Strategies to Lower Customer Churn

Hyder Jaffari
June 05, 2023
Strategies to Lower Customer Churn

Customer churn isn't a favorite business metric, yet it is an important data point for measuring performance. The most apparent impact churn has on a business is the reduction in revenue and profits.

To calculate your customer churn rate, you can use the following formula:

Before we discuss the strategies to lower churn rates, let's first discuss the impact and cost savings associated with customer retention.

What is your Customer Retention Cost?

If you are unaware of the amount you spend to retain your present customers, you should evaluate your investments and the output you are achieving. One of the most common reasons for customer churn is inadequate customer support. Measuring the performance of your support services can contribute to your business's longevity.

Even a monthly churn rate of 3% to 5% can lead to a reduction in revenue by more than half in just two to three years, assuming you have no new clients. The cost saved by keeping those 5% of customers can increase profitability by at least 25%.

You can use the following formula to calculate your cost:

Customer Retention Cost = Total Marketing and Retention Expenses / Number of Customers Retained

For example, if you spent $1000 for marketing and support, which enabled you to retain 50 clients, your retention cost would be $20. If your product costs $50, you have an estimated profit of $30 per $20 spent without accounting for other expenses.

Main Causes of Client Churn

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Engagement: Your sales seem to be increasing, but you begin to notice that your customer support department is less busy than expected compared to your sales volume. You also find a supporting statistic indicating that only some users continue their relationship with your business for a specific period.

The data shows that your offering is being met with low to no customer engagement, leading to a gradual abandonment by your clients. The next two causes also relate to engagement.

Onboarding: An element of the sales cycle that significantly affects customer engagement is a poor email onboarding experience. While your sales page may have conveyed why the customer needed your product, the actual usage or implementation on the customer's end may differ. By implementing a creative onboarding strategy, you can enlighten them about your product and enhance their overall experience.

Support: There are two aspects to consider regarding support being a cause of churn.

  • Firstly, some clients may not reach out to you as they find it challenging to locate your support channel. Include clear directions in your onboarding emails on how to reach out for support and where to find the relevant links or contact information.
  • Secondly, your support staff is either not knowledgeable enough to assist or lacks motivation to engage with clients proactively. Train support staff thoroughly on product usage to eliminate knowledge gaps. You can incentivize your support staff by implementing a reward system for gathering customer feedback. Doing so helps alleviate concerns about them being held responsible for potentially unhappy clients.

Now that we have an overview of some of the main reasons clients churn let's explore tried and tested methods to reduce it.

Discounts and Offers

Who doesn't appreciate an easy way to save money? While you may have offered an initial discount on product purchases, it's essential to give the customer a surprise now and then, especially if your data suggests that it helps lower the churn rate.

What type of user to target?

Research reports indicate that anywhere from 50% to 70% of a company's business comes from existing customers; one can consider them a central component of overall revenue.

Here are some points to consider with your current customer base:

  • You likely built up customer profiles for various purposes as your business has continued to operate.
  • Using past data, it becomes easier to understand why specific clients are at risk of churning.
  • Offering incentives, such as discounts, can convince a significant portion of this group to continue being a customer.

Loyalty Programs

Implementing a loyalty rewards program is a highly effective and popular method to keep clients on your list. You can base these systems on either time or the value of the clients' purchase. Either way, it helps build a mechanism that provides a perceived value, encouraging clients to stay invested in your business.

Consider adding some benefits to the program, such as extended support hours, and you have a winning solution.

Community Building

Growing a community around your product is often easier than people realize. Managing it can seem like a task when done right; it fosters a sense of long-term attachment. Plus, it enables users to share how they feel connected with not just your product but the personality of your company.

Here are a few points to keep in mind along this path:

  • As your business grows, you will learn more about your customer and their expectations. Keep your feedback loop active.
  • The success of any business does not just lie in its growth rate but also in its ability to minimize the number of customers looking for alternates.

Personalized Offers

Utilizing your data, you would have a notion of the preferences of various users and their responses to specific offers. Creating a personalized approach helps them make easier purchase decisions because it demonstrates your concern for their needs.

Studies conducted by companies like Infosys and Deloitte have shown that personalized campaigns are responsible for improved responses in between 30% to 80% of users.

Famous Case Studies

Here are some case studies of popular companies that use various strategies to reduce customer churn.

  • Netflix's Personalization Algorithms: Netflix's recommendation algorithms are a prime example of how to reduce churn. By analyzing user viewing history and preferences, Netflix suggests highly personalized content recommendations, keeping users engaged and less likely to cancel their subscriptions due to a lack of content interest.
  • Starbucks' Mobile App Gamification: Starbucks' mobile app features a gamified loyalty program that rewards users with stars for each purchase. Users can collect stars to achieve different levels of rewards and status, providing a sense of achievement and encouraging repeat purchases.
  • Duolingo's Streaks and Daily Goals: Duolingo, a language-learning app, implements gamification through streaks and daily goals. Users are motivated to practice consistently to maintain their streaks, enhancing engagement and retention rates.

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