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Thought Leadership

What is Customer Churn?

A Definition of Customer Churn

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 to acquire new customers. On the other hand, customer retention 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. By being aware of and monitoring churn rates, organizations are better equipped to determine their customer retention success rates and identify strategies for improvement.

Various organizations calculate customer churn rates in multiple ways. The 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 percentage of recurring value lost. Other organizations calculate churn rates for specific periods, such as quarterly or fiscal years. One of the most commonly used methods for calculating customer churn is dividing the total number of clients a company has at the beginning of a specified period by the number of customers lost during the same period.

Causes of Customer Churn

Many issues can lead customers to leave a business, but a few 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: 65% of customers said they have changed to a different brand because of a poor experience. 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.
  • A lack of value.
  • Low-quality communications.
  • 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. Your marketing campaigns may be top-notch, but losing customers at a high rate can still hurt your profits. Acquiring new customers is expensive, so retaining the ones you have is essential. Much has been written on 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.

Strategies for Reducing Customer Churn 

While customer churn is terrible for businesses, organizations can implement strategies to 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 prevent 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 know its customers truly. By having insights into customers through the use of Big Data and a customer data platform, such as the NGDATA Intelligent Engagement Platform, companies can anticipate customers’ needs and issues and work to meet their expectations and retain their business. Insights include identifying customers at risk of churning and working to improve their satisfaction.

Artificial Intelligence enables a churn prediction model, which helps businesses gauge when a customer is about to leave your services and allows you to act before it happens. See how the NGDATA Intelligent Engagement Platform can help you reduce your churn rate.