A Definition of Customer Churn
Simply put, customer churn occurs when customers or subscribers stop doing business with a company or service. Also known as customer attrition, customer churn is a critical metric because it is much less expensive to retain existing customers than it is to acquire new customers – earning business from new customers means working leads all the way through the sales funnel, utilizing your marketing and sales resources throughout the process. Customer retention, on the other hand, is generally more cost-effective as you’ve already earned the trust and loyalty of existing customers.
Customer churn impedes growth, so companies should have a defined method for calculating customer churn in a given period of time. By being aware of and monitoring churn rate, organizations are equipped to determine their customer retention success rates and identify strategies for improvement.
Various organizations calculate customer churn rate in a variety of ways, as churn rate may represent the total number of customers lost, the percentage of customers lost compared to the company’s total customer count, the value of recurring business lost, or the percent of recurring value lost. Other organizations calculate churn rate for a certain period of time, such as quarterly periods or fiscal years. One of the most commonly used methods for calculating customer churn is to divide the total number of clients a company has at the beginning of a specified time period by the number of customers lost during the same period.
Causes of Customer Churn
There are a multitude of issues that can lead customers to leave a business, but there are a few that are considered to be the leading causes of customer churn. The first is poor customer service. One study found that nearly nine out of ten customers have abandoned a business due to a poor experience. We are living and working in the era of the customer, and customers are demanding exceptional customer service and experiences. When they don’t receive it, they flock to competitors and share their negative experiences on social media: 59% of 25-34-year-olds share poor customer experiences online. Poor customer service, therefore, can result in many more customers churning than simply the one customer who had a poor service experience.
Other causes of customer churn include a poor onboarding process, a lack of ongoing customer success, natural causes that occur for all businesses from time to time, a lack of value, low-quality communications, and a lack of brand loyalty.
Disadvantages of Customer Churn
There is a direct relationship between customer lifetime value and the ability to grow your business. As such, the higher your customer churn rate, the lower your chances of growing your business. Even if you have some of the best marketing campaigns in your industry, your bottom line suffers if you are losing customers at a high rate, as the cost of acquiring new customers is so high. Much has been written on the subject of the cost of retaining customers versus acquiring customers, especially because study after study shows that customer acquisition costs far exceed customer retention costs. Generally, companies spend seven times more on customer acquisition than customer retention, and the average global value of a lost customer is $243. Obviously, customer churn is costly for businesses.
Strategies for Reducing Customer Churn
While customer churn clearly is bad for business, organizations can implement strategies to all but eliminate customer churn. Of course, improving customer service is at the top of the list. Another way to avoid customer churn is to build customer loyalty through relevant experiences and personalized service. To take a proactive approach to avoid future customer churn, some companies survey customers who have already churned to determine their reasons for leaving.
But, the best way to avoid customer churn is for a company to truly know its customers. By having insights into customers through the use of Big Data and a customer data platform, companies can anticipate customers’ needs and issues, and work to meet their expectations and retain their business. This includes identifying customers who are at risk of churning and working to improve their satisfaction.
Customer Retention Information
For more information about customer churn, visit our blog. For your convenience, we have linked to three of our most recent customer churn posts below:
NGDATA helps brands in data-driven industries, such as financial services, telecom, utilities and hospitality, to drive connected experiences. Our Next Generation Customer Data Platform, Lily™, puts people at the center of every business via Lily’s Customer DNA, which continuously learns from behavior to deliver compelling experiences for companies, such as Belfius Bank, Innogy and Telenet. NGDATA is headquartered in Gent, Belgium and has offices in the United States, Europe and Asia-Pacific.Learn More...