Customer churn, also known as customer attrition, is the number of customers that have discontinued purchasing from your brand in a given period of time. Companies typically look at churn by month, quarter, or year. Annual is most common unless your products are paid for monthly—such as mobile service, gym memberships, or SaaS subscriptions—in which case these brands measure churn monthly. Unless it’s kept in check, churn can creep into your business, silently stripping away your growth and wreaking havoc on your bottom line. Accenture estimates companies lose $1.6 trillion per year due to customer churn.
We’ll take a deeper dive into factors that contribute to churn a little later in this guide. But according to the Database Marketing Institute, the reasons customers leave fall into four main categories:
You’ll have to accept that a certain percentage of your customers will die. There’s also a portion that will move up or down within your market because they’ve either outgrown you or have scaled back, so you’re no longer the best fit. Overcoming dissatisfaction with price is a discussion for another white paper, however, it’s important to be aware loyal customers are less price sensitive. Product dissatisfaction may be due to a wide range of reasons—targeting the wrong market, lack of differentiation or innovation, inflating expectations, trying to solve the wrong problem, and many others.
While you have limited control over these first three categories, you have complete control over the fourth—how you treat customers. Consumers today don’t just want you to solve their problems. They want to feel seen, heard, and special. Just as in personal relationships, it can be difficult to pinpoint where things went south with your customers but the tips in this guide can help you start your customer relationships on the right foot and keep them on the right track with a strong focus on creating emotional bonds that build lasting customer relationships.
Increasing customer retention rates by 5% can increase profits up to 75%.
Source: Bain & Company
Churn is an inevitable part of any business. Ignoring churn or delaying a strategy to address customer churn can have critical and lasting repercussions on business growth, since it’s inversely proportional to your customer retention rate. The higher your customer retention rate, the lower the attrition rate.
Whether you measure churn (glass half empty) or retention (glass half full), you’re basically looking at the same thing—and measuring churn is becoming more common. Simply put, the more customers you keep, the better it is for your bottom line. According to Forrester, it costs five times more to acquire new customers than to keep an existing one. Retained customers also bring in more revenue—a Bain & Co. report states that a 5% increase in retention can drive up to a 75% increase in profits.
Retaining customers isn’t just financially viable, it also has a strong impact on overall brand value, since retained customers have a high probability of turning into loyal customers. Lost customers impede financial growth and have a massive impact on overall sales and revenue. This is why customer attrition rate is a critical business health metric. Churn reflects the weakness of the business while a high retention rate indicates strength and success.
Without a loyalty initiative, only 20% of first-time customers will make a second purchase.