Fundamental Strategies to Reduce Churn Rate

by Natasha Ambavle |

Fundamental Strategies to Reduce Churn Rate

Brands invest heavily in customer acquisition, expecting and anticipating that these newly acquired customers will have a high customer lifetime value and remain associated with the brand for a long time. But customer churn is as inevitable and unpredictable as the stock market. According to a study by Kolsky, “1 in 26 unhappy customers will complain, the rest will churn.” As inescapable as it seems, customer churn can be controlled and monitored to foster business growth. We’ll cover what customer churn means, how it can be calculated, and important business strategies that can help you reduce churn rate.

What is Customer Churn?

Customer churn is the number of customers, or resources, that have discontinued their purchase or subscriptions in a given period. Customer churn rate, also known as customer attrition, represents the speed at which a company is losing its customers during a certain period (in percentage format). Since a company’s churn rate and growth rate are dichotomous factors, calculating the churn rate is a decisive metric that aids in understanding, gauging, and analyzing business growth, the effectiveness of marketing, and customer retention strategies.

Why Do You Need to Analyze Customer Churn Rate?

Customer acquisition is an uneconomical process. According to Forrester, “It costs approximately five times more to acquire a new customer than to retain one.” Customer acquisition is only beneficial when it directly and positively impacts customer lifetime value. Therefore, it becomes extremely important to at least recover the acquisition cost and break even if making a profit seems unachievable. Calculating the churn rate can help you determine whether you have recovered your initial acquisition investment.

Measuring churn rate will also help in amplifying the performance of your marketing strategies by enabling you to identify customers that are likely to discontinue their transactions with the brand. Measuring churn rate will also indicate factors causing customer decay and help you reduce the churn rate, along with aiding in locating customers who appear more prone to attrition. This data could be crucial in creating targeted marketing strategies that focus on retaining these high-risk customers.

The foundation of a successful business is a base of loyal customers. Strategizing to reduce churn rate significantly improves the customer retention rate, and combined with engaging loyalty solutions, you can turn your customers into a strong set of brand advocates.

How to Calculate Customer Churn Rate

The churn rate can be determined through a simple calculation:

 Churn Rate = Customers have been lost / Total number of customers

 For example, if you had 100 customers during November, but by the end of the month, you lost three customers/had subscription cancellations. You would calculate churn rate like this:

3 (Lost Customers) / 100 (Total Customers) = Customer Churn

 To calculate the percentage form, you would simply multiply the sum with 100:

3 (Lost Customers) / 100 (Total Customers) = Churn Rate * 100 = 3% (Churn Rate)

Drawbacks of the Calculation

Calculating the churn rate will give you the correct estimation of your customer decay rate; however, whether you are losing old or new customers, frequent purchasers, or seldom purchasers cannot be determined. Losing newly acquired customers is the norm in many sectors and industries, but losing longer-term, valued, and loyal customers can be truly detrimental to business. It indicates that there is some major fault somewhere in your new marketing tactics, newly adopted brand values, product qualities, and such other important factors. It is crucial that you identify and remedy these factors as soon as possible to reduce customer churn and improve brand loyalty and credibility.

Also, there is no official sector-wise churn rate comparison available. A certain amount of churn rate is unavoidable; the acceptable number of customer decay varies from industry to industry. Hence, there is no official parameter to gauge whether your churn rate is acceptable. It depends on the individual brand as to whether they deem the churn rate ‘normal’ or strategize to reduce the churn rate of their company.

Fundamental Strategies to Effectively Reduce Churn Rate

  • Dissect the Problem – The most crucial step to help you reduce the churn rate is identifying the main cause of customer decay. There are simple ways that could help identify the reasons behind your increased churn rate: automated exit surveys and customer feedback forms are perhaps some of the easiest. You could also send personalized emails or even call customers directly that have been associated with the brand for a long time.
  • Talk It Out – Now that you have determined your churn rate and identified the customers that quit, the next step is to reach out to them. Speaking with them can help in more ways than one. First, it will give you a clear idea of what is causing the churn; it will also indicate flaws in your strategy, operations, or support. By connecting with your audience and enquiring about the reasons behind their disassociation, it will create a positive brand image. Minor inconveniences can be resolved during the conversation itself, and it might improve your chances of winning the customer back.
  • Create A Roadmap or Onboarding Process – Creating a roadmap or onboarding process is a proactive measure to reduce churn in the initial stages of a customer lifecycle. Most customers quit because they are overwhelmed by the process or the interface. A walkthrough plus simplified guidance can considerably help you to reduce the churn rate at an early stage. The idea is to ease the transition and create a strong bond from helpfulness in the initial phase of the customer’s journey.
  • Devise a Reward or Loyalty Program – A loyalty or rewards program gives the customers an added incentive to repurchase from your brand. Loyalty programs, when executed successfully, ensure a higher customer retention rate, along with improved customer engagement. According to Bond Brand Loyalty, “71% of consumers say loyalty programs are a meaningful part of their brand relationships.” However, you will need an optimal platform to systematically launch and execute a loyalty program. Connect with Annex Cloud, to engage your customers by designing bespoke loyalty offerings, fabricated specifically to match your business aesthetics and maximize profits. Enriching customer experience through loyalty programs is an excellent way to reduce churn rates.
  • Strive to Offer More – Competition analysis will show you what’s lacking in your marketing strategy. Start by offering your customers better incentives and deals. Free trials, giveaways, or sweepstakes will not only improve engagement but also customer satisfaction levels. By offering them more value for the money, you can overtake your competitors and considerably reduce the churn rate.
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