Businesses have an enemy in common and it goes by the term “customer churn.” Known as the nemesis of businesses (especially subscription businesses), customer churn is something that business owners keep an eye on because it’s something they don’t want to have more of.
In this article, we’ll get into the specifics of what customer churn really is, the different kinds of churn, and how you can go about reducing it.
What is customer churn?
Let’s keep this simple. Customer churn is when a customer stops buying your products or using your services. While eCommerce businesses also track this, subscription businesses obsess over it. After all, recurring revenue is their bread and butter.
Customer churn rate is the percentage of customers who ended their subscriptions over a specific time frame. So the closer to 0% your churn rate is, the better you’re doing.
Here’s a simple breakdown of how customer churn rate is usually calculated
- Get the number of customers you lost during a specific time period (a month, a quarter, or a year)
- Divide this number by the number of customers you had at the start of that time period
At the start of the year, you had 1000 subscribers.
By the end of the year, you’re left with 800, which means 200 customers were lost.
You divide 200 by 1000. That’s a 20% churn rate, meaning you lost 20% of your customers.
The different kinds of customer churn in business
Don’t confuse customer churn with the other types of churn you may come across such as revenue churn, subscription churn, and involuntary churn.
- Revenue churn describes how much revenue you lost in a set period of time. Divide the net revenue lost from existing customers by the total revenue at the start of the period.
- Meanwhile, subscription churn is the number of subscribers who cancel their plans or memberships. It’s the same as “customer churn,” but it pertains specifically to customers of subscription-type businesses.
- Involuntary churn is when a subscription was canceled, but the customer didn’t do it on purpose. This is usually due to failed payments that happen for any of the following reasons:
- Expired credit cards
- Credit card has insufficient funds
- Outdated payment method or billing details
- Suspected fraudulent activity
Some businesses track both revenue churn and customer churn. It’s usually companies with products or services with different price ranges that do this.
For example, your customer churn might have increased, but your revenue actually increased or didn’t change. What does this mean? Your remaining customers may have been purchasing more often. Or they’ve been buying products of higher value. This tells you that even though you’re losing customers, some of them are loyal and satisfied. While your revenue isn’t going down, it could have been much higher if more of your customers were loyal.
It’s also important to track if customer churn is mostly voluntary or involuntary. If most of your customers are leaving voluntarily, then you really need to step up your retention efforts.
But if most customers are leaving involuntarily due to failed payments, you’re actually losing revenue that you weren’t supposed to. In fact, you may not even realize how much revenue you’re losing.
Something very important to note: the subscribers didn’t mean for this to happen. That means that it’s possible to recover that lost revenue. You just need to know how. Here’s where dunning emails and failed payment recovery solutions come in handy.
Strategies to reduce customer churn
Whether the reason for churning is voluntary or involuntary, there are strategies you can execute to improve your numbers.
How to reduce voluntary churn
When your customers churn willingly, it’s time to take a look at how your product or service relates to your target customers’ needs, wants, and preferences.
- Value your existing customers and make sure they know it.
Customer loyalty and customer retention go hand in hand. Try your hand at loyalty rewards like exclusive discounts or perks for high-value customers.
Aside from rewards and benefits, it’s also important to show them you care. Whenever you think of implementing price changes to your products or services, make the announcement early on. Grandfathering them at the old price will also be a great way to show how much you value their support.
- Regularly ask for feedback and suggestions from your customers.
For eCommerce brands, make sure you have post-purchase activities designed to collect customer feedback.
For SaaS subscriptions, online courses, or membership sites, make sure that your subscribers have a way of giving you feedback whenever they want to. You can also send regular emails to proactively ask for comments or just simply check in on them.
- Invest in User Experience (UX) and User Interface (UI) right from the start.
The truth is, 70% of online businesses fail due to bad UX. Don’t wait until your customers get fed up with the speed of your site or if they get frustrated trying to navigate it.
So don’t take UX and UI for granted. Instead, invest in them so you can give a great user experience to your customers right from the get-go.
- Fine-tune your customer support system.
Poor customer service is one of the main reasons behind voluntary churn. Customers have admitted to switching brands after just one bad experience with customer service.
Ensure that your customer support team can handle the influx of inquiries coming in. Alternatively, you can also look at outsourcing customer support as a possible solution.
How to reduce involuntary churn
Here’s something you must remember. A failed payment is not a lost cause. Failed payments can be recovered successfully. As a result, you can reduce your churn and get your customers back.
- Launch a dunning sequence
This is a set of automated or manual reminders that inform the churned customers about their failed payment. The dunning emails (these can also be done via SMS or phone calls) usually include instructions to update the payment method to reactivate their subscription.
- Explore a failed payment recovery solution
There are also solutions like Recover Payments which helps subscription-type businesses recover lost revenue through outsourcing failed payment recovery specialists and an app that can integrate with payment systems.
Wrap up: It’s time to focus on retention, not just acquisition
While new customers and subscribers are essential to keeping a business alive and kicking, it’s also important to zero in on customer retention strategies. One, it is more expensive to acquire new customers compared to retaining them. Two, loyal customers will spend more compared to first-time buyers.
It’s time to focus on customer churn so you can strategize your retention strategies methodically. At the same time, it’s also recommended to take a look at how much failed payments are costing you. Book a free consultation with a recovery specialist to see what you can start doing about it.