Growth Manager Retently
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7 Key Steps to Reduce Customer Churn Rate

5th Dec 2017
Growth Manager Retently
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For any business, the most precious customers are the loyal ones, because they make repeat purchases, spread positive feedback about the company and refer others.

However, keeping loyal customers seems to be quite a serious challenge, because it requires building a stable and long-term relationship with them. The secret of a good relationship with clients is hidden in rewarding customer experience. Happy clients help your business grow.   

Customer churn tends to be a major headache for any organization as it affects customer's lifetime value directly, and slows down a company's growth. The reality is that every venture faces it at some point, including the largest and most successful companies worldwide. It is always more difficult and expensive to acquire a new customer than to retain a current paying one. Therefore it is crucial to measure customer churn rate and start dealing with it as early as possible.

In this article, you will learn what churn is and get an insight into an effective strategy to reduce it using Net Promoter Score.

 

What is customer churn?

Most common and simple definition of churn is when an existing consumer stops dealing with a firm. He can stop it in different ways. For example, a user can end his relationship with a SaaS company by canceling his subscription.

The churn is often referred to as customer attrition, turnover, or loss. All these terms have the same meaning and denote a client’s decision to stop doing business with a venture.

 

Major reasons for churn

Consider the next major factors that make customers abandon your business:

  • Weak relationships - When people are loyal to your company, they buy from you again and bring in referrals. The key to building strong relationships is in constant communication and rewards for loyalty.
  • Bad customer service - There is nothing important today like superior customer service. People want to be treated not as numbers but as persons. Those facing poor service would never buy from you again. Moreover, they are likely to spread their negative word of mouth on the Internet which would have a negative impact on the company’s reputation.
  • Poor onboarding - Even a simple product or service requires a comprehensive guide to make the onboarding process fast and easy. When people do not understand how to use one or another feature, they would ask you about it. The problem is that one day you can end up overwhelmed with support tickets. The best option is to create simple forms, clear tutorials and guidelines so that users could find themselves all the necessary information.  
  • No continuous customer success - The customer success department is crucial for your company as it is accountable for building relationships with customers, understand their needs and helping them meet these needs. This is not a one time task. It is an ongoing process that helps not only reduce churn but also increase customer lifetime value.
  • Overpromise - For example, if you promise your users free delivery in their first purchase and fail to do this, they are likely to leave and never come back again. You should ensure people get what they expect.

How to calculate customer churn

When it comes to measuring the churn rate, the next formula is applied: # of churned customers/ total # of customers

You can calculate the churn rate for a specific period of time (week, month, year). Say, you are a SaaS company. As of September 1st, the total amount of subscribers was 1000. At the end of September, you report a total of 30 customers lost. The churn for the month of September would be calculated as follows:

30 subscribers lost in Sept / 1000 existing customers as of the beginning of Sept = 3%

The formula itself is easy to use.

 

How can the customer attrition be predicted?

Churn prediction methods enable to understand customer behavior and attitude which signal the risk of their leaving. With this data in place, companies can take actions on their retention.

Predicting churn represents a potential revenue source for a  company. Communicating with clients helps to find out the reasons they might leave, and solve them, if possible.

One of the most affordable and easiest ways to predict customer loss is to run a Net Promoter Score survey, which involves sending a one-question survey. The question sounds as "On a scale from 0 to 10, how likely are you to recommend our [company, product, service] to others?". Depending on the score given, respondents are categorized into Promoters, Passives, and Detractors. Detractors are those at risk of turnover. Passives are neutral about your company and can leave you when getting a better offering. The advantage of NPS is that it not only allows to predict churn but also take necessary measures to stop it.

How Net Promoter Score can help reduce churn

An NPS survey is a practical method when it comes to collecting actionable data from customers. It helps businesses understand how their clients feel about a product they purchased or service they received.

By asking the ultimate question, a company gets a clear picture of their overall customer satisfaction. The data helps to detect unhappy ones who are likely to churn (Detractors) and start acting timely. Detecting Detractors early allows to find out what makes them unhappy, provide them an appropriate solution and ensure you would do your best to improve their overall experience. The clue to closing the feedback loop with Detractors effectively is asking the right follow-up questions and listening to what they have to say. Also, you should pay attention to Passives who are neutral to your company. Communication with Passives will help you understand their needs better and act in accordance with their expectations. During a successful NPS campaign, you can develop powerful tactics to retain existing customers and prevent them from leaving.

It is a good practice to resend the survey a few months later and compare the results. This allows understanding if the company succeeded in delivering better experiences. The results would demonstrate whether the actions taken by the company helped to retain the clients and take right decisions on the improvement of their lifetime value.

The major advantage of NPS is that it is one of the easiest metrics to measure loyalty. It can be implemented in any industry and works effectively for organizations from small to large ones. By asking targeted follow-up questions, the customers might open up and provide their honest feedback, which can help to improve business processes or redesign your product.  

In order to deal with customer turnover, we have developed an effective 7-steps strategy to follow.

 

7 key steps to reduce customer churn using NPS

  • Analyze your churn rate and run an NPS campaign - The first thing to do is to calculate churn rate and NPS. Then compare the results within a specific period of time. Track this data constantly to know exactly which implemented customer retention strategies really work and which don't.
  • Know the market and competition - Each industry has its average rate of customer turnover and it is better to know this data so you could compare it with yours and make right conclusions. If your churn rate is higher than average in your industry, this is a serious indicator that you put too much effort to gain new customers instead of keeping the existing ones. It is time to adopt an effective strategy to retain your clientele. As to NPS, you should compare your score with the data available for your industry. NPS benchmarks [PDF] published by Retently Is a useful source for average scores across industries.  Here is the average churn rate for some common industries (according to the Recurly Research):
Churn Rate Statistics
Chart is taken from Recurly.com
  • Engage and educate your customers - It is very important to provide clear and complete information about the key benefits of your product and offer regular updates. When you show your customers the day-to-day value of using your product or service, they get true reasons to come back to your business. Besides this, it is important to engage with them to know what they think about your products. Communication helps to build a stable and long-term relationship with customers, that can help understand the impact your product has on them and make improvements or changes in it. NPS allows getting feedback in a  fast and easy way.
  • Offer excellent customer service - According to statistics, 82% of customers have abandoned a company due to a bad customer service experience. The pricing itself is not an enough. It is important to deliver a great service. Do your best and provide an excellent service which makes customers happy.
  • Detect Detractors at early stage - NPS allows detecting those unhappy with your business (Detractors) at an early stage. You can engage with them by sending a follow-up question asking what is the main reason for their score.  This way you can reveal problems they face when interacting with your organization. In order to keep unhappy customers, you should resolve their issues promptly. Let them know that you do your best to offer them better products and services. Such approach helps to build trust and show them that you really care. Thus you get a wonderful opportunity to stop them from churning and turn them into Promoters of your brand.
  • Take care of Promoters - In NPS, Promoters are those satisfied with your product or services and are very likely to recommend them to others. They are loyal to your company and make repeat purchases. Promoters are your source of revenue. Ask them to spread their love for your company on the internet, which will help increase trust and build your reputation. Maintaining a long-term relationship with them will lead to your growth. Take a special care of Promoters and show your gratitude by developing a powerful loyalty program. When you start taking them for granted and do nothing special, they start leaving and turn to your competition.
  • Attract Passives - Passives are those who use your services or products but are able to turn to your competition if a better offer appears. They don't love or hate your product but would be interested in an attractive offer to make their choice. Interestingly, Passives tend to churn just like Detractors, therefore need to be detected early to get a special approach. Probably they are not impressed with some features in your product.  So you need to re-engage them by providing explicit guidelines and advice.With a comprehensive strategy, you can turn Passives into your loyal Promoters.

Net Promoter Score proves to be a powerful tool in churn reduction. Segmentation of customers is a great way to detect your brand's Promoters, Passives, and Detractors, and start acting right depending on their specific needs.

 

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