Customer churn is the percentage of customers an organisation loses over a given period. This could be a year, quarter, month or whatever makes the most sense for your company. Some people also look at the value of the business lost over that time; a metric often referred to as revenue churn.
Customer churn is much more than a number on a spreadsheet. A high churn rate can affect your ability to grow your business. It’s also costly, because it’s much more expensive to gain new customers or clients than keep current ones.
Tracking your churn rate over time also allows you to see trends, peaks and troughs. It can alert you to potential issues. For example, a spike in your churn rate could be the result of a new product on the market. Meanwhile, if you make efforts to improve your customer service, you may be rewarded with reduced customer churn.
Now you know why customer churn rate is a valuable metric to track, here’s how you calculate it:
Customers lost ÷ total customers at the beginning of period x 100
Let’s look at an example.
Say you run an online clothing shop. A competitor entered the market in June. You want to find out whether some of your customers have chosen them over you. You could calculate your monthly churn rate, starting before your competitor entered the market.
At the beginning of January, you had 500 customers. By the end of that month, you’d lost 20 customers.
20/500 = 0.04
0.04 x 100 = 4
In this scenario, your January churn rate is 4%.
Next, you calculate your rate for the following months to see how things changed. You notice a sharp increase in June. And by July, your churn rate has risen to 8%. Such an increase gives you cause for concern.
Of course, many different factors can influence your churn rate. Some of which may not be related to your competition. But it certainly warrants further investigation.
Why are your customers leaving? Are they unhappy with your product or service? Maybe it doesn’t do what they need it to. Maybe it’s not user-friendly? Or perhaps too expensive. But remember, it’s not always down to you. Your competitors also have a role to play. They might have created a new offer or dropped their prices, tempting your customers to make the switch.
There are also plenty of external factors that might cause your customers to leave. Some of these are outside your control. For instance, a customer’s needs may change, or they may lose their job and no longer be able to afford your products.
It’s easy to come up with a rationale or two to explain your customer churn rate. But unless you ask your customers, they’re just hypotheses. We recommend sending out a customer churn survey. Start by setting the scene. Explain that the aim of the churn survey is to improve the customer experience. This way, they’ll understand why their responses matter.
Let’s look at some key questions to ask churned customers. How about the main reason they left, and what you could have done to prevent this? You could use multiple choice questions, making it easier to draw comparisons and spot trends. Also make sure you include open-ended questions so your churned customers can share their thoughts in their own words. And it’s a good idea to ask if there’s anything that might convince them to come back.
Customer service is key. In fact, a whopping 71% of consumers have ended their relationship with a company due to poor customer service. What’s more, unhappy customers often share their experiences on social media. This amplifies their message and increases the potential impact on your reputation.
We know that improving customer service can significantly reduce customer churn rates. But where to start? Maybe your customer support team is understaffed. Maybe they need more training. Or maybe they don’t have the power or the ability to resolve customers’ problems. Take a long hard look at your organisation to work out where the problems lie. Then take steps to resolve them. SurveyMonkey customer satisfaction survey questions and customer service surveys are a great place to start. Use surveys like these to confirm suspicions and identify other issues.
Your customer service team can do much more than answer phones and solve problems. Use the insights they glean to inform both your marketing messages and future product development. After all, they’re the ones talking to your customers day in, day out. They know what’s working well and what’s not. This joined-up approach is one way to stand out from the crowd.
Are you targeting the right customers? If you’re missing the mark here, then it’s going to be nigh on impossible to keep them happy. Because your product, service and messaging aren’t tailored towards these customers. Reduce the chances of this happening by making sure your entire organisation, from the C-suite through to your sales and marketing teams, is on the same page. Everyone needs to have a clear idea of who they should be targeting, and how.
At the end of the day, customers want to feel like they matter. They want to feel valued and heard. Rather than only reacting when problems arise, take a proactive approach to customer engagement. Ask your customers what developments and enhancements they would like to see. Ask them what you could do better. Take these views on board, feeding them into product development or customer service. And round it off by showing your customers what you’ve done in response. The “you said, we did” format is a great way of showing how you’ve acted on feedback.
By asking your customers’ opinions, you start a conversation and show that you value their thoughts. This makes for happy customers. And satisfied customers tend to reward companies with their loyalty. And what does that mean? Yup, you guessed it—a lower customer churn rate.