Mastering Customer Churn: Strategies for Retention and Growth

Mar. 22, 2024

Mastering Customer Churn: Strategies for Retention and Growth

When running a business, we always look for things that can constitute continuous growth, right? One such thing is customer retention. When you try to retain customers in your business, it lowers the customer acquisition costs, increases profitability and provides many other benefits.

When a customer retains and continues to do business with you, it takes fewer resources to be spent per deal. However, the exact opposite of it is called customer churn

It is used when customers stop making purchases from you for any reason. In that case, it is called that the customer has churned. Any business must understand why customers are churning and control it as soon as possible. But why is it important? 

It is important because when a customer churns, all the expected sales from that particular customer are gone. Additionally, it also results in diminishing the brand reputation and decreasing CLV. 

That's why when it happens, it becomes crucial for the company to manage it as soon as possible. It is categorized into two different types, namely, voluntary and involuntary churn. 

● Voluntary Churn

Voluntary churn is when customers stop buying your product or service by their own will. Since it's the customer's own choice not to continue business with you. The reason for it can be anything from financial issues to product dissatisfaction and better deals from your competitors. Even when it's voluntary, you should investigate the reasons for churn.

● Involuntary Churn

Involuntary churn is when due to some external reason that is out of his/her will and is uncontrollable. For example, if a customer buys a product from your website and the transaction fails due to some external reason, the customer will most likely abandon the product. 

A Formula to Calculate it

You can find your customer churn with this simple formula:

(Number of customers lost during a specific period / Total number of customers at the beginning of the period) x 100. 

For instance, if you had a customer base of 1000 customers at the start and at the end, you are left with 900 customers, then you will be:

Customer Churn = (100/1000)×100
In (%) = 10%

In totality, it is crucial to understand and maintain customer churn to increase the profitability and stability of the business. This blog explores the importance of measuring it, metrics to measure it, and strategies to control it. So, let's get started!

Why Measuring Churn is important? 

No matter what the size of your company, small, medium, or large, customer churn is important to measure. The answer to why it is important lies in a few statistics. 

According to a study, if you manage to increase customer retention by only 5% in a Financial Services business, the profit increase will be around 25%.  

But if you look at the other side of the coin, failing to retain customers means they churned. So, it impacts the revenue significantly, irrespective of your business's size. 

Moreover, it also affects customer satisfaction. If a customer is churning, it means there is a reason behind it, which made him/her dissatisfied with your product or service, or other operations. Hence, the lifetime value of your customers decreases because there will be no further transactions. 

It also affects the brand reputation because more people leaving you means more dissatisfaction. So, when these people talk about your brand, it results in negative word of mouth. Ultimately, the reputation of the brands decreases. 

These are the primary reasons why it's important to measure it. But how do we measure it? Finding the churn rate is insufficient. After all, it will not give you the details. That's why your approach should be more detailed. Let's now look at the metrics for effective analysis. 

Three Key Metrics for Effective Churn Analysis

● Customer Retention Rate

The customer retention rate defines how many customers are retained in your business. It helps you analyze your churn, a metric closely related to customer loyalty and satisfaction. If the customer retention is low, then there is absolutely something wrong with your product/service or its execution, causing dissatisfaction. 

● Customer Lifetime Value

Customer Lifetime Value refers to the expected value a customer may generate by doing business with a company. It undertakes the whole customer journey and involves factors like purchase frequency, average order value, and customer longevity. Lesser CLV depicts that the customers are not engaging with the brand for the long term, which is a sign of increased churn. 

● Churn Prediction

It is a smart metric based on analyzing historical data and using predictive analysis to come up with an expected churn over some time. It analyzes historical data to find patterns and trends in customer behavior and gives an early warning before the customer churns. 

How to Prevent Customers from Churning? 

Prevention is better than cure, but you should know how to prevent it first. 

Talking about customer churn, the prevention is to retain customers. However, it doesn't mean you should not focus on onboarding new customers, but that's costly. So, to maintain profitability, you should also retain them to turn them into profitable deals. That's why most churn prevention strategies are about how to retain customers. So let's have a look at them. 

1. Identify the Churn

Before taking any action, you should analyze the churn when it occurs. In simple terms, as soon as you see a spike in churn, analyze it, and find the reason behind it. For example, if there's a technical error, it will be caused by many customers, resulting in churn. 

2. Use Personalized Communication

The best way to keep customers about to churn is to personally communicate with them. It indeed doesn't mean calling them personally, but you can direct your customer service team to do so. It will not only help the customer get resolutions faster but will also help your business keep customers. 

3. Implement Effective Loyalty Programs

To decrease the chances of your customers even thinking about leaving you, you can make efforts to turn them into loyal customers. Loyal customers look at you not as a brand but as a feeling. That's why they don't tend to leave your brand due to slight discomfort. You can run loyalty programs to increase the number of loyal customers in your customer base by offering them benefits for shopping with you.

4. Elevate Customer Experience with Exceptional Customer Service

Once a customer is in with your brand, the higher chances of him/her leaving are when he/she doesn't get good customer service. If you want to cover up those dissatisfaction with your product or service due to anything, exceptional customer service with quick resolution is important. 

5. Enhance Product Quality Through Customer Feedback

With a focus on improving your product or service based on feedback, you can prevent future voluntary churn from ever happening. However, as we mentioned, based on feedback is important because feedback tells you where the problem is coming from. 

Key Takeaways

● Understanding churn is crucial for revenue preservation and customer satisfaction.
● Metrics like retention rate, CLV, and churn prediction provide valuable insights into customer behavior.
● Proactive strategies such as personalized communication and loyalty programs help prevent churn.
● Implementation of these measures fosters long-term growth and brand reputation.
● Prioritizing retention and analyzing churn metrics sustains profitability and competitiveness.

In totality, this is how you can analyze the virus in your business and manage it effectively. With the strategies mentioned above, you can make your business more focused on customer retention, resulting in lower churn rates.