What is Customer Churn? Learn About Types & Effects of Churn

What is Customer Churn

Every business exists as long as it has customers. But what if these customers decide to part ways due to underlying reasons such as inefficient support process, defective products, or poor engagement? 

Customer churn refers to the number of customers who cease to buy from your business. Even small month-on-month increments in customer churn can put big questions on the survival of your business. 

So how do you stop customer churn and retain your customers for a lifetime? 

To prevent churn, you must first understand why customers are leaving, consistently improve your products, and deliver delightful customer experiences.

Still unsure where to start? Read this blog to understand what is customer churn, how to calculate customer churn, its leading causes, and how your business can prevent churning customers. 

What Is Customer Churn?

Customer churn, also commonly known as customer attrition, is the phenomenon where customers cease to purchase or interact with a business. High customer churn can be indicative of inefficient products or services. 

Now, customer churn does not happen in a split second, it sets-in the moment your customers start being unhappy with the product or services offered by you. There are many tell-tale signs of customer churn, a few of them include:

  • Dangling customer registrations with no new purchases
  • No renewals for the subscriptions and services
  • No new registrations
  • Unsubscribing customers 

What Are the Leading Causes of Customer Churn? 

To every reaction, there are underlying actions that led to it in the first place. Although customers will churn at some point or the other, you must be well-acquainted with the major factors that contribute to churn. 

1. Poor Customer Service

According to a Microsoft report, 56% of people around the world have stopped doing business with a company because of poor customer service experience. Poor customer service experiences have become one of the leading reasons for customer churn. Factors such as delayed responses, use of outdated technology, impolite agents, lack of personalization, etc. can lead to an unpleasant service experience. 

2. Failure to Add Value Along the Customer Journey

Most of the products and services fail to offer the desired level of success over a period of time. This leads to loss of customer interest in weeks, months, or years down the lane. Customers might have paid for your products or services once, but they won’t repurchase if they don’t see consistent value in this relationship. 

3. Faulty Onboarding Process:

Most of the companies fail to bridge the gap between the purchase and first success with the purchased product or service. Customers have no idea how to use your products or services to their best advantage. Moreover, customers cannot find relevant self-help guides or video tutorials to get acquainted with new products. 

4. Faulty Product 

Nobody wants to invest in a product that simply does not work or fails to live up to their expectations. Real-time product tracking and management can help you tackle the churn caused by a faulty product. Always release notifications from your side and consistently work towards making your product or service better. Consistency and dynamism are the two keys to successful products and happy customers.

What is Customer Churn Rate?

The percentage by which the number of customers has reduced during a specified time period is called the customer churn rate.

You must have heard many entrepreneurs and business experts talk about reducing the churn rate. Well, they have obvious reasons for that. The customer churn rate has a direct influence on revenues and business growth. According to Harvard Business School, decreasing the customer churn rate by even 5% can lead to an increase in profits by 25% to 95%.” 

How to Calculate Customer Churn Rate

For any business to grow, the number of new customers must be higher than the number of customers who leave.

To calculate customer churn rate, subtract the number of users at the end of a period from the number of users at the beginning. Now divide this number by the number of users you had at the beginning. 

How to Calculate Customer Churn Rate

Let’s understand this better with an example- 

Let’s say you start March with 300 users, and at the end of the month, you have 200 users.

Here’s how you would calculate your churn rate:

(300-200)/300 = 33.33% churn rate.

Why Do Companies Care About Customer Churn?

Even after its negative connotation, customer churn has emerged as an important business metric to track. No business likes to see their customers leave and vanish into thin air. However, in order to reduce churn, you must first understand the impact of customer churn on your business.

1. Business Growth

When you are unable to keep the existing customers or clients irrespective of acquiring new ones, you are bound to experience a loss in terms of revenue. Your earnings will drop for sure as most of the businesses are unable to cover the customer churn rate by the customer growth rate.

Read More: Boost Your Business Growth Using Customer Satisfaction Score

2. Public Image

Churning customers can give negative feedback or reviews about your business to their friends or family, thereby, dismantling your brand image. So, the customer churn can negatively affect how your target audience perceives your business and make your products and services appear bad and incapable. 

Even for Fortune 500 companies, a whopping 32% of customers walked out after JUST ONE bad experience. So, the public image can be affected by just one incident.

3. Revenues

Suppose you started with 1200 customers in a year and made an earning of US $400 per customer. Now, at the end of the year, you were left with 700 customers and 100 new customers. Though the 800 customers will earn you US$320000, the amount is certainly lesser than US$480000 which was the earning you started with. This is how a high customer churn can affect your revenues.

Ways to Reduce Customer Churn

The churn reduction strategies mentioned here will help you in effectively managing customer attrition and keeping your existing customers happy. Read them carefully and grow your customer pool:

  • Track customers issues with a help desk software

Always have a smart, cloud-based help desk software that you can scale and optimize as your business grows. Never let simple or small issues escape your notice and delight customers with quick responses. 

  • Offer real-time assistance

Offer a live support system in the form of chats; screen shares and even calls so that your customers feel important and cared for.

  • Help customers proactively

Offer proactive customer service with an impressive knowledge-base so that small issues can be addressed with ease without human intervention. 

  • Find out what causes churn 

Understand and find out the ROOT CAUSES of your churn and reduce customer churn by addressing them. If users don’t find the UI interactive and scalable with their business scenario, work on these things, and make consistent improvements.

  • Fix product bugs 

Product Bugs and Crashes are also the major downers that can lead to churn. Effective management of crash reports, bugs, and other such issues are some of the extremely helpful churn reduction strategies.

  • Keep customers engaged

Ensure customer engagement by sending updates and versatile content to your customers. Deals, discounts and offers and subscriptions, etc are also beneficial to reduce customer attrition.

Read More: SaaS Churn Rate: How to Prevent Churn for Your SaaS Company

Reduce Customer Churn & Create a Pool of Delighted Customers 

In the business world, customer churn is inevitable. You will always have close competitors who offer better products or lucrative pricing and take your valuable customers away from you. 

However, the good news is that you can always take the right steps at the right time to prevent churn. Don’t just count your churned customers, but analyze both churned and active customers to gain deeper insights, address customer complaints, and never take things for granted. 

Remember, constant updates and innovation are essential to acquire new customers. Ensure smooth customer onboarding and keep adding value at every important stage of the customer journey. Having a customer-oriented business approach will surely pay-off and keep your business profitable.

Q. How to Prevent Customer Churn

You can adopt the following strategies to prevent customer churn:

Q. How to Predict Customer Churn

Predicting customer churn isn’t easy as you never know what might make your customers switch. However, by observing consumer behavior over a long period of time, you can see an obvious pattern and spot the early signs of churn. For instance, if a customer takes more days than usual to renew his subscription, it can be an initial sign of churn. 

Q. How to Avoid Future Customer Churn

One of the best ways to avoid customer churn is by understanding how your customers feel about your brand. Make it a point to capture customer feedback from time to time using relevant surveys. You can use an NPS survey to identify your most loyal customers. 

Q. What Does Churn Mean in Business?

In business, churn refers to the percentage of people who stop buying from a company. Customer churn is measured over a period of time and high churn can be fatal for any business.

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About the author

Jared Cornell

Jared is a customer support expert. He has been published in CrazyEgg, Foundr, and CXL. As a customer support executive at ProProfs, he has been instrumental in developing a complete customer support system that more than doubled customer satisfaction. You can connect and engage with Jared on Twitter, Facebook, and LinkedIn

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