The Surprising New Factor Causing Customer Churn
Like all CEOs I’m very mindful of customer churn and the ever present problem of customers cancelling or deciding not to renew. You can't simply wish for less customer churn and wait to see if your wish comes true. If you aren't being proactive about reducing churn or if your current methods simply aren't working then it's worth reading further.
We all know churn is highly complex in terms of understanding why it occurs, what it costs the business and how you might go about keeping it manageable. I say manageable because you’ll never entirely stop churn and some level of churn is actually healthy, particularly when it involves customers you realize you didn’t really want.
Depending on which study you believe, and what industry you’re in, acquiring a new customer is anywhere from 5 to 25 times more expensive than retaining an existing one. It makes sense: you don’t have to spend time and resources going out and finding a new client — you focus on keeping the one you have happy. If you’re not convinced that retaining customers is so valuable, consider research done by Frederick Reichheld of Bain & Company (the inventor of the net promoter score) that shows improving customer retention rates by 5% can increase profits by at least 25%.
Churn is a fact of life in every business, whether B2B or B2C. A percentage of churn is unavoidable and there are many legitimate reasons for customers to cease being a source of revenue. Anyone in business will appreciate that churn is not only a massive drain, it can be a business-killer. There’s no question about it: churn can literally crush your business, if you let it.
Some businesses feel that having high churn or a poor retention rate is just natural or the inevitable outcome of the fickleness of customers. They may not even stop to think about what it really means for their business. While, conversely you have those that lose countless hours of sleep because of it. A voice in the back of their minds continuously whispering: “You are losing customers. Do something about it!”
The simple answer is that churn is expensive to your business, and in more ways than one. You can think of it as a little boat full of holes, slowly sinking, and as hard as you work baling bucket after bucket over the side, more water keeps flowing in. Initially you have one sailor baling but then you need another and another and soon you are spending a fortune employing balers.
Churn is one of the most serious, persistent problems that companies face, and the only way to deal with it is through brutal honesty. You need to narrow in on an understanding of churn that accurately portrays your company, ruthlessly sniff out your retention issues, and work hard to fix them before they become full-blown disasters. Some churn is unavoidable. But leaning on that as an excuse to do nothing is dangerous. You need to ask yourself:
How many customers churn for reasons that could have been headed off with impactful customer messaging?, and How many customers churn for reasons that are completely out of your control?
The Five Most Common Causes of Customer Churn
I’ll cover the five most common causes of customer churn, including one that will likely surprise you.
1) Bad Customer Service
Many companies think of customer service as a cost to be minimized, rather than an investment to be maximized. Here’s the issue with that: if you think of support as a cost center, then it will be. That is, if you don’t prioritize support and work to deliver excellent service to your customers, then it’s only going to cost you money…and customers.
In fact, one study by Oracle Corporation found that almost 9 in 10 customers have abandoned a business because of a poor experience. But just as bad customer service can be a huge loss for your business, the same study found that great customer service can be a huge win, with 86% of customers willing to pay more for a better customer experience.
2) Bad Onboarding
To your business, two of the most important milestones in the life of a customer are:
The moment they sign up for your product, and…
The moment they achieve their first “success” with your product
A disproportionate amount of your customer churn will take place between (1) and (2). That’s where customers abandon your product because they get lost, don’t understand something, don’t get value from the product, or simply lose interest. Bad onboarding – the process by which you help a customer go from (1) to (2) – can crush your retention rate, and undo all of that hard work you did to get your customers to convert in the first place. It’s your job to make that transition as fast and smooth as possible for your customer, and that’s where great onboarding comes in.
3) Lack of Ongoing Customer Success
While onboarding gets your customer to their initial success, your job isn’t done there. Hundreds of variables – including changing needs, confusion about new features and product updates, extended absences from the product and competitor marketing – could lead your customers away. If your customers stop hearing from you, and you stop helping them get value from your product throughout their entire lifecycle, then you risk making that lifecycle much, much shorter.
4) Natural Causes
Not every customer that abandons you does so because you failed.
Sometimes, customers go out of business.
Sometimes, operational or staff changes lead to vendor switches.
Sometimes, they simply outgrow your product or service.
And that’s okay. It’ll happen to every business.
But it’s still churn, and you can get value from acting on it.
5) Company culture
In 2017 the sleeper reason for churn is your company culture.
You can sum up in a single word what people see when they look deep inside your organization. They see your culture. Once, your internal corporate culture was just that: internal. But now that a business is a glass box, there’s no such thing as an ‘internal’ culture.
Whatever happens inside your business, the world can see that. Okay, not with perfect 20/20 vision. Plenty of mundane stuff happens every day that no one gets to know about. But if it’s of any interest to anyone outside the box – from your Christmas Party to the eco- footprint of your largest factory – it will be seen. Maybe not right away, but eventually. And once people see it, they will feel something and form a view about it.
Top 4 Actions to Take Today
Churn is such a complex issue and solutions can be equally complex. Here’s my recommended top four actions you can take today.
1) Collect useful customer data to tackle churn. The most basic forms of data that can be easily tracked are customer satisfaction scores (CSAT) and Net Promoter Scores (NPS). CSAT directly measures the customer’s satisfaction with your product or service. This metric shows how happy your customers were with the whole process: from finding out how to contact you, the actual conversations they had and any follow up correspondence you might have sent such as onboarding agreements. NPS was developed to measure customer loyalty. It helps you identify which customers are at risk of churning. It also helps identify your promoters who are helpful for case studies and referrals.
2) Understand the true cost of churn. Like the sample dashboard below, the primary metric to track is how churn impacts revenue, not leavers as a percentage of total customers. Once you can gauge the impact on revenue you can make sensible decisions on the dollars you can invest to tackle churn. A dashboard like the one below can be a very helpful way to share the data with all staff.
3) One important corporate development that is now well proven to deal with churn is the Customer Success team, where you can do some serious damage to those churn rates (in a good way). It’s a proactive approach to churn from a designated customer success team to reach out to customers who are newly onboard, customers showing signs of disengaging and/or customers who have advised they are not renewing. If funding is limited, why not start with a Customer Success Team of 1? It will be easy to measure the impact and in a very short timeframe.
4) Your corporate culture could be one of the strongest factors in customer churn and yet many companies are yet to realize it. Doing something about culture is likely to be the toughest of the 4 actions you could take and yet it's likely to be the best investment you could make in a strong future. There's a very helpful article here that will help you get started.
The simple truth is: successful customers don’t leave, because they feel like you’re invested in their success.
Having a philosophy of ‘who cares…churn is inevitable’ is proven to be a very dangerous mindset to have. It fails to pay attention to the crucial factor that acquiring new customers is expensive and – combined with a high churn rate – leaves you with a marginal profit margin. Why throw money at acquiring new customers just to break even? Instead, grow your customer base by lowering churn and creating sustained revenue growth.
If the reasons for customers leaving are fixable, fix them! And tell them you’re fixing them. And tell them you’re fixing them in a human-to-human way which sends the signal that you value them as customers and you offer a mutually beneficial relationship.
If their reasons aren’t immediately fixable, you’ve gained valuable feedback that can help direct your future product development plans, or help you further refine your buyer persona to attract people who love what you do, instead of wishing you did something else.
If you don’t plan to fix their problem, but have a really good reason for not fixing it, here’s an idea: Explain why you’ve made the choices you’ve made, and how those choices can end up benefitting the customer.
Whatever you do, don’t send a generic message that sounds like a robot wrote it. Automated is good – it’s all part of a growing business and it’s a vital tool when time is of the essence, most importantly ensure you have embedded that personal touch.