If you are a store owner the proposition is simple: In order to convert new customers they first have to come through the door. But what if there is a revolving door and the customers go out as quickly as they enter? In that case you’re left with a vacant store and an empty cash register.
Churn is the amount of customers you lose in any given period of time. In order to run a successful business you need to reduce churn for your organization. Let’s take a look at the concept of churn and see how we can change that revolving door into a regular door … perhaps with a padlock.
What is churn and why should you care?
The term ‘churn’ comes from the process of creating butter from milk. By churning you lose some of the milk which causes the butter to stiffen up. Once you lose too much of the milk the butter will turn into a solid rock. That doesn’t sound very appetizing does it? The ‘churn rate’ is the amount of subscribers to a service that will cancel their subscription, divided by the original amount of customers at a certain date.
Let’s say you own a dairy shop, just to stay in the spirit of butter churning. You have a great service in which you send out an assortment of cheeses and butter to your customers every month. You want to calculate the churn rate for the month of March. In that case you take the amount of cancellations and divide that with the number of subscribers on the first day of March. So let’s say you have 200 customers and 10 customers end their subscription before the end of the month. 10 divided by 200 is 0.05 which translates to 5% churn.
Of course there might be new subscribers during this month but those customers aren’t calculated in the churn rate. This indicates that churn is just one metric in a more complex set of calculations. However, it takes a lot more effort and expenses to gain new customers compared to retaining existing customers. You don’t want a revolving door in your dairy shop, you want an ‘entrance only’ door and lock those customers in as soon as they sign up. Of course you can’t force them to stay aboard, you can however convince them to keep enjoying your fine cheeses and butter products. Let’s take a look at the primary reasons subscribers choose to cancel their patronage.
These are the three biggest reasons why customers leave:
- Your products or services do not correspond with the original offer. “You offered cheese AND butter. I’ve received only cheese and zero sticks of butter for two months now!”
- There’s a competitor that offers a better product or service. “Buttery Cheeses Inc. offers products made from organic milk from grass-fed cows!”
- There was not enough effort put into building a customer relationship. “The quality is fine but it’s getting a bit predictable and boring to be honest.”
As I stated before the churn rate is just one metric, a point of calculation. It is however a very important indicator of your business health. Existing customers were once convinced that your offer was good enough to subscribe. Why did they change their mind? Is it something you did wrong or perhaps something you should‘ve done?
If you lose 10 customers each month and gain 100 you might not see a problem right away. You’re still growing your business, right? But if you see the churn rate steadily rise as your customer base grows, your business will become less healthy which can lead to some serious problems in the future. Let’s explore some ideas to see why customers abandon ship and how to prevent this from happening.
Ideas (for improving churn) on a business level
1. Become a customer
It’s pretty easy to set up a sales funnel according to a standard procedure, but have you actually traveled along that path? Back in the eighties the CEO of Hair Club for Men promoted his business by stating “I’m not just the president of Hair Club for Men, I’m also a client!” What happens after you sign up? How fast does the customer service respond to complaints? And how are issues resolved? Walk a mile in your customer’s shoes and see if you run into a brick wall.
2. Promise less, deliver more
Every new customer makes the board of directors happy, so the eagerness to please the marketing department might promise more than the company can actually deliver. Although you should never sell yourself short, it’s better to hold back a little bit and deliver more than your subscribers expect. Make sure the packaging is perfect, or send a free sample along with the order. Take one or two bullet points of your sales proposal and surprise the customer with a treat.
3. Check out the new kid on the block
If you see the churn rate rising you could be doing something wrong. But maybe there’s a competitor out there that just does things ‘more right’. Unless your former customers have developed a lactose intolerance they will still want to consume dairy products, just not YOUR offering. What is the competition doing and how can you improve to retain your customers before they jump ship? Or get them back from the evil clutches of your competitor.
Ideas (for improving churn) on a marketing level
4. Know your customer
That ‘blue ocean’ of unlimited potential customers? Forget it, bring your ideal customer in perfect focus by creating a buyer persona that you can target. Write in the correct tone of voice, create ad campaigns that target a specific audience and be consistent in all you say and do. And no, you will not exclusively approach females named Karen, aged 25-35 that like dogs and drink Cabernet. A buyer persona does however give you a fictional person to keep in mind while setting up a marketing strategy.
5. Reward loyalty
Quite a few companies make the mistake of offering new subscribers a hefty discount without any advantages for loyal customers. These loyal subscribers are also brand ambassadors with a need to be rewarded. This does not automatically mean a discount though. Create exclusive offers, introduce new products for ‘preferred customers’ first or send an inspiring newsletter.
6. Create communities
That buyer persona we mentioned before? Of course, there are more customer profiles and stages within the customer journey that you can use for more specific targeting. You need a different hook to catch a specific type of fish, with user segmentation you can communicate with customers on their level of involvement and commitment.
Ideas (for improving churn) on a user experience level
7. Make sure the entrance is without obstacles
How do you enter a store without a door? Or would you become a member of a service with numerous grammatical (or language) errors on the homepage? First impressions count, make sure you welcome customers at the door with a beautiful design and an intuitive user interface to name but a few options.
8. Hire staff members who understand customers
More and more services are automated with AI. Although Artificial Intelligence certainly can provide you with valuable tools in customer relations, your ‘real’ staff members are actual people that should be able to empathize with the customers they serve. This will create a greater sense of community and loyalty.
9. Divide accounts between your staff members
A lot of customers like to communicate with the same support staff member. By assigning customer success representatives your clients can pick up the conversation where they left off. By maintaining a personal profile for each client the representative can also proactively provide support. Upselling is a possible strategy in this area, but now we’re specifically looking at reducing churn.
10. Dangle a carrot and make it fun
Loyalty programs allow the provider to ‘gamify’ the experience. With promotions, newsletters and other interactive media you are conditioning your customer to login to their accounts and remain active. Just like a game you should ‘unlock’ new challenges and possibilities to keep your customer engaged. From the client’s perspective you’re ‘gamifying’ the experience, from a corporate point of view you could call it ‘dangling a carrot’. Whatever your perspective, make being a customer fun.
11. Be interested in the opinion of your (former) customer
In business “good riddance!” is rarely a solid approach for continuing success. Even if you can’t retain a departing customer, at least try to understand why they are abandoning your service. On the cancellation page ask (not demand) to provide a reason, ask for permission to be contacted by a representative or see where you can change your business operations so you can keep other clients aboard.
Conclusion
As you can see from the ideas on this page there are many possibilities to reduce churn, increase revenue and build a healthy company based on a reliable user base. There will always be customers that will opt-out and that’s fine, just try to keep the churn low and learn from these situations.
This page is meant as a simplified primer about churn. Do you want to understand more about this subject and learn how to implement churn ratio in your business analysis and operations? Send me a message and we’ll dive deeper into this subject.
