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HOW TO REDUCE CUSTOMER CHURN RATE

Updated: Oct 3, 2023

Your number of competitors is increasing by the day.


It is hard to attract new customers, but it can be even more difficult to retain your current ones. Lose too many of your current customers, and it paints a very worrying picture. This is the unforgiving world of customer churn. It is one of the most important metrics you can track, and should be as high as possible on your list of priorities.


Thus, understanding how to reduce your customer churn rate is an absolute essential if you are to maximize your profits and ensure growth in the years to come.


Ready to learn more? In this guide, we’ll dig deeper into:



Use the links above to skip ahead to the sections you’re most interested in.


WHAT IS CUSTOMER CHURN RATE?


Churn rate is a measure of the number of customers who leave a company over a given time period. This term can also be used to describe the total revenue lost as a result of these departures. A company’s changing churn rate can provide crucial insight into its inner workings, and can help you understand the health of your business. The higher your churn rate, the worse it’ll likely be for you as this indicates you are losing more customers and should be taking steps to try and reduce this rate.


HOW TO CALCULATE CUSTOMER CHURN RATE


It’s fairly simple to calculate the customer churn rate. You need to divide the number of customers you’ve lost by the total number of customers you had at the start of the given period of time. You then need to multiply it by 100 to get a percentage.


Customer churn rate is usually calculated monthly, but it can also be calculated on a daily, quarterly or annual basis. Still want to know more? We discuss these calculations in greater detail here.





WHAT CAUSES CUSTOMER CHURN?


Far too many SaaS companies find themselves in the same situation. They all launch a product, begin bringing in significant revenue, and double their efforts into acquiring new customers. Success can disguise many of the hidden dangers that every SaaS company faces, chief among them being customer churn.


Understanding the main reasons why customers churn, and knowing how you can evolve your approach and keep them is crucial for ensuring your SaaS business is sustainable. If you don’t adapt, you’ll fall behind.


The good thing is you don’t need to fall behind. To ensure your safety from the dangers of customer churn, we’ve put together a list of our top reasons for customer churn below.


Poor customer service and implementation


You can have the most powerful, well-engineered piece of software out there, but if your customers aren’t happy with the service they get, your product’s appeal will be diminished significantly. This is highlighted by this figure from Bain & Company, which states that the average dissatisfied customer is four times more likely to defect to a competitor if the problem is service-related instead of price or product-related.


When it comes to SaaS, a big influence of customer satisfaction depends on how smoothly the implementation goes. If you’ve not heard it already, one thing you’ll continuously hear if you’re swimming in the SaaS circle is time to value (TTV). This looks more in depth at the implementation process, focusing on how long it takes for a customer to recognize the value they’re supposed to get from the new software. The longer this takes, the more unhappy they’ll be. This makes it all the more important to have a solid implementation process. The quicker customers can see value from your product, the more likely they will stay and you will reduce churn.


Friendly and polite communication, along with swift handling of complaints lay the foundation for good customer service, but what it boils down to is making each and every customer feel like they are valued. Customers don’t want to feel like just another number in the system, they need to feel engaged and appreciated.


The answer to achieving this is personalization. Messaging and content that is tailored to each customer makes them feel that you care about what they want as individuals. Customers and prospects alike will often reciprocate any efforts to take a stake in their interests.


Targeting the wrong customers


It’s unfortunately common just how often customers sign up for a product before knowing fully if the product actually meets their needs. When they realize that your product or service isn’t a great fit, it’s very likely that they’ll leave you for a competitor.


The significant risk with this is that you’re diverting resources away from the customers who have the potential to use your product and derive great value from it, and instead allocating them to those that will not be successful regardless of effort.


Reducing churn from this avenue comes down to developing a thorough understanding of your customers’ needs and ensuring your various communications reflects the problem you’re solving rather than your product’s features.


Your customers aren’t achieving their desired outcomes


As with literally any product or service, you buy it with the hope that it will bring you some form of value and lead to a certain outcome


When customers buy your product, they are instead purchasing a specific outcome for their business, and your product is really just a tool to help get them over the line. If your product doesn’t help them realize this outcome in a time they see as reasonable, they’re outta here.


Customers can become frustrated quickly when important features don’t work correctly (or what they see as correctly). It’s likely that they never even understood how to use the features to begin with. The most effective way to stop this from happening is by ensuring you’re working with your customers to help reach their goals. Your product is a small part of the whole picture, and your onboarding process and customer success teams play a vital role.


WHY IS REDUCING CUSTOMER CHURN RATE IMPORTANT?


If you could narrow down the importance of customer churn by highlighting one point, it's this - The more customers who churn, the more money you will have to spend to make up for the loss of business by finding new ones.


According to Bain & Company, it costs 6-7 times more to acquire one new customer than it does to retain an existing one. This alone is concrete evidence that shows just how wrong some companies are when they focus all of their efforts on bringing in new customers. Efforts to retain customers should be double than that of bringing in new ones, and this should be shown in your marketing, where some forget that this should be made with current customers in mind just as much as prospective customers.


HOW TO REDUCE CUSTOMER CHURN RATE


Many SaaS companies have a fairly ad-hoc approach to reducing churn. They try a mix of random tactics, with the approach that if you throw enough against the wall, something will stick!


Churn is a multi-dimensional problem, which offers a million and one different reasons as to why customers leave. With so many causes for churn, it’s important to first break it down into smaller, more manageable pieces.


Establish the reason for existing customer churn


Before meeting the problem head on, you must first identify the cause. This means gathering customer feedback and working out what’s going on.


Once you detect churn in your business, use the following methods to understand more:


  • Contact the customer, preferably by phone, if possible

  • Send them a customer exit survey if the above isn’t possible


The benefits of speaking to your customers over the phone are twofold. Not only does it convey to these customers that you care, but it’s also the best way of getting some in-depth info on the reasons your customers have churned. It allows you to ask follow up questions and clarify anything if you need to.


Surveys can also be another string to your bow. If customers don’t want to, or don’t have the time to speak to you on the phone, surveys provide customers with a more relaxed way of providing feedback which can be done in their own time. They can be sent via email, or they can be completed on your site, or for maximum convenience, you can even distribute surveys via SMS to your customers’ mobile device.


Improve your customer success function


Company leaders are quickly putting customer success at the top of their priority list, and you should be too.


When it comes to your customers, it's vital to have your customer success team adopt a proactive approach. A big part of this is engaging customers at specific points in their journey, based on their behavior. The best way to do this is usually a live chat as they’re an incredibly convenient tool to utilize. With the live chat customers get solutions immediately, which can go towards reducing your churn rate and harnessing an enhanced overall customer experience.


The key to customer success is creating one uniform process that will engage with all customers all the way throughout the customer journey, from the beginning, to implementation, all the way to monthly catch ups.


Improve the onboarding process for customers


It’s well known in the SaaS world that users that sign up for a free trial will use it once, and never again.


A big reason for this is that users can’t recognize the value it adds to their own life or to the business as a whole. This just highlights the need for a foolproof onboarding strategy. Doing so can help you improve your onboarding process and communicate smoothly with your customers as they travel through the funnel.


Once a customer understands how they can use your product to get the most out of it, they are much more likely to stay with you. It’s worth noting that they will only stick around as long as they see value continuously. It’s great having a structurally sound onboarding process, but if they’re forgotten about as soon as they’re onboarded, they won’t stay for long.


Create a sense of community around your service


Humans have evolved to thrive in communities, and the need to belong is in our nature. With this in mind, it makes sense that a good way to reduce customer churn is to give your customers the feeling of being part of your brand.


One good example of this is Moz, who run a blog driven by guest posts. Any member of the community is free to submit a guest article, and they also have a very active Q&A discussion board where members can educate and be educated.


Creating and using online communities like this not only aids in engaging and educating users, but always keeps the brand at the forefront of the mind, which will likely be seen as the hub and facilitator of this sort of community.


Maximize customer engagement


Even your own customers will be forever bombarded with different information and options, some of which will likely be your competitors. Don’t forget that your company isn’t the only option out there that can fulfill their needs. If they don’t feel they could be getting more value elsewhere, not much will be stopping them from changing to one of your competitors.


With the right strategy, focusing on customer satisfaction and retention, you can boost customer engagement and develop long-term relationships. This will likely include regular communication through a number of channels including newsletters, blogs, and videos, and anything else which can reinforce what they can get out of your service.


Arranging events such as Q&Ss and webinars can be useful tools, not only for your customers but for you as well. These can be great opportunities for you to gather feedback, as it’s an environment where these customers may feel obliged to give their opinions, instead of a phone call out of the blue which they may not have time for.


 

WHAT NEXT?


Customer churn (and how to reduce it) should be high on the list of priorities for each and every SaaS business. One key takeaway from this is that it’s cheaper to retain customers than to bring in new ones. Once you have a good idea of how to reduce your customer churn rate, you will have a much better understanding of what makes your customers happy, and how to keep them in the long run.


Found this article useful? You may also want to read:


  • How to reduce customer churn rate

  • Customer churn prediction using machine learning


Visit Precursive today to learn how our smart software can help you reduce churn by optimizing your services delivery.


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