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

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

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