It’s the big question on the mind of every forward-thinking business owner or manager: why do I lose customers?
Some customer churn, like employee churn, is completely natural even for the most successful businesses. Factors outside your control make it impossible to retain everyone who walks through your doors (real or virtual). But there are a few components of customer retention you can control, like:
Typically, this is the most common reason customers turn away from businesses. According to Forbes, 67 percent of customers are “serial switchers”, meaning they’re willing to ditch a brand in favor of another one if they’re not experiencing great customer service. When customers don’t enjoy their experience or feel personally valued, their lack of loyalty will often drive them directly to your competitor’s doorstep.
Though pricing is subjective, customers can’t help but seek out a different solution when they perceive your pricing as unreasonable compared to the value you provide. In some cases, you may need to adjust your marketing to target people who can afford your prices. In other cases, you may need to adjust your prices.
Lack of engagement
Even happy customers may forget about your brand if they’re not exposed to your messaging on a regular basis. Huffpost cites a study that revealed that 11% of customer churn could actually be prevented by simple company outreach.
What is customer churn?
Customer churn, also known as customer attrition, is the loss of customers by a business. There are a number of ways to calculate customer churn rate that range in complexity. For the sake of this article, we’ll identify customer churn as the number of customers you lost divided by the total number of customers you have.
For a restaurant or hotel, “churned” customers might be any of those who didn’t join your membership program, or never came back for a repeat visit.
For a gym, “churned” customers may be those who cancelled or didn’t renew their memberships.
Before you put a customer retention strategy in place, take some time to determine the best way to measure customer churn in your business. It may make the most sense to look at churn over the course of one month, one quarter, or one year.
Why tracking your customer churn rate is so critical
Repeat customers are always more valuable to your business than one-time or sporadic customers, regardless of the type of business you run.
Let’s use a simplified example of a high-end restaurant and bar. Let’s say your average customer spends 30 euros in one visit.
You have 2000 “regulars” who visit your business, on average, once per month.
You also have 12,000 customers who only visit once per year. These are your “churned” customers; the ones who don’t come back.
In this scenario, here’s how your revenue would look:
|Number of recurring customers||Annual revenue from recurring customers||Number of new customers||Annual revenue from new customers||Total annual revenue|
Clearly, your small number of “regulars” provide dramatically more revenue than your one-timers. And this is revenue you can count on; revenue that allows you to think long-term about your business, hire more people, and plan for other ways to grow.
In this same scenario, what if you worked to reduce customer churn by re-engaging some of those 12,000 people who only visit your establishment once? The impact on your revenue would be astronomical:
|Number of recurring customers||Revenue from recurring customers||Number of new customers||Revenue from new customers||Total annual revenue|
Keep in mind that these scenarios assume you’re not bringing in any additional new customers, you’re simply reducing attrition so that new customers become loyal (repeat) customers.
Beyond these numbers, it’s proven that it’s actually more expensive to get new customers than it is to retain existing ones, which makes it doubly important to invest in reducing churn and converting one-timers into repeat visitors.
How to reduce customer churn
Here are our nine steps for helping you reduce customer churn.
1. Define your goal
You can’t measure your success if you don’t start with a tangible goal. Determine your current churn rate, and set a reasonable goal to reduce it. Although average churn rates can vary dramatically by industry (while SaaS tends to be low, around 5%, telecom and entertainment companies can have churn rates of 50% or more). Determine what’s normal for your industry and work to improve it. Consider other KPIs you want to measure that will inform your churn rate, as well. These may include digital KPIs like website conversions, social media engagement, new memberships and number of people joining your loyalty program.
2. Uncover the root causes
This may be the most difficult, yet the most necessary, step to improving your customer churn rate. The root cause of your problem with customer churn may require some investigation, since the symptoms don’t always point directly to the problem. And most of the time, the root cause is something involving the customer experience; in other words, your customer doesn’t feel there was a fair exchange of value between them and your business.
The root cause of your retention problem might be:
- Too much focus on digital interaction and a loss of human connection with customers.
- Inversely, too little focus on digital channels. Customers are easier to retain when you reach them on the channels they know and love.
- Poor quality products or services. You can’t please everyone, but if you’re hearing the same complaints from multiple patrons, it’s probably time to reevaluate your offerings.
- Poor in-store experience. If you have a physical shop, you may lose customers due to a lack of cleanliness, ambiance, poor temperature control, limited space, ill-designed layouts, or other environmental factors.
- Your employees. The people you’ve hired may not represent your brand, have the proper training, or care deeply enough about your customers.
3. Assess the quality of service
There’s no doubt about it: quality of service always plays into your attrition rate. According to Forbes, businesses lose $75 billion per year due to poor customer service. So whether (or not) service is the root cause of your problem, it’s well worth it to make improvements in this area.
Start by assessing customer satisfaction. Generate a Customer Satisfaction Score (CSAT), Customer Effort Score (CES), and Net Promoter Score (NPS) for your business to see where you stand. Observe all of your channels, not just your physical store. How are questions and complaints being handled on social media, by email, by phone, and on review sites?
And when you’re hiring new employees, prioritise customer service training. Plenty of employee mistakes are forgivable (and probably won’t hurt your bottom line), but a poor attitude toward customers can do serious damage to your retention rate.
4. Don’t overlook the onboarding process
Your customer onboarding process is an opportunity for you to make a good first impression. It’s a crucial moment in your customer’s journey, since they’ve already decided to do business with you, but they’re not yet loyal. Take this moment to “wow” them. Show them that you’re committed to their success.
If you’re a restaurant, this might mean that you provide something special to first-time patrons. If you’re a software company, this might mean you have a customer service agent reach out to new users by phone to see how the new program is working out for them.
Utilise multiple channels to maximise the effect of your customer onboarding process. A “welcome” email, paired with an in-store discount, will have a more dramatic effect than either of these items alone.
5. Ask for customer feedback
There’s no doubt about it: hearing how your customers really feel can be both exhilarating and debilitating. You want to be best-in-class, but every business has room for improvement, and the more vocal customers out there may bring some hard truths to light.
These types of customer feedback are golden opportunities for your business, however. Because you’re so closely involved in day-to-day operations, you may not see the flaws in what you’re doing, or your potential growth areas.
Surveys are a great way to get customer feedback, but if you want a broad array of responses, keep them brief and easy to complete. If you need deeper insights, a focus group may be a better choice. Every customer touchpoint is an opportunity for feedback. Give those who call in the option to complete a survey on the phone, email your customer list with a built-in star rating survey, or create review cards to use in-store.
6. Use this feedback to take action
Customer insights are useless if you don’t take action. Identify the key areas of your business that need improvement, based on your feedback. These might include:
- Products/services: Do you need a wider, or narrower, variety of offerings? Are these outdated, irrelevant, or undesirable to your customer base?
- Pricing: Are you charging too much? Too little? Do you need to change your pricing model to a one-time fee or subscription?
- Customer service: Do you need more employees, or a specific type of employee? Better training? More communication across departments or job functions?
- Convenience: For physical businesses, are you in the best location? Are there environmental factors that impact your reputation or perceived value?
Once you’ve identified the area that has the most potential to improve your retention rates, create a plan around it. Break your plan up into small, attainable steps, and ensure you hold yourself accountable to fulfil it.
7. Offer at-risk customers an incentive to stay
Often, at-risk customers will give you plenty of clues that they’re about to do business elsewhere. They may provide a less-than-perfect review, broadcast a complaint to your management team (or on social media), or spend less at your establishment over time.
Sometimes, it won’t be so obvious. Look to your data for clues. Do customers tend to drop off in the summer? Do many people visit your business for a set number of months before leaving? Look for trends in when and why your customers leave, and put measures in place to pre-empt future churn.
8. Keep current customers engaged
Your current, happy customers are like low-hanging fruit. While it’ll take effort to win back lost customers or retain newer ones, it often takes very little to stay engaged with your current client base and encourage them to come back in and spend more. Set up a newsletter, publicise events, and stay active on social media to keep your current customers interested in your brand.
9. Assess the market. (New competition, changing needs of customers, etc.)
As you know by now, change is inevitable in business. The companies that fail to adapt their services to changing needs and trends are the ones who struggle the most, and ultimately lose their customers to their more forward-thinking competitors. Keep a finger on the pulse of the marketplace. Pay attention to what your competition is doing, and listen to your customers. The more you understand the people you seek to serve, the better you can serve them, and the longer your business will survive and thrive.