Surveys are another excellent way to collect customer feedback. This is especially true after a customer deletes their account. Make sure that the survey does not ask too many questions. Get to the heart of the problem quickly. Provide space for customers to express feedback in detail. Send surveys through email or have them available on your website.
Common reasons why customers leave:
- The product or service did not perform as the customer expected. It did not solve the problems that the customer was facing.
- The customer had trouble installing, implementing, and using the service or product.
No matter the reason, a business can use the feedback of churned customers to improve their customer service, product, or onboarding process.
Tip to Reduce Churn #2:
Stay Apprised of Customer Engagement
Engaged customers are the ones that interact with a company or use the product often. If a customer is using a product consistently, the odds are that they are getting something out of it. Many times an engaged customer is a satisfied customer, and they are less likely to churn.
Determine customer engagement to calculate customer churn rates. Then, try to increase customer engagement. It is a difficult task but works well for reducing churn.
How to increase customer engagement:
With a well-planned marketing strategy, companies can increase customer engagement. They need to focus on customer satisfaction and retention. Then they can nurture long-term relationships.
Businesses need to design programs to help customers understand the product or service better. They also need to show how customers benefit from the service. Another important way to improve customer engagement isto assist whenever needed.
Some ways to increase customer engagement include:
- Having an effective email marketing strategy to keep communication open with customers
- Send update emails whenever something changes
- Add CTAs to emails so customers can easily find resources
- Ask customers to reply with questions, concerns, or suggestions
- Set up a campaign to ease the onboarding process and reduce churn in the early stages
- Offer 24-hour customer service 7 days a week
- Offer real-time assistance so problems get resolved quickly. That way, customers do not have to wait long periods to receive a response to inquiries
Tip to Reduce Churn #3:
Remind Customers of Your Product’s Value
Some customers may take for granted a product or a service. They may not realize its value to them until they are directly told how it has helped them.
Businesses should take the initiative to explain the value of their service. This way, they show that they are invested in helping customers get the most out of it as possible.
How to remind customers of your product’s value:
- Collect metrics and data that show the impact a product is having on a company. Share that data with them. Some metrics and data to collect include:
- How the product is helping revenue
- How it is saving time and resources, etc.
- Regularly send outreach messages to keep customers updated on any progress
- Send messages that are directly related to the company's interests
- If a customer is not using all the tools available to them, send a message that explains how they can use those tools
Tip to Reduce Churn #4:
Another way to reduce churn is to educate customers on how to use your service properly. From the very beginning, make sure that customers know what you offer. Focus on continuous customer interaction and education.
Not educating customers is like giving someone a tool but not teaching them how to use it. If customers do not know how to use your service or product, they will likely turn to a competitor.
Businesses need to educate their customers on how to install the product. They also need to show how to operate it for its maximum potential. This will ensure a successful onboarding process and implementation of the product.
How to educate customers:
- Have thorough documentation
- Provide video demonstrations
- Offer an FAQ page
- Give 24/7 customer support with real-time assistance
- Make sure that links to these resources are easily accessible
- Do not make it difficult for customers to find customer support’s contact information
Tip to Reduce Churn #5:
Know Which Customers are At Risk
Another vital step to reducing customer churn is identifying which customers are most likely to leave. If a business can identify customers who are likely to churn, they can reach out to them before they leave.
There is always a group of customers that are more likely to leave than others. It is in the best interest of businesses to focus their efforts on getting them to stay.
How to identify customers about to churn:
After analyzing the causes of churn, it will be easier to spot the actions or lack of actions of customers about to churn. Some of them include:
- Few interactions with the company
- Low product usage
- Poor email open rates
- No email response rates
- No response to the company’s attempts to communicate with them
What to do after identifying at-risk customers:
Be proactive. Take the initiative to reach out to customers and engage with them. Try to find out the reason they want to leave. Take steps to fix the problem. Remind the customers that they are valuable to you.
Tip to Reduce Churn #6:
Incentives do wonders in customer retention. They strengthen customer loyalty and encourage long-term relationships.
Rewards, bonuses, and loyalty programs motivate existing customers to stay with a company. Sometimes businesses need to invest a little money in these programs. But extending customer relationships and increasing the money customers spend on the product over time is worth it.
Ensuring that customers stick around long term is especially important for subscription-based businesses. This is because having a solid customer base over a long period of time provides sustainable revenue. Whereas finding new customers and relying on the immediate sale of a product is less maintainable.
How to offer incentives:
- Understand customer needs
- Research what kind of rewards customers want
- Make the program simple and allow customers to achieve goals easily. This will give them instant gratification and encourage other customers to participate
- Personalize loyalty programs to each customer
- Have personalized names of the incentives instead of using words like "points" or "coins"
- Send personalized messages in the loyalty program
Tip to Reduce Churn #7:
Add Value to the Product or Service
Another essential step to reduce customer churn is to add value to an existing product or service. As the world is ever-changing, so are the needs and demands of customers.
Improvements are necessary to grow a business, whether it is fixing an issue or enhancing a feature that already works. Improvements make a service valuable and make customers want to stay.
Some reasons why a product or service may need improvement include:
- A weaknesses
- Changing marketing conditions
- Changing world circumstances (i.e., the COVID pandemic)
- Introductions of new software and technology
How to add value to a product or service:
- Add services that help customers scale their business and increase revenue
- Add new features
- Upgrade old features
Tip to Reduce Churn #8:
Create Negative Churn
Negative churn is when revenue from existing customers is greater than the amount of revenue lost from cancellations. The best way to accomplish negative churn is through expansion revenue.
Expansion revenue is any revenue generated after an initial purchase. It is recurring revenue that comes from up-selling or cross-selling. Analyze your business using a revenue-based churn model. Then you can manage revenue churn and mitigate its impact on the company.
How to create negative churn:
Use up-selling, cross-selling, and variable pricing models. These tactics scale costs in line with the quality of the product. For example, offer:
- More storage
- Faster speed
- More users
- Better features, etc.
Tip to Reduce Churn #9:
Improve the Product or Service
One of the most important ways to reduce customer churn is to offer a quality product or service. The quality of a product matters most to customers and will provide the most customer satisfaction.
If, for example, a SaaS company offers a product that lacks features and is complex, customers will turn to competitors who have a better product. The bottom line is that if a company does not have a high-caliber product, it will have a lot of customer churn.
How to improve:
First, consider these questions:
- What is your business's key offering?
- What makes it unique?
Every product needs something that makes it stand out from the competition.
Next, think about how you can improve the product. Follow these steps:
- Imagine who is the ideal customer. Think about their needs and wants. Think about what features would appeal to them.
- Update the product based on what your customers want and need
- Improve product usability
- Eliminate any complexity of the product to make it as simple as possible to use
Tip to Reduce Churn #10:
Improve Customer Support
Another vital step in reducing churn is improving customer service. Customer support needs to make a customer feel valued.
Some companies contact their customers when they want to renew a contract or sell to them. This can create a negative customer experience.
Rather, a company should take the initiative in contacting customers at other times. They can find out if a customer has any questions or issues. Thus it provides a good customer experience and prevents potential problems.
How to provide great customer service:
- Have a well-designed website so customers can find help with issues they may have
- Have a live chat so customers can get in contact easily with the company
- Make sure the contact information for customer support is easily accessible
- Have customer support take the initiative in contacting customers via phone or email
- Authorize customer service representatives to use any resource to solve problems and make things right with the customer
Tip to Reduce Churn #11:
Regularly Collect Customer Feedback
Collecting and analyzing customer feedback is the best way to measure customer satisfaction. It also identifies areas that need improvement.
The best type of feedback is in real-time. This allows a company and a customer to have a two-way conversation. Then the company can understand the feelings of the customer more fully.
How to collect customer feedback regularly:
Companies can collect real-time feedback through live chat and chatbots. Monitor conversations on these features to discover trends, common questions, and roadblocks that customers are facing.
Tip to Reduce Churn #12:
Have Qualified Employees Take Care of Cancellations
Businesses have one more chance to stop a customer from leaving when they call to cancel. That is why the best customer service employees should be in charge of cancellations.
The employees in charge of cancellations need to know the product or service inside and out. But they also need to be skilled customer advocates.
A customer success manager is a wise investment. They can provide the needed support to make a customer change his mind about canceling.
Qualified employees should:
- Be friendly
- Be a good listener
- Diffuse the customer's frustration
- Offer tools and clear direction to fix the problem that is making the customer unsatisfied
- Show the customer the value of the product
Tip to Reduce Churn #13:
Know the Churn Metrics
Even if a company follows the above tips to the letter, customer churn is inevitable. So companies should measure churn metrics to get a better understanding of how to prevent it.
With comprehensive churn metrics, companies can predict signs of satisfied and dissatisfied customers. After identifying a dissatisfied customer, the company can take steps to salvage the relationship.
How to analyze churn metrics:
- Measure when customers leave. Ask the following questions:
- Is customer churn more frequent 30, 60, or 90 days after starting to use the product?
- Does churn occur after a customer does not use the product for a specified number of days?
- What are the common actions of churned customers?
- Measure churn for different times to provide a broad perspective. Measure monthly churn, quarterly churn, or yearly churn
- Separately measure churn metrics for different customer segments
- Analyze how the churn rate is affecting other metrics. Included are recurring revenue, customer acquisition costs, and customer lifetime values
- Set churn rate benchmarks. Check if churn improves with time. If not, change the strategy and try new things to increase customer retention
Final thoughts on how to reduce churn
Businesses are in the hands of their customers. A loyal customer base makes the difference between a successful company and an unsuccessful one.
Reducing churn can be summarized in four words: make your customers happy. If a business takes active steps to make and keep their customers happy, they will have very little customer churn.
The three main points that readers should take away from this guide on how to reduce churn are:
- Gain an understanding of customers by listening to their feedback and providing good customer service
- Show you value your customers by fixing product issues and by upgrading features to fulfill their needs
- Provide an abundance of resources to customers, so they can understand the product’s value and how to use it to the full
By following these steps, not only will a company reduce churn, but their customers may become advocates and help the company grow.
If you enjoyed reading this article on how to reduce churn, you should check out this one about sales automation tools.
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