Customer Churn

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Customer churn is a crucial metric in establishing your overall business success.

Churn is one of the most despised words in the English language to every entrepreneur, and there’s a good reason why. It generally means one thing: losing current customers.

A customer churn analysis by Esteban Kolsky, former CEO and founder of ThinkJar, suggests that while 1 in 26 unhappy customers will complain, the other 25 will churn. 

The higher the churn rate, the bigger the negative impact on the business – it’s as simple as that. Churn reduction is a top priority for companies worldwide because this metric directly impacts company profits. 

Whether you like it or not, customer churn is an inevitable component of any entrepreneur’s life… But it doesn’t have to keep you up in the dead of night. Although companies can’t have a 0% churn rate, it’s absolutely possible to reduce it – and keep the rate low enough to not affect your success.

So, what are you supposed to do to stop losing clients and start retaining them?

Check our five actionable tips to reduce this unwanted metric within your company.  

Customer Churn Defined

In a few words, customer churn (or customer attrition) refers to the percentage of clients who stopped using your business’s product or service over a set period. Usually, this important metric is calculated by dividing the number of clients you lost in a quarter by the number of clients you began that quarter with. It refers to the exact rate at which clients who buy or subscribe to your product or service end the relationship with your business and stop bringing in revenue.

Suppose that you started the quarter with 1000 clients, and by the end of it, you lost 50. That would leave your company with an apparent churn rate of 5%.

In most instances, this number is usually noted as a percentage. You can state the number in a way that makes the most sense for your company.

Popular, alternative ways to demonstrate customer churn include: 

  • Number of clients lost 
  • Percentage of clients lost 
  • Value of monthly recurring revenue (MRR)
  • Percentage of monthly recurring revenue loss

Indications That Your Business Might Have a Churn Problem 

Even A-class executives and business owners find themselves in a constant battle to reduce churn as much as possible. However, bear in mind that it’s only natural and okay to have a little churn – emphasis on “little.” 

It’s widely recognized that anywhere between 5-7% is a “healthy” monthly churn rate. In this percentage range, your business is at a spot where you’re undoubtedly losing some clients, but not enough that you can’t counterbalance things. So, when should you start worrying? What if your churn rate hits 8.5%?

First of all, don’t panic right away. Each company is different, and what’s considered high for some is completely normal for another. Nevertheless, there are some red flags that you should be aware of. Here are four indications that your company might be experiencing a churn problem.

1. Churn Is Outpacing New Clients 

The first one is quite clear. If you’re continually losing more clients than you’re acquiring, it’s a prospective red flag, especially if you’re not upselling your current clients. 

2. CLV Is Shrinking 

Customer lifetime value (CLV) is a metric that shows the total revenue your company can expect from every customer account throughout their time as a customer. The longer your clients stick with your business, the higher the CLV of your average client should be. If clients are regularly churning, you’ll likely perceive a downward trend in your CLV.

3. Churn Rate Above 10% 

When your churn rate starts getting into double digits, it’s a clear sign that something in the process isn’t working correctly. It might be the way you’re obtaining clients, the onboarding, or another part of your business operations. Whatever the reason is, if over 10% of your clients are canceling, it makes it troublesome to grow long term.

4. Downgrades Instead of Upgrades 

If your company offers different plans or add-ons for your main product, you certainly look forward to more clients upgrading than downgrading. If that’s not the case, and you have more users downgrading than upgrading their plans, you’re likely to deal with a churn issue.

These are just a few red flags and potential signs of a churn problem. However, if the issue is escalating, you’ll feel it all across your business operations. And on the other hand, even if your business isn’t currently experiencing any churn problems, there’s no reason why you shouldn’t aim to get it lower. If you don’t know where to start, read along because we’ve got you covered.

5 Actionable Tips to Reduce Churn 

1. Constantly Prove Your Value To The Clients 

If a client buys a product/service or subscribes to your mailing list, it doesn’t necessarily mean that they will remember your value as a brand. Proving your value to clients is something you should do routinely. If proving your value (or failing to do so) causes your customer churn rate, here are a few expert bits of advice for preventing it:

  • Highlight the features of your brand or business. You can do this by sending out automated emails that remind your clients about the top features of your offering and how it can bring value to their everyday lives.
  • Don’t forget to share high-quality, informative content. You can create various templates, tutorials, infographics, and other informative content to present your company’s value and nucleus features in a smart, design-oriented way.
  • Share case studies with your clients. Everyone’s interested in success stories, so it’s a great idea to share them with your customers. If you have plenty of them, you can send out monthly case studies that include your product or service.

This ultra-competitive market is way too powerful not to remind your clients of your value and your company’s essence. Believe it or not, this is where a lot of promising companies don’t put in enough effort – and make it easy for their fierce competitors to take their customers. Underline your business’s value and make your clients come back at you. They should remember the value your company offers and what it can do for them.

2. Offer Incredible Customer Service 

When we say incredible… We mean really incredible. Fantastic customer service is the gateway to retaining existing customers and reducing customer churn. Customer churn analysis suggests that lousy customer service is the number one reason that almost 90% of customers move on to work with a competitor.

Customers crave to feel loved. More so, customers want to see that their opinion matters and is taken into account. Feedback is a decent start, but if you wish to proceed with your business toward the next level, you definitely have to improve your customer service accordingly.

So, how can you address this fundamental issue and assure your existing customers that you are always there to teach, help, and cherish them? 

In most instances, you’ll hear from clients when they have a certain kind of complaint. Instead of waiting for that to happen, try reaching out to them to ask for honest opinions about their experience with your business. Send follow up emails right after they’ve subscribed. Let them know that you’re there for them – not the other way around. If they report a particular problem and your company successfully solves it, send a follow up email to check if everything is going smoothly now. 

Add a sense of personalization to your customer care culture. It’s the key to building fantastic customer relationships. Personalization shows your clients that you made the effort to familiarize yourself with individuals instead of sending a generic email or a thank you note.

The old saying is right: prevention is better than cure. Encourage outstanding communication with your customers and put your company in pole position. This way, you will not only establish a great customer relationship, you’ll also receive a myriad of genuine insights about your product or service from the people who pay to use it. Having incredible customer service is the top priority for companies that struggle with churn reduction. 

3. Reward Your Loyal Clientele 

Building and nurturing a base of loyal customers will forever be one of the most effective ways to reduce customer churn. Did you know that 84% of US adults are loyal to specific brands? Or that and 43% of people spend more money on brands they’re loyal to?

Here are a few actionable strategies you can quickly implement to invest in your loyal customers:

  • Special discounts for special customers – From a buyer’s standpoint, it’s always hard to resist a nice price reduction. Besides, discounting is a fantastic behavior-based trigger to boost short term profits. For instance, every time a loyal client’s annual plan is about to end, you can offer them a good discount so they extend their plan for another year. 
  • Freebies can help – Research your niche and find out what your current and potential customers like. Think about developing a milestone and rewarding your loyal customers every time they reach it. This way, they feel motivated to come back because they know they will receive a freebie every once in a while.
  • Loyalty programs will never get old – Keep your most faithful clients motivated through a reward system or some referral bonus plan. Each time a client recruits a new one, your company can give them a nice reward, bonus points, money, special discounts, free courses, ebooks, etc. 

Rewarding your loyal clientele almost always proves incredibly cost-effective. In turn, it can boost your profits and lower the unwanted customer churn rate.

Consider Providing Additional Services to Your Clients 

Apart from your core business offerings, supplementary services can make provide your customers with reasons to stay. Consider offering additional services that enable them to scale their business and increase revenue. 

For example, you could provide exciting and educational videos, host free webinars stacked with information, or even create informative .pdf reports. This strategy builds trust and demonstrates how your products or services work, giving your clients a chance to interact with you.

A customer who is well educated about your products or services is less likely to churn. Equally important: these same clients can refer other clients to your company too.   

Make Sure You Talk to Those Who Quit 

When a client decides to cut the cord with your company, don’t let them walk away without saying a word. Instead of holding a grudge, view this as an opportunity to gain valuable feedback on why they made their decision. This step is especially important for young companies. 

When a client quits, make sure to connect with them and learn why they decided to part ways with you. In most cases, clients abandon a product or a service because it didn’t solve their problems in the way they anticipated. Other times, clients may have trouble using and implementing the product or service. 

Whatever the reason, we strongly encourage entrepreneurs to talk to those who walk away, and learn what they need to do to improve the offering. In other words, make the most of an individual who walks out to defeat churn in the future.

Final Words 

The truth is that customer retention is often neglected. Eventually, all companies realize that they can’t stay in the acquisition phase forever. In the end, it’s all about making your customers pleased enough to not cut ties with you and your business. 

Customer churn can take a toll on your company, but only if you allow it to. Redirect your company’s trajectory by applying the tips and strategies we outlined above. Build a steady workflow where business goals are met and clients are happy.

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