What is customer churn?
Customer churn, also known as customer attrition, happens when a buyer stops using your products or services.
Customer churn leads to revenue churn: the amount of regular revenue an organization loses due to customer cancellations, plan downgrades, or failure to renew.
You can calculate your churn rate with this formula:
(Lost Customers ÷ Total Customers at Start of Chosen Time Period) × 100 = Churn Rate
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Why is customer churn important?
You won’t keep 100% of your customers, no matter how good your customer retention strategies are. But by keeping your customer churn rate as low as possible:
- Customer lifetime value increases: Existing customers who stay longer spend more.
- Acquisition costs decrease: Retaining a customer costs less than winning a new one.
- Brand reputation strengthens: Satisfied customers post positive reviews and refer others.
- Growth accelerates: Existing customers are more likely than new ones to try what you launch next.
Three milestones where churn risk is highest
Reducing customer churn means getting the fundamentals of your products, services, and delivery right so that your offerings are the best they can be—your customers will soon tell you if they’re not. Listen to them, and make continuous, proactive changes rather than reacting. Loyal customers aren’t won by one-off interventions, and unhappy customers won’t be convinced by a quick discount.
With the tools available in today’s CX technology suites, it’s never been easier to make a big impact on customer churn at scale. There are three ‘customer success’ milestones that you need to measure once you have attracted customers, if you want to reduce churn.
Think of them as checkpoints along every customer’s journey.
They are:
- Onboarding: The customer is introduced to your product and gets up and running with it smoothly.
- Engagement and value realization: The customer is actively using your product.
- Renewal and expansion: Contracts or subscriptions are coming to an end, or it’s time to buy again.
At each customer milestone, you need to track and evaluate customer satisfaction. If you spot experience gaps between what you’re offering and what your customers are expecting, step in and rectify the issue. When you build good customer relationships, they are less likely to stop doing business with you.
10 strategies to reduce customer churn
Here's how to address the warning signs and act before customers reach a decision.
1. Make sure your product earns its place
Make sure that the products and services you’re selling are good quality and fit for purpose. If customers are churning, there may be issues with what you’re selling. Are they as good as, if not better than your competitors? Are they priced competitively? Do they have all the features that customers rely on? Is the competition bringing out better features? Keep a careful eye on what your competitors are developing and bringing to market, and at what price point.
Quality control not only keeps your customers happy, it also avoids ensuing costs such as returns, poor reviews, and more support calls.
2. Understand your target audience
Your customers may have been buying from you for a long time, but do you really know what they want right now, and into the future? Customer needs evolve, and your offerings must evolve along with them. This is where customer feedback is so useful. Listen to your customer base to find out what they want, then develop and deliver it.
3. Build detailed customer journey maps
It takes more than a single, isolated incident to cause customer churn. More often than not, it's the accumulation of friction across multiple touchpoints over time. When you map out your customer’s entire journey, from ‘awareness’ to (you hope) ‘repeat purchase’, you’ll be able to identify those ‘pain points’ where customers lose patience and drop out. Once identified, you can step in to rectify the issues.
4. Make the tech as frictionless as possible
We’ve all been there—trying to complete an online purchase, and the site or app keeps glitching. Frustrated, we give up and try a competitor whose tech flows smoothly from search to purchase. Digital friction can lose the sale—and often the relationship.
Consider an omnichannel customer experience—this connects physical, digital, and communication channels so they can start an interaction or purchase on one channel and continue it on another, without any disruption. Your customers will have cohesive, integrated interactions with your brand across all touchpoints.
The analysis of omnichannel data will give you customer intent, emotion, and sentiment, helping you spot the first signs of a customer thinking of leaving.
5. Onboard your customers well
Your customers have chosen you. Now is the time to make a great first impression and set the stage for a good relationship and recurring revenue. To avoid early churn, you need to offer smooth, transparent onboarding experiences to maximize customer satisfaction.
Find out what they thought of their first buyer experience and measure it so that they reach their first ‘value milestone’ (getting up and running with the product or service) quickly. Plus, when you know when friction appears in the onboarding stage, you can act on what you learn before the next cohort goes through the same journey.
6. Communicate with your customers
Silence is a churn risk. Don’t wait for your customers to contact you with issues—get ahead of them. If there are shipping delays, stock shortages, payment failures, or, (particularly in the case of SaaS companies) technology glitches, let your customers know. There are plenty of communication tools you can use proactively, such as real-time status tracking and automated notifications. Manage your customers’ expectations; everyone appreciates that things go wrong sometimes, and they’ll trust you even when a failure occurs if they’ve been kept in the loop.
7. Educate and support your customers
When you’re a company that cares about its customers, you want them to get the most out of your products and services. You can make manuals and ‘how-to’ guides available online, offer live chat to answer queries, or be responsive on social media and forums where any number of customers can ask questions and give opinions. These channels are a continuous source of insight for understanding your customers and pre-empting churn.
8. Offer the best possible customer experience
When you think that more than half of customers (52%) would switch to a competitor after just one bad experience, it’s crucial to make your customer support excellent.
And, when you have in place well-trained, empathetic support teams—empowered to handle customer issues professionally and promptly—you can turn a difficult situation into a positive one, demonstrating what your brand stands for.
9. Reward loyalty
One thing that risks customer churn is your existing customers seeing new customers receiving better deals or a bigger discount. You must reward your current customers with loyalty programs or discounts as an incentive to keep them coming back to you. Rewarding loyalty marks you out as a trusted brand, and your customers actively decide to stay with you rather than start all over again with a competitor.
Rewarding loyalty is even better when you personalize it, tailoring product suggestions, exclusive discounts, or special offers to each customer. Our research backs this up; 64% of consumers prefer tailored experiences. With personalization, customers feel that their own unique needs are being met—something that a competitor starting from scratch cannot do.
Pay particular attention to your highest-value, longest-tenured customers. These relationships carry the most revenue risk if they churn and the most growth potential if they don't.
10. Close the loop
Sometimes, you’ve done everything you can to reduce customer churn, yet still some customers are sending signals that they are on the verge of walking away. They may have given a low survey score, a poor review, or expressed dissatisfaction during a support call.
Now is the time to close the loop. Feedback is pointless unless it generates action, and that is what you have to do. Software such as Qualtrics XM for Customer Experience gives your teams the tools to listen across every channel, and analyze customers’ various states of contentment or discontentment in real time. It can automatically create a ticket or alert to a helpdesk or customer service agent who can step in to support a wavering customer—and prevent churn.
Those organizations that reduce customer churn by closing experience gaps also improve satisfaction, retention, loyalty, and generate more revenue.
