Before we move forward, let’s begin with a customer churn definition.
Customer churn definition – what is it exactly?
Customer churn occurs when your customer or subscriber stops using your product or service within a specific time period. This definition applies to a SaaS business.
To put it into context, here are a few examples of customer churn:
- Subscription cancelation
- Account closure
- Non-renewal of a contract
- Client’s decision to shop at another store
How do you calculate churn? There is a simple formula for that. You divide the number of your lost customers (within a certain time period) by the number of your existing customers.
Let’s say you want to measure your monthly customer churn rate. If you have 40k subscribers, and 2k of them leave in December, your churn rate is 5%.
What is the customer churn rate by industry?
What’s acceptable in one industry is unacceptable in another, and this also applies to customer churn rate. Let’s look at an average customer churn rate in a few industries:
Credit card companies in the US – around 20%
European mobile carriers – 20-38%
American telecom companies – 0.84%
SaaS – 5-7%
Retail banks – 20-25%.
As you can see, there is no such thing as a universally accepted low or high churn rate – it’s sector dependent.
Customer churn rate prediction – can I predict my churn rate?
If you’re wondering whether customer churn rate prediction is possible, then the answer is… YES! There are some statistical and machine learning techniques which can help you estimate your future churn rate.
Both of these take into account historical purchases and behavioral data to foresee how probable it is that a customer will churn. Here’s what a churn model can help you with:
- Assessing what impact a new feature will have on the churn likelihood to help you understand why customers leave
- Introducing churn risk scoring that will show your customers who will most probably leave, so you can target those with some retention campaigns
- Setting up a discounting strategy for customers who are likely to churn.
If you want to learn more about customer churn rate prediction, then here’s a great article written by Datascience.
How to reduce customer churn
Here are a few tactics that will help you in churn prevention or churn reduction.
1. Stop selling to the wrong customers – create your buyer personas
If you want to reduce your customer churn this is what you should start with. Believe it or not, but not all leads should become your customers…sometimes it’s just not meant to be.
Creating your ideal buyer persona will help you identify people/companies that you should target your marketing/sales/product efforts at.
You can’t make everyone happy, and if you target the wrong customers it will have an adverse effect on your churn rate.
These are some of the questions you need answers to, to create your ideal buyer persona, and prevent churn:
- Which sector do they work in?
- What’s their company size?
- What’s their job title?
- How’s their performance measured?
- And many more.
Look at the past data, and identify your most satisfied customers – those who stay with you the longest. What do they have in common?
Also, remember to share this information with your sales team (if you have one), because:
“If a salesperson has not been explicitly told the characteristics of a bad fit customer, why they’re a bad fit, and what the negative consequences of doing business with that customer are, the fact that there is a possibility they might not be a great fit isn’t reason enough for the salesperson to give up that sale, miss their numbers, and take home less pay”. – Lincoln Murphy
2. Find out what the churn reason is
Churn will always happen, even to the best companies. But what differentiates good companies from the bad ones is that the former always try to find out what the churn reason is so they can prevent it from occurring again in the future.
If – sadly – your customer decides to leave you, the least you can do is ask them why. You can either do it via a phone call or by sending them an email survey asking why they’ve decided to leave and what you could do to improve.
The price of not identifying your churn reasons is high, so make sure you know why attrition happens. Make a note of it in your CRM, so your entire team has access to it.
3. Try to spot any red flags
Another tactic for churn prevention is identifying the leading indicators of churn. This will help you react more quickly to any issues that your customers are facing, and resolve them before they decide to leave. Some of the red flags might include:
- A decrease in customer engagement/product usage
- Closing a free trial
- Leaving a negative review
- A low NPS score
- A lack of communication
You should keep track of all of them, and possibly set up notifications in your CRM, to not miss out on any important signals.
4. Offer great customer support
Do you know what the most common reason for customer churn is? Majority of customer leave because of bad customer service.
Oracle has discovered that 9 out of 10 customers will abandon a business if they have a bad experience. They need to feel looked after.
Even though we live in the age of automation, it’s still human interaction that people appreciate the most, and it’s what they expect to get as soon as a problem arises.
You have to deliver on their expectations. Customers are way less forgiving when it comes to bad customer support than when it comes to product imperfections.
The good news is that 86% of customers are willing to pay more for better customer service. So, if you’re looking for any savings, look away from customer support – it’s where you should invest your money in.
Creating a great customer experience, is key to reducing customer churn.
5. Create an exceptional onboarding process
First impressions count, they really do. And you can only make a first impression once, so better make sure it’s a damn good one.
Your customers will only use your product if they see a value in it and know how to use it, and that’s what the onboarding process is for.
People get easily discouraged, so if you leave your customers all to themselves, they might get lost, mastering your product will take them longer, and they might eventually give up if they see no success.
Things to consider as part of your onboarding process:
- A welcome email. Here’s a good example from Zapier which we are a fan of.
- Educational emails – to show them how to use the most important features and keep them engaged
- Celebratory emails – it’s important to celebrate successes and reaching key milestones
- Interactive walkthroughs – to show your customers how to get value from your product
- A knowledge base – including articles with answers to the most common problems so your customer can access them whenever they need to.
6. Ask for feedback regularly and react to it
Don’t wait for bad things to happen, ask for feedback regularly and respond to it promptly. Do you have a new customer, who just completed your onboarding process? Ask them what they thought about it.
Did you just resolve an issue that your customer reported? Find out how satisfied they were with your customer support. Feedback is key to improvement. Both good and bad feedback.
Actually, is bad feedback even a thing? Probably not, because feedback gives you a chance to make things better. Hate me for it, but I think negative feedback is more valuable than positive feedback.
If you want to reduce customer churn, turn feedback collection into your daily practice. There are many tools that will help you collect feedback effortlessly. Survicate is one of them.
You can run website surveys, email surveys, mobile surveys, and even Intercom surveys, thanks to our killer Intercom integration.
Irrespective of your goal, whether you want to measure your NPS score, get feedback on your newest feature, find out why your web visitors aren’t converting – we’ve got you covered.
Creating surveys at Survicate is nice and easy! Also, we offer a free version, so you should definitely give it a shot!
Do you have any tactics for reducing customer churn? I am dying to know what they are, so please share them in the comments 🙂 If you need more tactics for reducing churn, then here is a great article from SalesHacker!