This is a contributed post from our partners at Dialpad.
Whether it’s an insurance client who decides not to renew their policy or a cable subscriber who decides to cancel their plan, these customers have chosen to stop using your services, leading to a resulting loss in business.
The rate at which this happens is known as your customer churn rate, and you want to keep it as low as possible.
But in today’s digital world, with competitive markets and a wide range of available products and services, keeping existing customers on board—as well as attracting new ones—can be difficult.
The problem is, attracting new customers is far less cost-effective than repeat purchases or subscriptions from retained customers. Analyzing your customer churn rate will let you spot patterns and trends that indicate a problem. Solving these issues and retaining customers will be less costly than attracting new leads.
In this post, I'll cover how you can manage, analyze, and reduce your customer churn rate.
What Causes an Increased Customer Churn Rate?
Before we look at how to analyze your customer churn rate, it makes sense to start with some of the most common causes of a high customer churn rate to get you thinking about how to avoid them.
Unsatisfactory customer service
This is one of the principal influences on customer churn rates.
A 2020 Zendesk report found that 50% of customers would switch to a competitor after just one bad customer service experience. After multiple bad experiences, this figure can rise to 80%.
Furthermore, only 13% of customers will recommend a business if they’ve had at least one poor customer service experience. Clearly, a poor customer experience is a red-flag for churn rates.
Poor customer experience
Modern consumers demand a good customer experience. Whether it’s extra support, loyalty programs, rewards, or a personalized customer experience, getting any element of it wrong won’t be forgiven.
The impact of customer experience on retention is evident. A good customer experience will increase trust, forgiveness, and loyalty. A poor experience will mean the opposite.
If your competitors’ are offering an emotionally intelligent customer experience that makes the customer feel valued and has seen their retention rates rise, be sure to match them.
Lack of customer onboarding
Just like new employees, your customers often need an onboarding process to guide them through using their new product or service.
A 2020 study by Wyzowl found 90% of customers felt that companies could have a better onboarding process. Welcome emails, online groups, support teams, and product tutorials are all great ways to improve a new customer’s experience. Beyond helping them, it will also make them feel part of your brand and valued. A below-par customer onboarding experience is likely to leave your customer feeling isolated and unlikely to return.
Value is unclear
If customers don’t see enough value in your product or service, they’re not going to stick around. Overpricing your services will leave customers feeling shortchanged. It also allows competitors to cut better deals and steal business away from you.
A lack of value can also come from not clearly demonstrating your product’s or service’s benefits. Mitigate this with a good onboarding process and always emphasize why your offering is the ideal solution to customers’ needs.
Falling behind in changing markets
Too many businesses settle on their efforts once the profits start to come in. But the most successful businesses are those that stay ahead of changing markets.
Make sure you’re conducting market research to keep up with changing needs, expectations, and trends. Watch your competitors and improve on their offerings. If they’ve set up a remote sales team out-of-hours, do the same. Better yet, try and go a step further. You could add chatbots or utilize cloud based communications for a better all-around service that will keep customers happy 24/7.
This occurs when customers accidentally leave your services rather than by choice. Things like failed card payments on subscribed services can lock users out and are an example of how accidental churn can occur.
Involuntary churn is often overlooked when it comes to analyzing your customer churn rate. But there are ways to mitigate it. For example, text notifications of upcoming billing, or lost sales recovery tools to get back in touch with prospects who couldn’t reach you.
Make sure you include involuntary churn in your analysis and think of ways to mitigate issues with banking, subscriptions, and call-backs.
How to Calculate Your Customer Churn Rate
Tracking your customer churn rate is vital for avoiding the loss of customers and the revenue they bring. If your churn rate creeps up, it’s time to take action.
Customer churn rates are expressed as a percentage. For small business assessments, you may choose to manually calculate this using the following formula:
This formula gives you the percentage of lost customers over a period of time (usually over a month).
For example, your business starts October with 130 customers and ends it with 103. This is a loss of 27 customers. You must then divide 27 by 130 (0.207) and then multiply this by 100 to get a churn rate of 20.7%.
For larger businesses with more customers, using an analytics tool to automatically track your customer churn rate might be the way to go. Plenty of these are available online and can give you deeper insights than manual methods.
How to Analyze Your Customer Churn Rate
Now you know how to calculate your churn rate, you need to analyze it to find out what exactly is driving customers away. This is important; you’ll have little success trying to scale a business with a high churn rate.
Here are some ways to analyze your customer churn rate.
Use key performance indicators and objectives
Analyzing your customer churn rate needs the right data. Luckily, your KPIs and business objectives are a good place to start.
Some useful KPIs for churn analysis include:
- Usage and engagement levels: A drop could indicate increased churn. Looking at your typical conversion rate for eCommerce is a good way to spot changes.
- Support tickets: Fewer support team tickets could be a sign of a customer base that no longer wants help with your products or services. I.e, they’ve probably moved on.
- Monitor competitor’s prices: Ensure you’re well priced. Match or better any rewards or discounts your competitors are offering.
- Upgrade likelihood: How likely is a customer to upgrade? Are your KPIs being met for upsells to higher packages or new products? Focusing on upgrades is great for fighting back against high churn rates.
Use KPIs everywhere you can. Set KPIs for affiliate programs, for social media clicks, for whatever you can. If you have the resources to monitor them, they could give you an early indication of an increase in churn.
You can also study the content of your customers’ phone conversations to determine those who are at risk of churning. With a conversation intelligence solution, you can capture these insights at scale and sort by topic to identify customer experience issues.
Identify patterns of behavior
Each different type of customer group will have different expectations and needs, which manifest as observable behavior patterns.
Separating your group into cohorts based on usage behavior and time of sign-up will allow you to better analyze your churn rate and fix it.
Spot patterns such as:
- Which product or product features are used the most or least
- Which customers are more likely to stop using your product or services after a certain amount of time
- How many of your customers are asking for help from your support teams
You can also use tools like conversation intelligence to predict consumer behavior with AI. With this knowledge, you can devise strategies for bringing back those on-the-fence customers.
Send them an email to reconnect and offer them an incentive. You should also notify customers whose subscriptions or payment methods are expiring.
Segment your customers
For an even deeper understanding of user behavior, segment your customers based on things like what industry they come from, how long they’ve been a customer, and usage patterns. This will further highlight who’s at risk of churning and what you should do about it.
Once you've segmented your customers, you can:
- Measure how customers from different industries use your services and conclude whether this makes a certain group more likely to churn.
- Measure how the chances of a customer leaving changes depending on how long they’ve been a customer.
- Analyze your pricing options against churn rates. For example, are those on lower-priced subscriptions moving on because they don’t receive enough features? Conversely, are customers on higher-priced subscriptions seeking cheaper alternatives elsewhere?
Observe customer touchpoints
If your business lacks in the support department, customers are likely to become fed-up and leave.
If it’s time to change your workflow meaning and implement new processes, do it. Make sure your points of contact are well-established and operational so that customers always have somewhere to turn when they need it.
This will go a long way in providing value and customer satisfaction. It’ll also help you make improvements and boost your reputation. Think about how to:
- Have a solid onboarding process to help new customers feel supported and valued. Make things as easy and as smooth as possible for them.
- Have a positive and helpful customer support team available. Not only will this solve queries, but it will also improve relationships between the customer and your business. If it's out-of-hours, have a comprehensive FAQ page so they can find the answers they need.
This guide has touched on some of the most common causes of customer churn, as well as how to calculate and analyze it to get those numbers down.
Analyzing churn is an essential strategy in today’s competitive markets where competitors lurk ready to take your unhappy customers. Quite simply, having a high churn rate will not do.
Don’t view your findings as a failure. Instead, see churn rate analysis as an opportunity to learn more about your products, services, and customers. Only then can you improve both your business prospects and your customers’ experience.
About the Author
Grace Lau is the Director of Growth Content at Dialpad, an AI-powered cloud PBX and communication platform for better and easier team collaboration. She has over 10 years of experience in content writing and strategy. Currently, she is responsible for leading branded and editorial content strategies, partnering with SEO and Ops teams to build and nurture content. Here is her LinkedIn.