Customer Churn Explained: How to Use Data to Keep Your Customers from Leaving?

Can you name a single business that has never lost a customer? Whenever customers are unhappy, whatever the reason it may be, they leave. It’s that simple. The number of customers that leave during a specific time period can be called ‘customer churn’.

What is customer churn?

Every expert has a different take on what is customer churn. But at its core, any business’s customer churn rate indicates the rate at which it is losing customers. To put in perspective, how soon are your customers unsubscribing. If we introduce formulae, that equation would look something like this:

(Number of Customers Lost) ÷ (Original Number of Customers)

For instance, if a business started with 100 customers, and over the course of a month lost 10 customers, then it would indicate a monthly customer churn rate of 10%.

But this does not include any new revenue or sales as part of this data. Those customers will be part of the calculations for the next month. This is where the formulae don’t work – when you bring revenue into the picture. Businesses are often most interested in seeing how customer retention has impacted total revenue. Consequently, it is important to calculate retention in terms of revenue.

To start with, you have to calculate your MRR (Monthly Recurring Revenue). MRR is pretty much the income your company can surely anticipate every 30 days. To calculate revenue churn, you have to divide the figure by the MRR you lost over the course of the month. While calculating these figures, do not forget to subtract any new revenue you might have generated from existing customers through upselling or cross-selling.

Let’s say your MRR at the beginning of the month is $100,000. At the end of the month, it reduces o $70,000. During that time period, you also add $20,000 from existing customers by cross-selling. So, your revenue churn rate can be calculated as shown below:

(($100,000 – $70,000) – $20,000) ÷ $100,000 = 10%

Why is customer retention important?

It is the financial aspect of it that bothers most companies. It is far more expensive to acquire a new customer than to retain one. The old rule of thumb says it costs 5 times more to acquire a new customer than it did to retain one.

Your customer retention rate can speak a lot about the current health of your business. You get a good idea of how many customers are bailing on your business—and how fast they’re leaving.

Data-driven strategies to reduce customer churn can work wonders. A McKinsey report in 2014 stated that “executive teams that make extensive use of customer data analytics across all business decisions see a 126% profit improvement over companies that don’t”

The same truths are revealed by KPMG, who found that customer retention is the main driver of a company’s revenue.

How to reduce customer churn?

Customer retention is extremely critical to the health of any business, regardless of size or industry. It is a common representation of a business’s ability to keep its existing customers and maximize its revenue growth. It is important to dig into the factors that drive your customer retention rate and generate opportunities to improve your customer success strategy.

Talk to the customers who are leaving

When a customer decides he doesn’t want to do business with you anymore, don’t let that customer walk out the door before you know why. Getting answers to these questions can provide you with valuable feedback. Many a time, customers leave because they had trouble using your solution. Or maybe, it just didn’t solve their problems. Either way, it will help you improve your product

Understand why customers are leaving

Once you have the data on why your customers are leaving, it is time to put that data to work. There could be a wide variety of issues. Make sure you look at more than just the recent issues. Many a time, we focus on the latest issues, but we realize later that the customer was leaving due to a chain reaction of poor service. All of those incidents must have destroyed your brand image and hard work.

Go back to your best customers

Once you know why some customers have left, identify a pool of customers that are most likely to cancel next, and focus your efforts on keeping them onboard. Prioritize the most profitable customers who are on the brink of churning.

Be proactive. Always be proactive.

Reach out to your customers before they even need you. They have to know that you are invested in helping them grow as a business. Make sure your messaging is personalized and should be directly tied to the challenges they face. If you notice that they are not using your product to its full potential, send them a friendly Hi.

Provide a roadmap for your new customers

Getting started with a new product can be quite overwhelming for anyone. And if a customer any challenges implementing or using your product as soon as they sign up, they will soon lose interest. You have to guide these customers and provide them with a roadmap clearly educating them about the product’s features, functionality, and process. Make it difficult for your customers to leave by letting them know that you are always keeping an eye out for them.

Long-term contracts

Offer longer subscription mode, extending your customers’ commitment. This way, you will have enough time to implement the product and provide a definite roadmap. The customer will also realize the benefits over time and they will be more likely to commit to the product.

Make your best people deal with the customers who are leaving

It’s not exactly impossible to retain customers who have decided to leave. Figure out who your best, most vocal, and convincing B2B customer sales reps are, and let them talk to those customers. Let them make use of their experience and charm in dealing with unhappy customers.

Focus on the data

All good business decisions start with data. Gather this data by offering a short survey for a customer who is canceling or unsubscribing from your solution. It can be as simple as “Please tell us why you want to leave”. Ideally, these forms should not take more than a minute to complete. Offer the customer an opportunity to explain why he wishes to leave. Consider asking direct questions like “Did you have a bad experience?” and “Are you finding better pricing or service somewhere else?”.

Great customer experience should be at the core of the strategy of any forward-thinking company. If you treat your customers well, not only are they more likely to stick around, they may also become advocates, and get your referrals, thereby helping your business grow.

High customer churn rates can destroy your sales team’s motivation. To reduce the impact of customer churn, it is important you always have good leads flowing into your pipeline. To know more about how we can help, reach out to us.

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