Why Reducing Customer Churn is Important

How reducing customer churn can improve profit…

Customer churn occurs when customers or subscribers stop doing business with a company or service It is normally described as the percentage of your total customers who have left you.

So, reducing your customer churn can help your improve your profit by addressing two elements:

  • Costs – the costs of acquiring new customers when is greater than those of retaining customers; and
  • Revenue – retained customers are more likely to buy again from you and spend more than new customers.

Together these combine to provide greater opportunities for improved profit via your retained customers than acquiring new customers.

Customer churn impedes growth.

For example, if you have a customer base of 1500 customers and you lose 300 customers, then you have a 20% churn rate.  If this continues then in five years you will have turned over your whole customer base. To grow you not only have to replace those lost customers, but you have to find additional customers on top of this.

The greater the level of churn the more customers you lose. Higher churn requires you to spend more time and effort in finding more customers. These new customers are more expensive to acquire and spend less as you do not enjoy the same level of trust and familiarity that you have with customers who have been with you for some time.

Monitoring Churn

So you should have a defined method for calculating customer churn in a given period of time. By being aware of and monitoring churn rate, you are better equipped to determine where and how to focus your efforts to retain customers, and to identify strategies for improvement.

A 2013 Bain & Co. study found that a 5% increase in customer retention rates had the potential to yield profit increases from 25% to 95%. So, don’t let customers’ issues eat into your bottom line: solve them swiftly and reap the benefits.

…and there’s more!

According to Gartner, a staggering 80% of a company’s future revenue will come from just 20% of its existing customers. Meanwhile, Marketing Metrics claims that the probability of selling to an existing customer is 60-70%, and only 5-20% to a new prospect. You are more likely to sell to an existing customer by at least three to one!

So, it makes perfect sense that focusing on reducing churn is vital since keeping your customers is profitable!

5 Ways to Reduce Churn

  1. Understand Why Churn Occurs – simply, why do your customers leave you? Really talk to them, ask them for feedback and listen with the intention of learning and improving things from what you have learnt.
  2. Engage with Customers Continuously – most customers who leave you do so because they feel ignored or not appreciated. Once you have acquired a customer it is just the start of the relationship and, like a good marriage, needs to be nurtured to last the unavoidable ups and downs.
  3. Know Who is at Risk – who are your customers who are most likely to leave you? What do you need to do to re-establish contact and re-engage the customer relationship?
  4. Know Who Your Most Valuable Customers Are – customers are not only valuable in terms of revenue and profit, they can also be important in other ways such as their lifetime value, strategic importance, as a source of referrals etcetera.
  5. Go the Extra Mile – look to provide stellar customer service every day, at every touchpoint, via everyone. Prove to them that you value them, and make sure you share with them what you have done for them.

So what else can you do to improve your customer retention rate, where will you focus your efforts, and what can you achieve as a result.  To download the Customer Churn Cheat Sheet click here.

To view or download a PDF version of this blog click here

Share your thoughts and ideas here, or email me at andrew.cooke@business-gps.com.au

If you found this article of use or interest please don’t hesitate to share it with others.

Click here to find out more about Andrew Cooke and Growth & Profit Solutions.

How to Find Your Best Clients

And it’s not necessarily those who spend the most….

The squeaky wheel is the one that gets the oil. We all know that. And the customers that complain are the ones we listen to, and with good cause. But when we do so we often forget to pay sufficient attention to our other customers. Because these “wheels” aren’t “squeaking” we don’t give them enough attention (or oil)!

So, if you don’t listen to your customers how do you know what they really think about you? And how does what they think translate into lost or gained dollars and business?

There is a simple question that you can ask. This is often called the Customer Loyalty Question, and it underpins the Net Promoter Score approach (developed by Bain & Co.) used by many businesses to gauge the loyalty of their customer base. The question is this:

“On a scale of 1 to 10, how likely would you be to recommend our company to a friend or colleague?”

Based on the response, you can classify your customers as:

Score Interpretation
0 – 6 Detractors: unhappy, potentially damaging your brand with negative word-of-mouth
7 – 8 Passives: satisfied but indifferent, could be lured away
9 – 10 Promoters: loyal customers who are also ripe for referrals

 

The value of doing this is that you can identify where and how your customers sit on the ‘loyalty continuum’, and you can determine what to do with your resources, where to focus them, and what to do with them when you do.

For example, for your detractors you could engage them in a conversation and ask them for ideas on what you could do to improve things; or it might be as simple as apologizing for a perceived or actual slight. By engaging with them and listening to them people feel validated, and they are likely to become somewhat warmer in their attitude and behaviour towards to you, and less likely to spread a negative word-of-mouth about you.

For your passives, you can ask them a similar question and thank them for being a customer. They feel wanted and respected, and you are building up a stronger and closer relationship with them – this moves them closer to becoming advocates for you.

For your advocates, share your appreciation, give them insights and ideas that make them feel special and even more engaged with. Ask them how they would share their experience of being a customer of yours with someone else, this helps them to actually do so when they have the opportunity. Or share with them ways that they can share their enthusiasm and passion with other advocates, and with other people who they feel would benefit from being a customer of yours.

Address all three of the areas – don’t just look after your advocates, don’t forget that the costs of replacing a lost customer are significant; that your advocates can bring in a lot of other new clients by acting as a ‘trusted sales force’; and your passives can be better retained against the poaching efforts of competitors.

To find out more about how you can use this question to retain more clients, improve customer spending and attract new customers click here to download the Customer Loyalty Cheat Sheet.

To view or download a PDF version of this blog click here

Share your thoughts and ideas here, or email me at andrew.cooke@business-gps.com.au

If you found this article of use or interest please don’t hesitate to share it with others.

Click here to find out more about Andrew Cooke and Growth & Profit Solutions.