Whether you’re working at a small startup or accomplished organization, customers are the lifeblood of your business.
The consumers of the products and services we work arduously to bring to market play an essential role not only in shaping our existing business operations, but also in the vision for our futures.
So, when customer churn rears its ugly head, this can throw a spanner in the works and impact a company’s short and long-term goals.
Granted, no business can retain every single one of their customers. But that doesn’t mean you can’t put measures in place to reduce churn, in a bid to keep your all-important customer base intact.
In this article, we’ll delve into several areas, including:
- What customer churn is
- Why it’s important to reduce churn
- Types of customer churn
- Common causes of churn
What is customer churn?
Customer churn is a metric highlighting how many of your customer base decided to no longer use your product and/or service, during a certain period.
Churn rates will tell you if your customers are staying or going, and this can guide your efforts moving forward. For example, if customer churn is low and you’re retaining customers, then your current strategy’s ticking the right boxes. On the other hand, if customer churn is through the roof, then you need to reevaluate your methods.
How to calculate customer churn
To calculate customer churn, you need to divide the number of customers lost during a particular period by the number of customers you had at the beginning of that given period.
For example, if a company had 100 customers at the start of the quarter, and this decreases to 85 at the start of the second quarter, the churn rate would be 15%. This is because they have 15% fewer customers at the start of the second quarter, in comparison to the first quarter.
Why is low customer churn important?
The odd customer will slip through the net, but if a company loses a lot of customers, this will have a significant financial impact.
Attracting new customers is much trickier than keeping hold of existing clientele. Therefore, once you’ve done the hard work and converted your target personas, reducing churn is essential.
In some cases, you may need to reactivate churned customers, and this is a notoriously difficult process, but more on that later.
For now, let’s explore the different types of churn: involuntary and voluntary.
Types of customer churn
Involuntary churn is when a customer’s access to a product or service is ended by the company itself.
For example, if payment methods can’t be processed, or the customer is violating the terms and conditions of their contractual agreement, these are typically considered suitable grounds for the company to bring an agreement to a close.
As the name suggests, the customer is involuntarily ending their association with the company, and the decision is taken out of their hands.
Voluntary churn is when the customer stops using the product or service on their own accord. This can be attributed to factors such as poor service quality or financial reasons.
What are the causes of customer churn?
Whether a customer churns voluntarily or involuntarily, a root cause can always be attributed to why they’re no longer a part of a company’s client base.
Reasons for customer churn include:
Nailing your pricing strategy isn’t only important for a successful product launch. It can also influence customer retention and churn.
Mastering the psychology of pricing is tricky because not everyone has the same budget. However, you can get the golden nuggets of information you need by conducting customer and market research, understanding their respective budgets, and creating a product that A) will solve their problem, and B) won’t exceed their budget.
If customers believe your product is overpriced, they’ll seek a lower-priced alternative, and you’ll be left kicking your heels, while your competitor benefits from your poor planning.
That said, it isn’t only overpriced products you need to think about. If you release an offering and it’s too cheap, this can lead people to believe the manufacturing of the product doesn’t tick the boxes, and they may be tempted to pay marginally higher prices with a rival company.
Poor customer service
You can have the best product on the market, but if your customer support network is poor, this’ll have a profound impact on user experience, and before you know it, your customer will look for a solution elsewhere.
Ask yourself: if a customer experienced a problem and needed technical support, could they get the help they need quickly, efficiently, and practically? If you’re unable to answer each of these questions with a resounding YES, go back to the drawing board, and start from scratch because poor customer service will more often than not have one outcome: sky-high churn rates.
Lack of customer engagement
Companies need to create an emotional bond between their brand and their customers.
When brands engage with their customers, this makes them feel special, prompts customers to buy on a more consistent basis, and promotes a company’s products and services on a broader scale. Customer engagement is an essential part of a successful product marketing strategy.
When companies don’t engage with their customer base, people have no emotional ties with the organization. The good news is: developing meaningful relationships are always in the realms of possibility, with a well-executed email campaign being one of many ways to resonate with your audience.
Your product doesn’t deliver
Your customer purchases your product to solve a pain point: if their eyesight is bad, they’ll buy a pair of glasses; if their car’s too small for their family, they’ll head to the dealership and buy a new one.
However, if a customer buys a product and it doesn’t address their pain point, the problem hasn’t been solved. If anything, they could find themselves in a worse position than they were before. This prompts them to jump ship and look for something that does meet their requirements.
Flaws, glitches, and bugs
Customers buy a product to make their life easier and from a business perspective, to improve their levels of customer service.
For example, social media scheduling tools offer two-fold benefits to companies, as they allow teams to deliver content en-masse and save time, whilst also keeping their customers up to date with key developments.
When there are technical issues with a product or service, however, this has a domino effect: the provider suffers, and customers relying on the service can lose trust, prompting them to perhaps seek an alternative, to avoid a repeat occurrence.
You’re deemed a luxury
When the purse strings need tightening, key stakeholders sit down, consider their outgoings, and make a list of what to keep, and what to sacrifice.
Unfortunately, for some companies, their products don't make the cut, and they’re deemed an unnecessary expense that can be chopped from the monthly bill.
How much churn is too much?
While we’d like to say one churn is too many, we’re realists. Generally speaking, the common consensus is that around 5% is the benchmark for SaaS companies.
However, the bigger the businesses you target, the lower your churn rate needs to be because you’ve got less market to go to.
Outside of SaaS, here’s a guideline based on industry medians:
How to reduce customer churn
Reducing customer churn is high on the agenda for every company - or at least, it should be.
Check out some ways you can reduce customer churn and boost those all-important retention rates.
Act on customer feedback
You need to put the customer’s needs first. If they’re not happy, you’re leaving yourself susceptible to higher churn rates.
Never make decisions based on internal assumptions; speak with your customers and validate your hypothesis. If you communicate with customers, they’ll see you’re putting their best interests first, and in many cases, this will increase morale, as well as brand loyalty.
Whether it’s via customer advisory boards or focus groups, make the most of customer insights to gain an understanding of what your customers’ thoughts are now, and where you can improve your products in the future.
Remember, feedback isn’t always based solely on what you didn’t do right. For example, customer feedback may reveal that your USP didn’t catch the attention of your audience at all, and they preferred another feature, in which case, your product positioning and product messaging need to be amended.
Be sure to act proactively, as opposed to reactively, as this will allow you to address potential hiccups early, instead of picking up the pieces further down the line.
Incentives attribute value to your customers, and in turn, enhance customer satisfaction.
As we mentioned before, winning customers back is hard. You need to reward them for using your product, and a freebie is a go-to-tactic used by many companies to keep existing customers away from joining competitors.
Let’s face facts, we’ve all opted for McDonald's instead of Starbucks when we’re one stamp away from a free coffee. 🤷♂️
Personalize your messaging
Personalizing your comms and developing and establishing product messaging can work wonders when you’re trying to retain your customers.
Let’s take a look at what this looks like in practice:
We have a brand-new range of products you may be interested in.
Click HERE for more information.
Boring, generic, impersonal.
Try something like this instead:
We’ve checked out your previous purchases, and have picked a few brand-new products from our range we think you’ll love!
And because we’re in a giving mood, here’s a 20% discount code for you to save some cash, but be quick - offer expires this weekend!
Your friends at [company name]
The second email is much friendlier, less generic, and lets the customer know they’re communicating with another human being. This first draft, on the other hand, could be aimed at anyone in the database.
Customers are interested in relevance - if they’re targeted with products that aren’t appropriate for their age, demographic, price budget, etc. the likelihood is they’ll focus their attention on companies who take the time to learn about what they want.
Impersonal messaging suggests your company hasn't taken the time to learn about the customer and their requirements, and they’ll be made to feel like a mere statistic.
Identify the problem
Your action plan must establish where things began to unravel for your company, and why the person decided to take their custom elsewhere.
Sometimes, companies can be embarrassed about reaching out and asking churned users why they’re not happy with the product or service provided, but as long as you approach the customer the right way, many will be happy to provide feedback to help you identify areas for improvement.
Use your findings
There are times when companies find out information and decide to ignore it because it isn’t what they want to hear.
Develop a thick skin, listen to criticism, and use feedback to improve your future strategy.
After all, what’s the point in searching for an answer if you’re going to hide from the truth?
Share your knowledge
Customer success teams play a critical role in establishing an understanding of how customer churn is effecting a business, yet you need to ensure that every team across the business is informed of your findings.
Always be sure to communicate internally and share essential information with your colleagues to enhance your offerings.
For instance, if it becomes clear a particular product feature has flopped, it’s fundamental to communicate this to your product team so they can learn from the situation.
Similarly, if the customer has churned because they aren’t happy with the standard of service from your sales team, consider internal training to equip them with the level of expertise they need to provide a higher quality customer experience.
Go above and beyond
Consumers love getting more than they bargained for and complementary services can make a world of difference in convincing your customers you’re the right fit for them.
Small, yet significant details will go a long way to building trust and confidence amongst your customers, and they’ll be inclined to stick around for much longer as a direct result.
Strategies to drive customer retention
Increasing customer retention by 5% could increase your profits by anywhere from 25% to 95%.
To reiterate the point we made earlier, retaining customers is significantly cheaper than finding new ones, and your accountant will be glad of the consistent, more predictable income.
It doesn’t just affect your bottom line though. Customer retention has all kinds of benefits:
- Advocacy: If customers like your company, they’ll do the marketing for you.
- Information: Engaged customers are more likely to leave feedback on how you can improve.
- Cross-selling: An existing customer is more likely to explore the rest of a company they trust.
There’s no doubt you’ll be doing your damndest to reduce customer churn, but there are times when you’re powerless to customers leaving. However, all isn’t lost, and it is possible to reactivate churned buyers and get them back on side.
Let’s now take a look at how you can win back the hearts of lost customers.
How to reactivate churned customers
Lay the foundation first
First things first, when people leave make sure you ask them why by sending out a simple survey or making a quick call. This kind of intel will make all the following ideas we’re about to explain much easier because you’ll know which past customers want what.
For example, if you know 40% of your churned base left because they became frustrated with the fact you didn’t have a mobile app, once you’ve got one, with a campaign built specifically for churned users and about your new offering, there’s a good chance they might come back.
Similarly, if 25% turned their back on you because of your previous response times on tickets, if that’s now improved, you could create a campaign to demonstrate just that and lure them back in.
Don’t try and bundle everyone into the same bracket. Segmentation first, activation tactics second. And if you don’t already collect this kind of data, now’s the time to start.
They say prevention is better than cure, right? Easier said than done, we know, but by keeping on top of users’ behaviour you can put pre-churn tactics in place.
For example, let’s say you’re a content collaboration tool. Since they took out your services, customer A had been using your app daily. Then, they drop to weekly use, and eventually only a couple of times a month. What’s the reason behind the drop in usage? Is there a bug? Can they not find a way to make it suit their current circumstances?
Either way, a quick call or email could help you get to the bottom of it, bring a solution to the table, and reactivate them as a daily user.
“When you identify previously active customers who are slipping, a well-timed personal email can help to re-engage them. The best case is that you recover a customer; the worst case is often that you learn why your users leave. Either leaves you in a better position than doing nothing.”
Des Traynor, Co-Founder of Intercom
Going beyond a standalone call or email, here are a few strategies you could employ:
- Create and send out educational content - e.g. ‘how to do X’, ‘how to get the most out of feature Y’, ‘how to save time doing Z’.
- For commerce customers who sign up but don’t purchase, revisit your onboarding strategy and see if there are any gaps that could be filled to make your current content more useful and action-led. A basic sequence could look like this:
24 hours: Hey, do you need any help?
48 hours: We noticed you liked product B, here’s why others love it too.
72 hours: C’mon, you know you want to - here’s 10% off!
- For SaaS customers, think about going beyond the basics and pulling together a bespoke demo or tutorial focusing specifically on how to maximise the software - these might be the areas users aren’t seeing value in.
And even if they do leave, by acting on their departure pronto (reason dependent, of course), you’ve got more chance of reeling them back in before they get too acquainted with someone else’s product.
Send out a targeted email campaign
Campaign #1 - new products or features
In an ideal world, you’ll have a reason behind why your customer left and you can match those explanations to new email campaigns.
For example, if customer B left because your tool didn’t let them annotate videos in-app, introducing and announcing that feature could be the only nudge they need to re-convert.
If you don’t already have these details, or your new launch doesn’t directly resonate with the reason you’ve got, it might still be worth including select churned users in the release. You never know, it might provide a game-changing revelation.
Remember: don’t bombard ex-customers with emails about every little feature update week in, week out in a bid to get them back on board. This’ll probably ruffle their feathers and send them to the dreaded unsubscribe button.
Also, don’t forget to differentiate the wording of your campaign from what goes out to current customers. Blanket approaches aren’t effective; people want to know you’ve done your research and know their circumstances.
Campaign #2 - offer something awesome
Just because they’re not paying for your services anymore doesn’t mean you can’t still support them. This will help:
- Keep you on their radar,
- Show off your expertise, and
- Demonstrate you still care about them.
With this type of tactic, think bigger than your standard 500-word blog post. Articles are great, but you want something that’s going to leave them thinking “why did I ever leave this company?!” Something rich, in-depth and unique is going to help you do that.
A couple of ideas to get you started include a:
- eBook, or
Try to be strategic by tying the topic into why the segment left, too.
Campaign #3 - your monthly newsletter
Admittedly, this one will be a little tricky if they’re not already subscribed - not many people leave a company and then sign up to their newsletter, but that doesn’t mean you can’t try.
If they’re already signed up, or you manage to get churned users on your email list, use this as another opportunity to keep yourself front-of-mind and provide valuable content. If you segment your newsletter database you could even offer a little incentive to give them a nudge in the right direction, which sets us up nicely for our next ideas...
Offer an incentive
Incentive #1 - deliver a bespoke demo
Sometimes people need to see before they believe and a free, live demo of how you’ve resolved the reason behind a user’s departure will go a long way in doing that.
For this one to work though, you need to go in with a targeted and customizable mindset. Sticking with the video annotation analogy we already gave, an email like this would do the job:
We were really sorry to see you leave us X months ago and we just wanted to let you know we now offer what we were then missing.
Videos can easily be added and annotated on any device, all without any extra cost, and you can see other people’s actions in real-time.
We’d love to show you how this all works in practice and would like to invite you to a free, one-to-one demo. If you’re interested, you can book a time and date that suits you here.
Let me know if you have any questions and hopefully, we’ll hear from you soon!
And then repeat that process for each of the different causes for churn.
Incentive #2 - give a discount
Whether it’s a one-time sign-up discount or a percentage off their monthly subscription, money off is one sure-fire way to get people’s attention.
Just make sure to do the maths so you don’t end up losing money - after all, no one wants customers who cost them more than they make.
Incentive #3 - offer them a freebie
We mentioned demos being a great way to show people how you’ve evolved, but giving them a freebie (i.e. one month free) surpasses that.
If you’ve delivered what you’ve promised and they see and experience those improvements first-hand, your chances of getting back in churned users’ good books will undoubtedly shoot right up.
Just be straight
This doesn’t need to be targeted or particularly strategic, but just telling people you miss them and want them back can be effective in itself.
Expand your net
If you only focus on email you risk a) losing people to spam filters, and b) limiting your opportunities. You can only email people so many times - do it too much and you pee them off, do it too infrequently and they might not reconvert.
So, leverage other channels like social, mobile, targeted display ads, snail mail and telephone conversations. Also, be sure to approach reactivating churned users the same way you would a brand new customer.
The channels you choose might also make up part of your customer segmentation process. For example, if you have info on a customer’s preferred communication medium you could segment your base by reason for departure and chosen contact method.
Also, remember, customisation is key. Yes, you might be targeting churned users the same way as fresh prospects in the sense of marketing tactics, but the tact needs to be different.
For example, let’s say you set up a Google AdWords account, add remarketing tracking to your website and start displaying ads on the sites previous customers visit. Instead of showing them something generic like:
“We’re offering a 10% discount if you sign-up before midnight.”
Say: “Come back and we’ll give you a 10% discount if you sign-up before midnight.”
How to measure your success
One way to measure how effective your efforts are is by creating control groups and analyzing the difference in terms of reconversion rates. For example, you could send 10% of your segment nothing and the rest your planned activation tactics and evaluating the results of each approach.
Remember to factor in the different reasons for churn as some causes will be inherently more difficult to reconvert than others, and this could skew your numbers.
For example, someone who stopped using your service because their business’ budget got sliced in half is less likely to sign the dotted line again than someone who left due to a lack of feature (that you now have).
For this reason, it’s probably best to segment your groups by related reasons for churn. That way, you’ll get a more accurate reflection of your reactivation activities without other factors getting in the way.
Mark Whistler, Senior PMM at Signal Al, shared his experience:
"I try to have a loss call or email conversation with all churned clients and as part of that conversation I've asked if they'd be willing to speak to our product team in the future as part of development exploration.
"They're then put into a document and tagged with their key areas for leaving and contract renewal date with the new provider. We've seen success in converting churned clients back onto our platform by then involving them in the 'product/roadmap' development process."
Customer churn is a problem within some businesses that isn’t going away.
However, if you understand it, prepare for it, and introduce relevant measures, the negative impact on your business can be mitigated.