Customer churn: the causes and the remedy
What causes customer churn, and how do you avoid it?
Customer churn refers to your customer base decreasing due to attrition; it is the opposite of acquisition and retention. For healthy growth, existing customers stay with the company, and new customers are acquired. In other words, growth good; churn bad.
If your company is experiencing churn, the first question to ask is “why?” And if the attrition rate is increasing, are there any trends driving the loss of existing customers? We’ve written about the cost of acquiring a new customer being far more expensive than the cost of retaining an existing customer. While statistics on the relative costs vary from three times to thirty times the cost, everyone agrees that retaining a customer costs less than acquiring a new one.
According to an article by Lincoln Murphy, there are two basic reasons that a customer will leave your organization. One is unavoidable, while the other is not.
Causes of customer churn
- Something happened to/with the customer. This is the unavoidable reason for churn one because it’s something your organization has no control over. This could come in the form of the company going out of business or the company getting acquired by someone else. If the company goes out of business, your job is to provide the support that he or she needs while this process goes forward. If you’ve served this client well over the years, it is likely they will lean on you to help in the transitions of selling off the business and it puts you at the top of the priority list when it comes to collecting money owed. If, however, the client is being acquired by a larger company, this can be an opportunity for you to get your foot in the door and support an even bigger client. Again, if you’ve done your job well; this can be a time of great reward.
- The customer did not achieve their desired outcome. As you can probably imagine, this is a completely avoidable reason for customer churn. If a customer is unhappy, that means your organization dropped the ball. If customers achieve the desire business results, they have no reason to leave.
If you have an unhappy customer leaving your organization, it’s your job to dig down and figure out why.
Reasons for customer attrittion
- Lack of critical functions Your product is missing critical functionality required to do the thing they need to do
- Bad onboarding You have a poor (from absent to overwhelming) onboarding experience
- Bad experience The customer had a bad implementation, configuration or setup
- Lack of use The customer hasn’t adopted your product and isn’t using it (for whatever reason)
- Bugs There are bugs and other stability/usability/access issues keeping the customer from doing what they need to do.
If you are discovering that your organization is losing customers because they are unhappy with their outcomes, I’d suggest taking the above bulleted list and transforming it into a checklist for your development, marketing, implementation and client services teams. For example:
- Marketing Is what the product or services provides a demand of the market?
- Development Are the critical functions that will provide the promised service/product working flawlessly?
- Implementation Does the implementation plan deliver on the sales and marketing promise?
- Client services After the sale, is the customer trained to use the product or service properly, and does everyone have an easy way to get support, report bugs and request features?
I worked for a startup many years ago that would take any contract just to have referenceable customers. While that was a great policy for growth, some customers ended up unhappy because the experience didn’t match the promise. Eventually, that startup changed its policy to vet new sales opportunities more carefully and to pass on ones that had a possibility of attrition, even if it meant the growth numbers wouldn’t be as impressive.
Knowing when to pass on a customer shows that you’re acting in their best interest instead of your own. This goes a long way in protecting your reputation in the industry. Besides, it’s always easier to protect a reputation then it is to rebuild one.
How to improve service and avoid churn
However, some organization have an issue: we can’t always see what’s causing customer churn. Sometimes, it takes an outside eye to pull in the data and move beyond the guesswork into the actionable causes. In particular, the Six Sigma process can be incredibly helpful, especially in the hands of a third-party vendor.
For example, HyperQuality’s Business Insights team worked with a direct-to-consumer retailer who was not only having difficulty tracking resolution rates but was also facing dissatisfaction rates as high as 11%. They sought to identify specific, actionable improvement opportunities.
In just six weeks, the Business Insights team had discovered the causes of the dissatisfaction rates and made specific recommendations to address them. The results?
- Potential revenue gain of over $2 million
- Improvement of 4% in overall contact resolution
- 3.4% improvement in customer experience
What do you think? Are there more than two reasons for customer churn? Share them with us!