How to reduce customer churn and increase customer retention

Though customer churn may not be the most appealing rate or statistic to look at, it's vital for businesses to be aware of it to assess, analyze, and act on the results.

While it’s unrealistic to strive for 0% churn, understanding what your current churn rates are, and using them to inform your practices to improve customer retention can be the ultimate game-changer for your organization.

In this article we’ll cover:

• What customer churn and customer retention are,
• How to calculate churn
• Voluntary and involuntary churn
• How they’re connected, and
• How you can reduce churn and increase retention respectively.

What is customer churn?

Customer churn is the percentage of your customers that stop using your products for an extended period. These customers can stop using your business for any number of reasons be it, competitors, product, or marketing to name a few.

Being aware of the customers that churn, and your Customer Churn Rate (CCR) can help you identify where you need to make improvements.

Why is churn an important metric to monitor?

Customer churn is a clear and simple number to help monitor the success of your customer engagement strategies. It can also help to easily identify pain points within the customer lifecycle.

If you're noting very early churn, there may be something wrong with your onboarding process. If your a SaaS business, and you see churn after introducing a new feature, you may need to go back to the drawing board about the future development of your products and services. If you're finding churn all across the customer journey, you may need to rething your business model in its entirity.

Churn is an unmissable indicator for your success in retaining existing customer and acquiring new customers.

How to calculate customer churn

Customer churn is calculated as a percentage and is only applicable for a particular time period.

So, if there was a quarter where you underperformed and if you note that your churn rate was high during that period, you know that churn most likely will have had an impact on your reduced revenue.

To calculate your customer churn rate you’ll need three key figures:

1. The period you want to calculate your churn for (Be it weekly, monthly, quarterly, or yearly).
2. The number of existing customers at the start of your chosen period. That'll be defined by S.
3. The number of total customers you lost by the end of your period. That'll be shown as E.

Then you can input this data into this formula.

Voluntary vs Involuntary churn

There are two different types of churn that can affect your business.

The first is voluntary churn. This is when your customers make the decision to end their relationship with you and your business. They might be dissatisfied with your product, or something has changed that means they don’t feel they’re getting what they need out of your business.

The second is involuntary churn where something outside of the customers control occurs/ This is usually not something related to your business and includes things like payment failure, service errors, or financial issues.

Knowing which type of churn you are experiencing is important to understanding customer behavior. It will inform the type of action you take when responding to customers leaving.

What is customer retention?

Customer retention rate is the number of customers you have kept from the beginning to the end of a certain time period.

Successfully keeping a good majority of your customer base over a sustained period is no mean feat. This isn’t a one off and should be monitored regularly for changes.

This is a good indicator of knowing what your customers do and don’t like about your business (outside of simply asking them!). Is there a part of your customer base you have been neglecting? Has a new strategy just been implemented, and helped you retain customers?

This number is useful to aid you in your analysis when applied to other statistics and observations about your current work process.

To calculate your customer retention rate you’ll need four key figures:

1. The time period you want to calculate your retention rate for. For example, weekly, monthly, quarterly, or yearly.
2. The number of existing customers at the start of your chosen period. That'll be defined by S.
3. The number of total customers at the end of your period. That'll be shown as E.
4. The number of new customers added within the period. This Is identified by N.

Then you can input this data into this formula.

How are customer churn and customer retention connected?

At its most simple, the more customers you retain, the lower your customer churn rate will be. Neither of these statistics involves the acquisition of new customers, and as such are ways to show you how well you’re monitoring your existing customer base.

Losing customers will increase your churn rate and decrease your retention rate, and vice versa. Incidentally, the strategies and ways to reduce churn are also often ways to increase retention.

Set expectations early on

One of the worst things you can do is to set unrealistic expectations. If you don’t deliver on your promises, customers will seek an alternative option.

One of the worst things you can do is be dishonest with potential customers. While the initial aquisiton may be easy, you'll loose them just as quickly.

Be realistic in how you market your products from the very beginning. If your product doesn't have certain capabilities now, then you can always make a plan to implement it in the future. Remember, always be sure to let your customers know about any upcoming changes!

Refocus your priorities on your best customers

It isn’t worth focusing on customers who’re not likely to turn into loyal users.

Though there’s a time for converting these customers, your priorities should always be on retaining the ones you already have. If you neglect your most valuable customers, they won’t feel appreciated and will eventually churn.

Listen to feedback

Customers know what it's like to experience your product more than you ever will so they’re the best ones to go to when something goes wrong. This means listening to and contacting existing and churned customers.

The very act of reaching out to them is a good indicator to your customers that you care about setting any problems right.

Analyze statistics as they occur

Keeping an eye on churn and retention can help prevent any surprises from occurring. Noticing a drop or rise in churn can be a good indicator of knowing when something is working or not. If you’ve implemented a new plan to your strategies then keep an eye on these statistics to see how your customers respond.

Communicate regularly

Communication isn’t just between your team and the customer, but between your team and others in your organization.

Be it, stakeholders, C-suite executives, or other customer-facing team members, talking through new strategies using the information you have from your customers can help prevent any misguided strategies from forming, and help bolster others.

Encouraging customers on their journey with your product also means that they know you're paying attention. This consideration is usually enough to get customers on side, and convert them into your customer loyalty programs, while maintaining and improving your total number of customers.

Other considerations

There are some factors to always consider:

• It’s not a one size fits all. Customers are unique and the incentives to keep them will be unique too.
• Regularly update your churn results. Customers churning at specific times may clue you into a strategy that’s not turning out as planned. Perhaps you’ve recently stopped a particular program or marketing strategy? These things are important to consider for your organization as a whole. Let your other teams know if you notice these changes.
• Consider where they are in the customer journey. If a first time purchaser hasn’t bought or interacted with any of your products in a while, they’ll require a different reaction than if a loyal advocate suddenly stopped using your products. They’ll require different levels of connection and personalization to encourage them to come back.
• Consider their demographics. Is there a new competitor for a certain geographical region, age group, or career? Though demographics is a tricky one to pin down, assessing your churn against this information might bring something to light that’ll have affected your revenue streams outside of your initial search.
• Keep internal communication open. Collaborating with your internal teams on company-wide and team-specific strategies can help you keep informed about any changes going on in your organization. Having this knowledge from the get-go makes analyzing your churn and retention results that much smoother.

Where to go next?

Customers are the lifeblood of any business, you don’t need us to tell you that.

There are several strategies for retaining customers that can help transform your bottom line, but today we’re going to focus solely on the importance of building lasting relationships with your customers.

Read this article where we go over:

⚙️Increasing your customer lifetime value,

🥳How to earn brand advocates,

🤝Some tips on how to get to know your customers and exceed their expectations.