Whether you’re a freelancer, a small business, a charity, or a large company, you hunger for growth. You want more leads, more referrals, and more customers.
Growth, however, is bigger than customer acquisition. In order to grow, you have to retain your existing customers. If your customers churn as fast as you acquire new ones, your revenue will stay flat. In fact, if you have a high customer acquisition cost, new customers could actually cost you money if your existing ones don’t stick around.
Before we talk about how you can reduce churn, let’s define it so we’re on the same page.
What Is Customer Churn?
Churn is the number of customers who stopped using your service or buying your products in a given period of time, expressed as a percentage. You can determine your churn by dividing the number of customers you lost by your total customers over a certain time period (a month, a quarter, a year, etc.).Growth, however, is bigger than customer acquisition. In order to grow, you have to retain your existing customers. Click To Tweet
In some cases, it’s more useful to calculate churn based on lost revenue. This is useful if your customers spend vastly different amounts. If one customer spends $10/month and another spends $500/month, the latter is obviously more impactful to your business. To calculate revenue churn, divide your lost revenue by your total revenue in a given time period.
Churn is a critical variable for your income. You can boost your revenue substantially by reducing churn by just a single percent. According to research from Bain & Company, a 5% reduction in churn can increase profits from 25% to 95%.
How you define when a customer churns will depend on the manner in which you deliver products and services. A SaaS company would consider a customer to have churned once they cancel their service. An ecommerce brand might consider a customer churned if they fail to make a purchase every 90 days. A web design agency might define churn as the moment a customer purchases services from a competitor.
How to Reduce Churn
Churn is a systemic problem. Haggling with your customers over the phone to come back may work in the short term, but you also need to organize your business to prevent it from happening in the first place.
1. Determine Why Your Customers Churn
Your first step is to uncover why your customers leave. This is an active step. Don’t simply wait for complaints. Complaints only hint that there’s a problem. 96% of unhappy customers never complain. 91% will never come back at all.
If you only have a few customers, this is as simple as picking up the phone and asking them what turned them off. Make it clear that you aren’t trying to sell them again. You just want some information so you can improve your products/service in the future.
Customer service tool Groove sends this email to customers who cancel their service. They use the feedback from their customers to refine their product.
If you have a lot of customers, it may be helpful to send them a survey that collects exit data. You won’t have to make thousands of phone calls, but people are far less likely to fill out a survey than answer their phone (especially if they’ve already moved on from you).
The information you collect will go a long way toward reducing churn. If your ex-customers make similar complaints, you can improve loyalty by simply fixing those problems. There’s evidence that dissatisfied customers whose complaints you address actually become more loyal and stronger advocates for your brand than customers who never had a problem in the first place.
2. Define the Value You Provide
Your customers expect to receive some kind of value from your products/service. If they don’t get that value, no amount of promising or clever selling will get them to keep paying.
“People became customers of your product because you offer some unique advantage that they cannot get anywhere else,” says marketing guru Neil Patel. “If you neglect this, or fail to deliver, they could desert you.”
What benefits do your customers get from your products/service? How are their lives better after you help? In what way do you change them? Answers to these questions will help you build and optimize products and services that satisfy your customers.
Once you know your value, target potential customers who are in the best position to realize that value. Yes, you want to sell to everyone who will input their credit card details, but poor fit customers are guaranteed to churn. It’s more profitable to focus on the right customers for your business who will stay with you for a long time.
3. Map an Onboarding Sequence
Onboarding is the process of escorting your customers to the moment of first value delivered. It’s how you walk your customers down a path to the point where they realize actual value from whatever you sell. If they don’t experience value quickly, you’ll plant the seeds of churn.
If you know the value you provide, ask yourself what it takes to get the customer to that point, then design a sequence that gets them there quickly.
For example, let’s say you run a coaching service that helps entrepreneurs automate their tedious tasks. Even though there are many things you want to teach your customers about automation so they can automate their own work, it would be best to help them set up a few automations right away so they feel like they get quick value from your service.
4. Identify and Approach At-Risk Customers
Once you have a general idea of why customers churn, you should be able to identify the ones that are likely to churn at a given time.
For instance, let’s say you collect charitable donations through your website. You know that donors who turn off their recurring subscription (that is, they stop making a monthly donation) are highly likely to churn and never make another donation again. In this case, you should reach out to your donors as soon as they cancel their subscriptions to find out if there’s anything you can do to keep them onboard.
Here’s a real example: Ecommerce tool Sleeknote monitors a number of user behaviors and sends trigger-based emails to customers they deem “at-risk.”
If you speak and work with your customer closely, you should be able to analyze their words and tone to determine if they’re considering churning. The sooner you can identify their reluctance, the sooner you can find out what’s wrong and fix it.
5. Sell Customers on Longer Contracts
Every time your customers have to pay again to continue their service is a chance for them to churn. If you sell a recurring service, you can reduce their opportunities to churn by enticing them to make a larger commitment by paying for more of your service up front.
It’s also smart to give slight discounts for making larger commitments. If you charge $20/month, you might charge $55 for three months or $100 for six months.
Here’s an example from Leadpages. They offer a hefty discount for purchasing a year’s worth of service at once.
This technique also prevents customers from making knee-jerk reactions if they don’t see value in your service right away or if something displeases them. They’ll let things play out for a little while longer because they’ve already paid for it.
6. Give Your Customers The Right Tools
Imagine this scenario: A customer has trouble using your product, but it’s too late to call your support number. They could send an email, but you won’t get back to them until the next day. They check your website, but you don’t have any information that will help.
What to do they do? Some will cancel right away or vow to never make another purchase. Others might not churn right away, but now there’s a seed of doubt in their mind. One more unpleasant experience and they’re gone.
You can reduce churn by creating tools for your customers to help them get their value from your products and services. You might build…
- A knowledge base
- Frequently asked questions
- Assembly instructions
- A Facebook community for customers to help one another
- Video or GIF tutorials
With tools like these, your customers will enjoy smooth, uninterrupted experiences, rather than seek other solutions.
7. Give Them a Discount
Using discounts to encourage customers to stick with you is a mixed bag. On one hand, people like free stuff, especially if your deal makes you cheaper than your competitors. On the other hand, it’s easy to condition people to expect a deal. They could hold you hostage for a discount next time, too.
But sometimes it’s the only way to get people to stay. Maybe they didn’t feel the value was worth the money before, but the discount brings the price in range. Maybe you lack a feature or tool or product they need and the discount will hold them over until you can release it.
In some cases, customers churn accidentally due to failed payments and past-due invoices. Keeping up with these can be a pain. At WP Simple Pay, we use Churnbuster, an automated tool to recover this type of income using some pretty sophisticated email campaigns. It’s a great tool to prevent customers from slipping through the cracks.
Churn is a powerful force. It can starve you of cash and restrict your growth. If you use these tips to reduce your churn rate, you’ll build a loyal customer following that pays you again and again.