Discussing Customer Churn!
So far, we have been talking about customer churn. Let me help you understand it better now!
In simple terms, customer churn refers to the loss of customers for miscellaneous reasons. In technical terms, customer churn is the ratio of lost customers to total customers during a fixed time period. The rate at which customers unsubscribe to your services is classified as a churn rate.
Here is a mathematical example to help you understand it!
For example, if at the beginning of the month, you had 100 customers and at the end of the month, you have 95. The churn rate would be 5%.
Churn rate = (Number of customers who unsubscribe from the services / Total number of customers at the beginning of the period) x 100
Churn rate = (5/100) x 100 = 5%
Types of Customer Churn!
Well, I believe that you might be clear on the definition of customer churn so far. Now. let’s check out the types of customer churn.
- Revenue churn
Revenue churn varies a bit more than customer churn. Though it does not exactly relate to the topic, it is critical for you to know it. Revenue churn describes the reduction in revenue earned from customers within a fixed period of time.
For example, if you have earned $500 from 100 customers in one month and in the next month, you earned 497, revenue churn will be (500-497)/500. In this, the business does not lose customers but loses revenue as users shift to a lower value subscription plan.
- Competitors intervention
Just like Amazon has Alibaba and Rolls Royce has Mercedes, your business also has a number of competitors in the market. It is imperative that your customers would switch to other businesses if they are not satisfied.
Therefore, if you are witnessing customer churn, it can be due to your competitors intervening in your business. The best thing to do is to analyze your competitors with your business to find out any shortcomings. Once you know the lags, you can find out what’s making your customers leave.
- Unsuccessful onboarding
74% of your customers will be driven away if you have a complicated onboarding process, Yes, it is true. Only 40% of the companies enjoy a positive onboarding experience.
A smooth onboarding process is a primary element in customer acquisition and retention. Therefore, if you are selling a project management tool, it is necessary to provide the customers with a guide to use the tool. It helps learn the tool faster and thus reduces the churn rate.
- Function or functionality
When a company launches a new product with new features, the market is disrupted for some time. After that, all its competitors formulate strategies to deliver the same features to its customers. This is a scenario where a lack of functions and functionality leads to customer churn.
Though this kind of churn is not a bad thing if you are delivering the best features that are liked by a large set of your audience, it is crucial to keep a tab on your customer's needs and preferences from time to time to stay on top.
Make a note of one thing: no matter how brilliant you are trying to make your product, there will always be some customers with negative reviews.
- Company closure
In case you are dealing in the B2B model, and your customer goes out of business, you may witness a sharp customer churn. However, if that customer merges with your business, it may not. These scenarios are likely to happen in the B2B market if your customers are small businesses.
You need to keep a strong customer acquisition strategy to balance the effect.
Learn about subscriber churn and how to reduce it!
The Need and Importance of Customer Churn
Till now, I have been talking about why customer churn is bad, but on the reverse side, it is an important factor, too. How? Let’s see!
- Product improvement: Customer churn is one of those factors that clearly narrates that there is something wrong with your product or there is something better in the market. Therefore, it can help understand the changes in the market and shortcomings of the product.
- Analyze Customer Satisfaction: We know that customer acquisition cost is always more than customer retention cost. There is another parameter, namely customer lifetime value (CLV), which is defined as the net profit that the business earns from a customer across the entire collaboration. If the CLV is more than the customer acquisition cost, customer satisfaction is high. With tools like Qwary, you can seamlessly analyze customer satisfaction from one dashboard.
- Strategic Planning: Businesses can use churn rate insights to understand their customers. Based on this, they can form precise and tested strategies for product improvement and market expansion.
- Business profitability: I found that an increase of 5% in customer retention can boost business revenue by 95%. As the numbers are solid, it is necessary to keep the churn rate in check at all times.
Why is Customer Churn Caused?
I have seen it. There are a plethora of reasons why customer churn can occur. Let me help you understand those reasons!
- Product market fit
You need to note one thing: you cannot satisfy everyone in the market. However, if you are struggling to sell your product to the best customers, there is something that your product does not have. This is what product-market fit is. Your product is not fit for the market and needs to be improved. As per stats, around 34% of startups fail due to product-market fit.
- Bad customer support
No matter how great your product onboarding process is, some of your customers still require assistance with using the product or in case of any issues. Therefore, it is necessary to focus on improving your customer service.
I must say that don't just rely on text-based manuals and chatbots on the website. Your audience wants to talk to human customer support. As per stats, 71% of Americans prefer talking to a human than a chatbot for a personal touch.
- Competition
Why do you think Apple, Samsung, etc., keep releasing new phones yearly? It is to beat the competition. Every year, brands come up with some unique features for their phones. This sparks the fire of competition in the market. An example can be the dynamic island feature of Apple.
Just like this, every market has competition, and you have to keep up with it by offering something better to your users before they switch sides.
- Product issues like bugs
Instagram was down for an hour recently, and Elon Musk leveraged the situation by posting a funny yet teasing post on Twitter. Though the glitch was resolved by the tech giant Meta, the company lost around $3 billion in a two-hour outage.
This is what a technical glitch or a service bug can cost. Though it was not exactly customer churn, it was an example that if Instagram was not an established brand, it would have faced serious customer churn.
- Product lost value
With new and better products in the market, your product will lose its value if it is not updated. And this will be clearly seen in the customer churn.
- Product is pricey
One thing that can seriously impact your product sales and increase customer churn is the price of the product. Take Apple, for example! Though the prices of their iPhones touch the sky, the brand never diverts its customers towards price but focuses on highlighting its value.
With new and innovative features in their handset, they aim to offer the best value to their customers. However, depending on the brand, the definition of value can vary. Unlike Apple, a smaller phone brand can focus on delivering better customer service for a lower-priced phone.
What is the Difference between Customer Churn and Revenue Churn?
As the names suggest, in customer churn, a brand loses customers, and in revenue churn, a brand loses revenue.
Here is an example of customer churn! If you lost 10 customers by the end of the month while you had 100 at the beginning, the customer churn will be (10/100) x 100 = 10%.
Let's dive into revenue churn! A critical element of this is MRR.
If your MRR at the end of the month is $900 while it was $1000 in the beginning, the following will be the revenue churn.
(1000-900/1000) x 100 = 10%.
Mathematically, revenue churn is directly proportional to customer churn. If customer churn surges proportionally, the revenue churn will do the same, but not vice versa. How?
For instance, if a user chooses to get a more economical subscription, the revenue churn increases, but not the customer churn as the number of users is the same.
Identifying Customer Churn!
I know you are waiting for ways to manage customer churn, but you can only manage it if you know it exists and how much. Here are some ways to identify customer churn.
- Customer churn metrics
Customer churn metrics are the parameters that indicate customer churn. Based on your business product or service, it can be no making a purchase, uninstalling an app, or ending a subscription.
Besides, there are other factors too that indicate customer churn, such as NPS, CSAT, Churn rate, Monthly Recurring Revenue, etc. All these aspects are easy to calculate based on tracking customer journeys on your website or application and gathering feedback.
- Get customer feedback
As we were discussing about in the previous point, garnering feedback is equally essential to estimate customer churn. Surveys are the best way to get honest feedback from the customers. It can be taken directly on the website or via other means, such as email, in-product surveys, etc.
You can also send NPS surveys to your customers after your conversation with them as it will be the ideal feedback.
Here are the best practices to conduct NPS surveys!
- Proactive customer service
Nothing can beat the brand that focuses on providing top-notch customer service to the customer after selling their product. Let me share an example: I bought an LED screen a year ago from a reputed electronics brand. After a year, the LED went bad for some reason (it was not my fault, truly). I called their customer service, and within two days, my LED screen was replaced as it was under warranty.
I want to focus on the fact that they changed the LED at my home; I didn’t have to go anywhere. Hence, I was truly satisfied, and they got a customer for life. This is what proactive customer service provides you: loyal customers.
- Monitor community forums and third-party review sites
Online communities, forums, and third-party websites are the places where customers tend to share their reviews and post problems. You can monitor such websites and portals for product reviews and issues posted by customers.
It will provide you with some lead time to look into the issues and resolve them before they affect customer churn.
Managing Customer Churn
So here we are! The final and crucial section of the blog is customer churn management. Let’s begin!
- Analyzing why churn happens
Obviously, the first step is customer churn analysis. You have to find out the why behind the customer churn. Though surveys, SMSs, online reviews, etc., are helpful, there is no better way than direct communication. It may seem like a hassle, but believe me, communicating with your customers on the call is the best way to know why they left. It will make you look responsible and caring.
You need to be active on all the channels, including social media, ecommerce websites, apps, etc., to capture the feedback.
- Boost Customer Engagement
The core rule of marketing is to leave your footprints and keep talking about the brand. Make sure you keep your customers engaged, no matter at what stage they are in your funnels.
For example, you can provide them with regular updates on your product, new video feedback from other customers, upcoming offers, etc., to make them keep coming back for more.
- Offer incentives
Now, though this method looks highly lucrative, you need to be careful. Based on parameters like NPS, CSAT, and direct customer feedback, you can find out which customer is most likely to exit. For example, customers who are in the ending phase of their subscription.
Based on that, you can design and offer your incentives like offers, royalty points, coupons, etc.; you can offer them subscriptions at a lower price but at a profitable one for your business.
- Educate your customers
If you are selling an electronic product like a mixer, it is obvious that the customers would know how to use it. But, if your product is a complex one, such as a smart home assistant, it has to come with some detailed guides and manuals.
In the case of software, such as productivity management software, there should be a detailed onboarding process. Educating your customers regarding their products is essential as it leads to a reduced churn rate.
- Define the most valuable customers.
There are always some customers that have been completely loyal to you. For example, business owners that use different software of your brand and provide high revenue to you. You need to segment these customers and provide them with additional attention.
Look into their activity and aim to resolve their issues, if any. Moreover, formulate your products to make them more lucrative for your most valuable customers.
- Ask for feedback
As focused on a lot of times earlier, asking for feedback is the best way of churn management. When your customers install a game or an app, probe them with a quick rating regarding the product. Based on the feedback and analysis, you can make the necessary changes to reduce churn. Heat maps are an effective way to learn your customer activity on the website or app.
An example of feedback can be food delivery apps. As soon as you receive the order, you are probed to provide a rating. This rating helps the brand understand its customers.
- Analyze complaints
When a customer complains about a product and its elements, they give you a chance to make it right. As per stats, around 32% of customers will simply walk away from a brand after one bad experience. Therefore, it is necessary for you to take and analyze your customer complaints seriously.
- Be competitive
In today’s technologically advanced world, new products are surfacing every day and in every industry. An example of this is the generative AI product Converse AI. If you want to reduce customer churn, you need to keep up with the market by introducing new and better features than your competitors.
A good thing about staying competitive is that your product stays updated at all times, which ultimately powers customer engagement.
- Dedicate customer success managers (CSMs) to your most valuable customers
Customer success managers are the people who are employed by the brands to take care of their most important customers. For example, if a business uses 4-5 products of the same brand, it is a valuable customer.
Brands deploy CSMs for such customers so that they can be reached anytime by the users regarding their queries and suggestions. Moreover, CSMs can also help customers get the best out of the products.
Conclusion
Overall, churn management is significantly dependent on the success of the customers. They say that the customer is god. It is true because as long as the customer is happy and is able to do what they want to with the product, business will run smoothly. Hence, customer success reduces the churn rate.
However, to know what the customer feels and how they perceive the business, there is a need for top-notch resources like surveys, website feedback, video conversations, etc. If creating surveys seems like a hassle, leverage the power of Converse AI, crafted by Qwary.
FAQs
- What is the meaning of customer churn?
Customer churn is defined as the attrition or dip in the number of customers over a fixed period of time. It is mathematically represented as the ratio of number of customers who left to the total number of customers.
- How to predict customer churn?
Though it is not possible to predict the exactly customer churn, there are some aspects based on which you can narrow it down. To narrow down the churn rate, you have to monitor the product usage data, analyze customer metrics, obtain customer feedback, and conduct a comprehensive data analysis.
- What is churn in customer success?
Churn in customer success is defined as the rate at which customers start doing business with a brand over a certain time period.
- What is the difference between voluntary and involuntary churn?
Voluntary churn is when the customer leaves the brand because of a product that they don’t like. Involuntary churn is when the customer cannot continue with the services due to payment failure, invalid card, etc. The brand or product does not have any fault in involuntary churn.
- What are some tools to track and analyze customer churn?
There are several tools to analyze customer churn, such as Churnly, Qwary, Hotjar, Zendesk, Qualtrics, etc.
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