What is customer churn and what causes it?
With effective churn management, companies see immediate effects on their profits, customer satisfaction and new business.
Even incremental improvements in customer churn can help to improve overall revenue and profits.
What is customer churn?
Customer churn, also known as customer attrition, turnover or defection, is when customers stop buying products from, or using a service from a company.
It is one of the most important factors affecting a company’s revenue and profitability growth, with just a 5% increase in customer retention rates contributing to a 25-95% rise in profits.
What causes churn?
Customer churn can be caused by a number of different factors, which can include:
• Poor customer service
• Problems with the product/service
• Inadequately resolving problems
• Cashflow/lack of resources from the customer
• Competitor services or competing products
It is increasingly straightforward for consumers to find the best deal for any given product. With competitive prices across the web, and the instant availability of price comparison tools, customers can easily find lowest price, and immediately switch to it.
As such, more and more companies are realising the need to offer some form of added value that goes beyond that of its competitors. Check out our customer retention strategies for more information on reducing customer churn.
Top 3 causes of customer churn
Meeting and exceeding your customers’ expectations in helpful ways will ensure your most loyal customers will keep coming back, and new customers gained are more likely to stay.
Different industries and sectors attract a naturally higher churn rate than others, but generally, across the board, we’ve found the following areas to be the main pressure points that cause a high customer churn.
1. Wrong market/target audience
It’s important you’re targeting the right people, to get the most opportunities for a loyal customer base.
If you’re closing customers despite them not being quite the right fit for your product/service, you’re likely to risk the reputation of your company, as well as lose the customers you’ve spent the time acquiring.
Ensure consistent communication between your staff, marketing team and customers. If patterns start to emerge in certain areas, make sure to diagnose and address the problems, and if necessary, re-think your sales campaigns or marketing plans.
2. Problems with your service/product offering
In every service or product offering, mistakes happen. However, if issues are regularly coming up, or there are repeated user issues or pressure points in your service, you’ll start to lose customers.
Customer service teams are important, as they can help to identify problems quickly, and help the customer to solve them, but ensure these lines of communication are open to management and development teams to stop the same issues arising.
3. Lack of customer services/support
As mentioned, having a great customer service team can help mitigate the impact of any problems as they arise.
Having great customer support channels in place to build relationships with your customers and provide a consistently excellent service is a great way to keep customers happy.
Equally the feedback received by client-facing staff can go a long way to preventing customer churn further down the line. Inevitably, some customers will move on at certain points, and the reasons or insight gained from what caused them to move on, could prevent current customers from going down the same route.
Want more information on customer churn? We’ve undertaken in-depth research into churn and its effects: