Customer churn represents the number of customers who stop using your company’s products or services. Usually, this happens for many reasons, such as dissatisfaction, better offers from competitors, or changing needs.
Does your business rely on subscriptions, or do you own a software-as-a-service (SaaS) company? If you make money from customers who pay every month, tracking customer churn is highly important for you.
It allows you to predict when customers might leave so that you can take necessary action to keep them. To prevent revenue loss, you should check your churn rate regularly.
Want to know more? In this article, let’s check out the definition of customer churn, its causes, and impact on your business. Also, we will learn how you can measure customer churn and identify it.
What is Customer Churn?
Customer churn refers to the percentage of customers who stop doing business with your company (in a specific period). This means they either switch to a competitor or simply stop using your product or service without choosing an alternative. For example,
- Say you run a subscription-based business and have 1,000 customers at the start of the month. However, you lost 50 customers by the end. Now, your churn rate for that month would be 5% (501000 x 100)
Please note that a high customer churn rate can hurt your revenue. Thus, reducing churn is an important goal for every business. And, the best way to do this is through strong customer engagement.
For the unaware, engagement includes every way a customer interacts with a company, such as:
- Visiting a website
- Talking to customer support
- Shopping in a store
Furthermore, by developing a good customer retention plan, you can keep your customers satisfied and loyal.
How to Measure Customer Churn?
The most common way to measure churn is by using the churn rate formula:
Churn Rate = Number of Customers LostTotal Customers at the Start of the Period x 100
Another approach is the abandonment rate, which is:
Abandonment Rate = 100% – Retention Rate
For the unaware, retention rate measures how many customers stayed. To fully understand churn, you should track it from two angles:
- Customer Churn: The actual number of customers leaving your business.
- Revenue Churn: The amount of money lost due to customer departures.
By monitoring both, you can understand whether you’re losing small or high-value customers. This allows you to take the right actions to reduce customer churn and grow your business.
What are the Causes of Customer Churn?
As a business owner, your focus might be on getting new customers through marketing. However, before spending money on expansion, it’s wise to first analyse your current customers’ satisfaction.
That’s because keeping existing customers is often cheaper and more effective than constantly acquiring new ones. As per a recent study, increasing customer retention by 5% can increase profits by 25-95%!
So, what causes the customers to leave? Let’s check out some main reasons:
1. Customer Dissatisfaction
If customers are unhappy with your product/ service, or customer support, they are likely to leave. These issues can push them to competitors:
- Poor quality
- Late deliveries
- Unresolved complaints
2. Better Offers from Competitors
If another company offers similar products at a lower price (or with better features), customers may switch. This happens because they stop perceiving your offerings as value-for-money.
3. Competitors’ Successful Marketing
Your competitors can attract your customers by:
- Launching aggressive marketing campaigns
- Offering discounts or exclusive deals
How Does Customer Churn Affect Your Business?
Customer churn is a big problem because getting new customers is expensive! According to McKinsey, a company may need to gain three new customers just to make up for losing one. That’s why businesses should focus on keeping their current customers happy instead of only trying to attract new ones. Let’s see how customer churn impacts businesses:
B2B vs. B2C Impact
Please note that churn affects business-to-business (B2B) and business-to-consumer (B2C) companies differently. B2C companies (like streaming services or online shopping) usually have higher churn rates because customers can easily start or stop using their services. Since B2C products are often cheaper and don’t require approval from a boss, customers can quickly switch to competitors.
In contrast, B2B companies (which sell products or services to other businesses) feel a stronger impact from customer churn. For them, losing even one B2B customer can cause major revenue loss. That’s because B2B companies have a longer and more complex sales process. Thus, replacing lost customers takes time and effort.
Reduced Company Morale
High churn also affects company morale. If too many customers leave, employees may worry about job security and the company’s future. In such cases, companies invest a lot of time on replacing employees rather than increasing customer services.
Bad Marketing
Another problem is bad word of mouth. If unhappy customers share negative reviews, it can make others cancel their subscriptions. This increases customer churn even more.
How to Identify Customer Churn?
Customer churn happens when customers stop doing business with you. While each customer is different, below are four common warning signs that indicate a higher risk of losing customers:
1. Low Customer Engagement
Engaged customers actively interact with your business, while disengaged customers are more likely to leave. Engagement can be measured in different ways:
- Frequent Buyers: Customers who repeatedly purchase from you are engaged. A drop in purchases may indicate a loss of interest.
- Loyal Customers: They trust your brand and consistently choose your services. You can use a Net Promoter Score (NPS) survey to measure loyalty.
- Brand Evangelists: These are customers who not only use your services but also promote them to others.
- Respondents: Customers who actively respond to surveys and feedback requests are considered more engaged. A drop in responses may indicate declining interest.
2. Declining Customer Satisfaction
Customer satisfaction decreases over time if their expectations are not met. The Net Promoter Score (NPS) is a key metric for tracking satisfaction. NPS divides customers into three groups:
- Promoters (9-10 score): Highly satisfied customers who are likely to refer others.
- Passives (7-8 score): Satisfied but indifferent customers who could leave for a better offer.
- Detractors (0-6 score): Unhappy customers who may spread negative feedback.
Through regular surveys, you can track satisfaction trends. Always remember that if NPS declines, immediate improvements are needed to prevent customer churn.
3. Decreased Activity or Product Use
If customers start using your product or service less frequently, it signals a risk of customer churn. Some indicators include:
- Lower Login or Purchase Frequency: If a customer’s usage declines, they may be considering leaving.
- Expired Accounts: If an account expires and the customer does not renew, it’s a sign of disengagement.
- Customer Complaints: Unresolved issues can lead to cancellations.
By tracking customer behavior, you get a chance to re-engage customers before they leave.
4. Customers Showing Signs of Leaving
If a customer directly expresses that they want to reduce their usage or downgrade their subscription, this is a strong indicator of customer churn. Here, as a business owner, you should:
- Understand Their Concerns: Ask why they want to reduce their usage.
- Offer Alternative Solutions: Discounts, customised plans, or additional services may encourage them to stay.
- Address Pain Points: If they’re unhappy with pricing, features, or support, try to make adjustments so that they can stay.
Reduce Customer Churn, Boost Retentions with Atidiv
Customer churn is a critical challenge for businesses. It affects your revenue and brand reputation. To reduce customer churn, you should:
- Understand why customers leave
- Measure churn rates regularly
- Engage with your customers and address dissatisfaction
Moreover, try to stay competitive with pricing and features. Also, track customer behaviour and identify warning signs early.
Want to reduce customer churn and improve customer loyalty? Atidiv has an expert team that provides data-driven solutions. We help businesses retain customers and enhance customer experience (CX). Partner with Atidiv today and take control of your customer retention strategy!
FAQs On Customer Churn
1. How can I quickly reduce customer churn in my business?
To reduce customer churn, focus on improving customer experience. You can start by identifying why customers leave (through feedback surveys). Next, engage with them via outsourced email services or support channels and offer personalised discounts or upgrades.
Try to ensure your product quality is consistent and competitive. By providing excellent customer service, you can also encourage customers to stay.
2. What is a good customer churn rate for my business?
A good churn rate varies by industry, but for most subscription-based businesses, a rate below 5% per month is ideal. Be aware that lower churn means higher customer retention. It leads to steady revenue.
3. How do I know if my customers are about to leave?
Watch for warning signs such as:
- Reduced product usage
- Negative feedback
- Increased complaints
- Inactivity
A drop in login frequency or purchases also indicates disengagement. By regularly tracking these metrics, you can reach out to at-risk customers before they leave.
4. Should I focus on getting new customers or retaining existing ones?
Retaining existing customers is more cost-effective than acquiring new ones. Studies show that increasing retention by 5% can boost profits by 25-95%. Loyal customers also promote your brand and provide repeat business.
However, you should still balance retention with new customer acquisition for steady growth.
5. What strategies can I use to prevent customers from switching to competitors?
You can offer:
- Competitive pricing
- Superior customer service
- Exclusive benefits
Also, personalise your marketing to make customers feel valued. Most importantly, keep improving your product or service based on customer feedback.