How to Reduce Customer Churn: The Commonsense Approach

Why should companies learn how to reduce customer churn? The short answer is that convincing a new customer to purchase anything can prove challenging. The cost of attracting and onboarding them can also be high. 

By contrast, once they’ve enjoyed a company’s products or services, it’s easier to convince them to buy more. That makes customer retention even more important. By reading this article, companies can learn more about churn and how to reduce it.  

What Is Customer Churn? 

Customer churn, or attrition, is the rate at which businesses lose customers. In other words, when a customer cancels their subscription or stops purchasing any products, so doesn’t bring in any money for the company.

Companies can calculate it by taking the number of customers they lose in a predetermined period by the number of customers the company had at the beginning of that timeframe. They can also use the amount of revenue they lose instead of counting customers. 

Businesses can further divide churn into one of three categories: 

• Customer or revenue churn: Revenue churn refers specifically to how much money a company loses when customers downgrade their purchases or subscriptions. Customer churn refers to how many customers the company loses. Revenue churn is a more accurate measure of the cost to the company. 
• Voluntary or involuntary churn: In this case, the distinction is between customers who choose to leave and those that must because they can’t afford to or that have reached their credit limit. Voluntary churn is worse because the customer makes the choice to leave. 
• Negative churn: This is the ideal situation, and not one companies need to reverse. In this case, new sales and upgrades bring in more revenue than the company loses through cancellations. 

Companies aim to reduce customer churn because it directly impacts profitability. 

Why Reduce Customer Churn?

Reducing churn is essential because it helps companies boost profits and expand. It’s just as critical to keep your existing customers and cross-sell to them as generating new leads is. Perhaps even more so for sustainable business growth because retaining a customer costs less than gaining a new one. 

When a customer leaves, the company loses the income they’d have spent. In addition, the company must also pay for marketing and to onboard new customers to make up for the loss. Therefore, companies start at a loss. 

How much of a loss depends on the industry, as acquisition costs vary. The factors to consider include the: 

• Length of sales cycle
• Purchase value
• Purchase frequency
• Customer lifespan
• Company maturity

Considering the cost of acquiring a new customer, it makes sense to maximize a customer’s lifetime value (LTV). 

Increasing LTV by Reducing Churn

Another reason to reduce churn is that it improves the customer’s lifetime value. The longer the customer deals with the company and purchases from them, the better the company benefits. 

If companies can retain their customers, they automatically 

As LTV is the total revenue a customer generates for a business over their entire relationship, reducing churn increases the potential for future sales. While this is a little simplistic, as repeat purchases can depend on many variables, aiming for higher customer retention rates is still worthwhile. 

How to Prevent Customer Churn 

There are several ways to reduce customer churn. Companies must look at the methods below that resonate with them the most. 

Find Out Why Churn Is Happening 

Customers may churn for various reasons, including: 

• Improper marketing attracts poorly qualified leads
• Customers not achieving their desired outcomes
• Poor customer support
• The perception that competitors can do a better job
• Product bugs
• Bad service
• Customers feeling undervalued
• High pricing
• Customers no longer see the value in the product

Conducting exit interviews with customers who leave is an excellent way to establish why they’re going. When customers don’t afford companies the opportunity for an exit interview, companies may have to rely on usage statistics and market research instead. 

Implement Co-Browser

Offering better support is an excellent way to reduce customer churn. Co-browsing, lets customers and businesses collaborate within a customer’s browser in real time. Collaborative browsing makes it easier for the consultant to work out what’s wrong and to properly teach the customer how to correct an issue. 

Make the Onboarding Process Simpler

Here are some tips for improving a user onboarding process:

• Know the target market and its requirements. Do customers require a company to provide step-by-step support, or do they want more self-help options? Companies should tailor their approach to onboarding to support each customer’s expectations.
• Utilizing analytics during the early stages is very important for companies. They should look into usage statistics and, where these aren’t available, obtain feedback from customers. It can prove helpful for retention to follow up with customers to ensure they receive maximum benefits from a product or service. 
• Incremental testing to discover more significant opportunities can significantly improve the onboarding process. Tweaking the process to make it as efficient and pleasant as possible can improve customer satisfaction, which is helpful for retention.
• Companies can also use social channels and established user communities to gather helpful feedback from clients that recently went through the onboarding process. 
• Whatever the industry, it’s usually best to keep the sign-up flow as quick and straightforward as possible. 
• When customers provide feedback, companies should act on it to find additional ways to improve. Acting on customer feedback also allows customers to feel that a company values their input, which can improve satisfaction. 

Provide Proactive Customer Service 

Proactive customer service involves companies making the first move to help their customers before they need to reach out for help. 

This can include introducing new products or services customers may like, making errors and glitches known as they occur, or simply going the extra mile to improve a customer’s experience. Proactive service plays a significant role in increasing customer retention and delight.

Some ways to provide proactive customer service include:

• Anticipating buyers’ needs (or problems) before they are aware of them or need to contact a support team. Companies can, for example, reach out to customers who have not yet used the full suite of service options in their software to suggest practical applications. 
• Allowing customers to solve their issues through self-service. Customers are becoming increasingly self-sufficient, so proactive businesses provide solutions that support this. Examples include website portals, apps, chatbots, or online knowledge bases that customers can consult as needed. 
• Communicating potential problems that crop up. Say a company detects a bug in its software. By contacting their customers and giving them a solution, they reduce frustration and show themselves as forward-thinking and customer-oriented. 

Make the Company Indispensable 

Banks are masters at making themselves indispensable to their customers. A customer opens a simple checking account to deposit their salary into, and that’s one hook. Changing the salary payment is relatively easy but requires effort on the customer’s part. 

However, banks don’t stop there. They allow for automated payments, making it much easier for customers to control their finances. Again, customers can change these payments, but it requires effort. 

Banks then innovate and add additional products like savings accounts, investments, and credit products like overdrafts and mortgages. The upshot is that a customer’s financial affairs become so entangled with the organization that leaving becomes difficult. 

Modern companies aim to make themselves indispensable to customers by delivering high-quality, unique products. Companies may also distinguish themselves by offering outstanding customer service and support. Customers who are happy with the service they receive are unlikely to wonder if competitors do a better job. 

Create a Community Around the Project

Creating a community around a project can increase engagement, support, and loyalty. Companies can get their customers excited about helping them build their brand. They could create a community around assisting them in succeeding, but to do so, they have to have a community that has real value. 

They could: 

• Find out what their community needs and fulfill it
• Find like-minded individuals willing to work toward a common goal
• Listen to the community members and create opportunities that they’ll enjoy
• Use those opportunities to build hype for your company and also your community
• Keep engagement high by doing the project through continued cooperation
• Let the public know more about the project and why they should get involved

Remind Customers of the Value the Company Provides

Reminding customers of a company’s value is an integral part of maintaining a strong relationship with them. This can be done through regular communication, such as newsletters or social media updates, highlighting the benefits of the products or services. 

Companies can also share customer success stories or testimonials to demonstrate the positive impact a business has had on others. Additionally, offering promotions or loyalty programs can incentivize customers to continue doing business with a company while improving the value they receive. 

Companies should, however, walk a fine line between subtle promotion and too much marketing. Sending too much marketing information could lead to customers ignoring mailers, so companies should look for subtle ways to communicate their message.

They might post tutorials on social media or show people doing extraordinary things with their products. 

Increase Customer Engagement

Increasing customer engagement is vital for building a loyal customer base and improving sales metrics. Here are some strategies a business can use: 

• Listening to their customers by gathering feedback in a way that suits the customer. A business should then make a meaningful effort to act on useful advice, as this shows customers that it values their feedback. This encourages more engagement. 
• Creating a knowledge base that will be a helpful way to support customers’ efforts to find solutions and help other customers trying to do the same. 
• Implementing a loyalty rewards program that also gives users points for engagement. This could start as simply as giving them points for answering surveys. 
• Leveraging artificial intelligence to answer customer questions on social media and alert the company to brand mentions. Doing so allows the business to deal with issues quickly, proving that engaging with them is worthwhile. AI is also useful for gathering insights to put to good use. 
• Creating outstanding customer experiences by offering the best possible service. If companies can wow their customers, there’s a better chance that the customers will recommend the product or service. 
• Making the brand relatable, authentic, and meaningful. Companies should remember that their customers want to know they’re appreciated beyond their financial value. Companies should take time to reach out to customers for courtesy calls or to offer assistance rather than only for sales. 
• Building a relationship with a client cements the bond more thoroughly, but involves more effort. Sales teams must first ensure that they provide the right product mix and that the customer understands the full benefits. Companies can reach out across multiple channels with useful information that is useful to the customers, whether product-related or not. 
• Companies can also identify different points along the customer journey where they can provide support. This may be in the form of commenting on discussions online,  providing useful whitepapers, tutorials, and research materials, or following up with emails. 
• Companies can take engagement one step further with careful social listening. With this, they’ll identify online mentions about the company or selective keywords and draw insights from these. 

Identify the Value of Customers 

High-value customers are those who make a significant impact on a company’s bottom line. These customers have outstanding customer lifetime values (CLV), and their loyalty and advocacy attract new people to a brand. Here are some ways to identify high-value customers:

• Monitor loyalty programs and identify repeat customers and those who spend large amounts regularly. 
• Use surveys and customer feedback to establish the general feeling of the brand and identify customers who are more likely to be brand ambassadors. 
• Track social mentions and respond to positive and negative comments. 
• Compare key performance indicators (KPIs)
• Look at historical sales.
• Conduct market research, especially as the company’s target market evolves. 

Identify Your at-Risk Customers

At-risk customers are likely to cancel their subscriptions or stop doing business with a company. Here are some ways to identify at-risk customers:

• Track their customer journey and evaluate who, for example, renewed their subscription and who didn’t. See if there are patterns that might indicate a predisposition to cancel. 
• Keep an eye on the online community to see if there are growing signs of discontent with the company or hype about a competitor. 
• Check if there is an increase in support tickets and find out why. This could indicate a product issue to resolve.
• Review customer milestones periodically and ensure that the customers complete each stage of the journey. 
• See how many customers are directly leaving negative reviews and what the complaints are. Treat these as valuable sources of information because only one customer out of 26 complains. 

Prevent at-Risk Customers From Leaving

When companies identify at-risk customers, they need a strategy to get them 

When you identify at-risk customers, look for ways to prevent them from leaving. Companies may contact the person and talk through things with them. 

For this to work effectively, the contact team should have the power to offer discounts or other incentives to hold onto customers. However, companies must find a balance between incentives that are valuable and those that cost too much. 

Slashing prices to retain a customer may not prove wise in the long run if it eats into the profit base too much. 

Have a Specialist Cancellations Team 

Many companies make the mistake of allowing anyone to deal with customer cancellations. The downside of this strategy is that companies then rely on the people that caused the service failure in the first place. 

Having product specialists handle the cancellation requests makes good business sense. A major Australian telecommunications company, Optus, has this down to a fine art. The company, first of all, doesn’t allow cancellations or similar tasks through its self-help channels. 

Instead, customers have to call in and speak to the service team. The team consists of highly-trained sales experts whose first reaction is to see whether there is a more suitable product for the customer. 

They also do this whenever a customer calls in, offering proactive service troubleshooting and maximizing the chances of cross-selling. The downside is that it is easy for the consultants to go too far and irritate the customer. 

However, with good training, consultants can play a valuable role in retention. 

Review the Target Audience

What happens if, despite the company’s best efforts, the churn rate increases? The next step is to review the target market. No matter how good the initial offer is, retaining the customer is unsustainable if they are the wrong type of customer. 

Companies can, for example, use loss leaders to attract a new customer base. But, if they sell a premium product, customer attrition will be high, because the type of person that looks for discount deals may not have the money to purchase the products at the normal rate. 

For this reason, slashing prices on premium products is usually a losing strategy. It’s better for companies to charge more and focus on how exclusive the products are, or on their premier features. Doing so appeals to the audience that can afford to continue purchasing or subscribing. 

That’s not to say that people with more money dislike a good deal. They want good value. Unfortunately, using a cheap entry price as the focus initially might mean that they miss out on the long-term value the company offers. 

Consider Offering Contracts

Long-term contracts have fallen out of favor over the last few years, but they’re still worth considering. White companies can charge a premium for month-to-month plans, these do nothing to lock customers in. 

Customers who are locked in for a fixed term are more likely to learn to use all the features to get the best possible value for their money. 

Conclusion

The best way to prevent customer churn is to improve service in general. Companies hoping to learn how to reduce customer churn should consider simplifying their processes and improving customer satisfaction. 

While it may be costly to overhaul processes and procedures, the investment should prove worthwhile due to better customer satisfaction, engagement, and retention. 

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