Obtaining customers is an expensive affair. Losing customers after you’ve already gone out and paid to acquire them is frustrating and defeating. But with the right approach, you can reduce customer churn, enhance retention rates, and grow your business in a sustainable fashion.
Why Customer Churn Matters
Customer churn is one of those things that most small businesses haven’t ever taken the time to calculate or understand. But it’s a critically important mark of what it means to be a successful business.
“Customer churn refers to the percentage of customers that ended the use of your company’s product or service during a set period of time,” Hubspot explains. “It’s typically calculated by dividing the number of customers you lost in a quarter by the number of customers you started that quarter with.”
In other words, if you started a quarter with 1,000 customers and you lost 100 over a three-months pan, your churn rate would be 10 percent. If you lost just 50 customers, it would only be 5 percent.
By increasing customer retention, you subsequently diminish customer churn. The result is higher profitability and greater loyalty.
Research from Bain & Company suggests that a 5 percent increase in customer retention can lead to profit increases in the neighborhood of 25 percent to 95 percent. (That’s obviously a pretty wide range, but regardless of where you end up on that spectrum, it’s a pretty good rate of return.)
4 Tips for Minimizing Customer Churn
The good news is that you have plenty of levers to pull. The challenging part is figuring out which elements of your business need to be manipulated in order to lower customer churn and increase retention. Here are a few practical suggestions:
- Listen to Your Customers
Reduce customer churn by listening to your customers. Sometimes there’s a disconnect between businesses and their customers, but better listening may be the answer.
Listening to your customers requires three basic steps (each of which must be followed): (1) Ask for feedback, (2) Implement feedback, and (3) Let the customer know that you’ve implemented their feedback – giving them credit for it along the way.
Most businesses are fine gathering and implementing feedback. It’s the third element in the equation where businesses with low customer church rates typically excel. (Your customers want to know you’re listening and that you appreciate them. Giving credit helps immensely!)
- Be Proactive With Communication
Research from Oracle suggests that poor customer service is the most common reason why customers leave. Roughly 89 percent of customers admit to moving on to a competitor after having a bad experience with another company.
Want to lower churn rates and boost retention? Start by being proactive with your communication and engagement. Reach out to your customers, let them know you care, and aim to reduce friction at every interaction.
- Offer Incentives
Never let a customer go without a fight. If you have to incentivize a customer to stay, so be it!
Marty Rogers of Lead Peep says his company has successfully halved their churn rate simply by offering customers incentives to stay. In their case, this looks like offering a free upgrade to the next page or taking a 20 percent discount on the current package. (Remember, it’s better to receive a smaller profit margin than no revenue at all.)
- Constantly Innovate
Customers get bored very easily – especially in today’s business world where innovation and competition are non-stop. You might be able to ride the coattails of one successful product or service for a few months – maybe even a couple of years – but you’ll eventually need to innovate. This might look like adding new features, creating a complementary product, or even just changing designs and aesthetics.
Grow Your Biz the Easy Way
Acquiring a customer is hard work. It takes time, money, clever positioning, and being in the right place at the right time. And when you understand how challenging it is to bring a customer on board, the thought of losing a customer becomes even more deflating.
If you want to grow your business in a sustainable fashion, you need to be intentional about onboarding new customers. But you need to be just as aggressive about keeping the customers that you’ve already acquired. Not only will your revenue grow, but growing your business will require less energy and effort.