No company can honestly claim that it never lost a customer at some point or another. Customer churn is inevitable but that doesn’t mean that you shouldn’t do your best to keep it to a minimum.
To reduce customer churn, businesses should know what causes churn, how to calculate it, and what best practices to use to improve their customer retention strategies. In this article, you’ll explore all of these topics and more.
What is customer churn?
Customer churn is among the most important customer onboarding metrics and KPIs. It acts as a major red flag regarding overall customer satisfaction in product-related business operations. Also known as customer attrition, churn rate represents the total number of customers who’ve terminated your relationship and taken their business elsewhere. While having no customer churn ever is probably next to impossible, a high attrition rate can pose a significant issue for businesses.
This is particularly true for those in the SaaS (software as a service) sector as they rely heavily on their existing customers and the value derived throughout their life cycle. A high churn rate can signify a multitude of problems within the organization, ranging from product quality, inefficient onboarding, poor customer service, and more.
How to calculate customer churn rate
Knowing how to measure customer churn can help companies prevent things from spiraling out of control. Fortunately, the churn rate formula is rather simple.
There are two important things to remember:
- Churn rate is measured over a specific period, like a month, quarter, year, etc.
- Customer churn is a lagging indicator. This means that you can’t measure it in real time so you also can’t include any new customers in the formula once that set time frame begins.
For example, if you start the month/quarter/year in question with 150 customers and by the end of it you’re left with 135, you’ve lost 15 customers.
Churn rate = (15/150) x 100 = 0.1 x 100 = 10%
It doesn’t matter if, during that same period you’ve also gained 20 more signups. Your churn rate means that you’ve lost 15 subscribers (not gained five).
In any case, in the example above, the churn rate is 10 percent. And since the level of attrition is inversely proportional to the customer retention rate, if the churn rate is 10 percent, customer retention is 90 percent.
An acceptable (good) customer churn rate depends on the type of product and industry. But generally speaking, a churn rate between three to eight percent is considered acceptable. For B2B (business-to-business) SaaS businesses, which rely heavily on subscriptions, that margin should be lower; ideally below three percent.
Why it’s important to reduce customer churn
Customer churn highlights how well (or not) a business handles its customer relationships. Reducing that overall percentage means that you’re also improving your processes and retaining more loyal customers overall. Here are some statistics that showcase the importance of low customer churn:
- Companies lose, on average, roughly $136.8 billion per year in preventable customer churn.
Long-time loyal customers spend 67 percent more than new ones.
- Roughly 65 percent of a company’s revenue comes from existing customers instead of one-time or new buyers.
- A net promoter score (NPS) study of 10,000 customers showed that promoters (loyal customers) are five times more likely to trust a company or forgive its mistakes.
- Promoters are four times more inclined to repurchase from that company and seven times more likely to try its new products.
- It costs an organization between five and seven times more to acquire a new client than to retain current customers.
All in all, churn prevention is highly beneficial to a company’s bottom line. So, what are the common reasons for companies experiencing churn?
Key causes of customer churn
Customers may opt out of your product or service for a wide variety of reasons. It could be one big thing or several small things. Since no client is the same as another, you won’t know exactly what pushed someone to make the decision, unless you ask them directly. That said, there tend to be four common reasons why customers leave.
Poor customer onboarding process
As the initial stage of the customer journey, the onboarding process aims to train and educate customers on the value of your product or service. A poor onboarding experience leads to low customer engagement, which increases the risk of churning.
Keep in mind that unless you’ve done a really bad job with onboarding new clients, they are unlikely to mention it as the cause for leaving. Poor onboarding indirectly correlates to a high churn rate through things like low product adoption, low engagement, or a high number of support tickets.
Pricing
It’s common for customers to switch over to the competition if they’re offering a more cost-effective solution that’s equally able to address the same customer needs. However, customer loyalty can counteract this trend as long as your customer base feels that it’s deriving enough value and return on their investment.
This is yet another reason why customer onboarding is so important. It keeps them loyal, helps them see the product’s value right away, and boosts their return on investment, even if there are cheaper alternatives out there.
Bad user experience
Among the most at-risk customers are those who have a bad user experience when working with the product. SaaS customer onboarding can do so much to train users on how to operate the system effectively. But if the platform is constantly glitchy or the interface is not user-friendly enough, customers will look elsewhere sooner or later.
Bad customer experience
This one is not about the product itself but about the company behind it. It’s about how valued customers feel when interacting with the organization.
- Does the support team treat them with respect and consideration and answer their questions quickly?
- Does the success team listen to their clients’ wants and needs?
- Do clients feel connected to the company and comfortable communicating with it?
If the answers to these questions are predominantly negative, customers may leave. So, how can you effectively reduce customer churn and improve the customer lifetime value?
How to reduce customer churn
Every business model should include customer churn reduction as a core goal to strive toward. But how can businesses do that? Here are a dozen examples.
1. Create an engaging customer onboarding experience
The overall onboarding experience greatly influences customer loyalty as it sets the tone for the entire dynamic moving forward. Many best practices for customer onboarding can help you smooth the process and provide a seamless customer experience.
It’s a good idea to invest in a customer onboarding platform like Docebo to boost the customer experience through its key features and functionalities regarding e-learning. These can include everything from personalization, white labeling, mobile learning, gamification, and more. You can use the platform to automate many aspects of the onboarding program, streamline the process, and smooth the path to a great customer experience.
2. Invest in great customer support
As mentioned earlier, the experience a customer has with the organization as a whole, not just its product, is one of the main factors that contribute to churn. Businesses should look to improve their customer support, either by teaching customer service to their employees or by hiring additional customer support reps capable of taking on the challenge.
Chatbots can help to automate the process to a certain degree by answering simple customer questions. But if they have more complex issues, you need an experienced customer service rep to provide the right support, drive engagement, and lower churn.
3. Offer incentives
Incentives are a good way of preventing churn, especially with at-risk customers who intend to leave or those whose subscriptions are about to expire. Loyalty programs, discounts, or promos can change their minds and make them decide to stick around longer.
These types of incentives show customers that you value their business and are looking forward to continuing the relationship. You can apply other types of incentives in-app during the onboarding or training process. These come in the form of gamification elements like leaderboards, progress bars, badges, and other forms of small rewards. These help motivate users to keep educating themselves and use the app to derive more value from it.
4. Provide customer training
Product training is a highly effective way of increasing retention rates and customer loyalty. It helps new users learn how to use your solution quickly and efficiently, making their lives easier, and increasing their satisfaction and loyalty.
Customer onboarding and training software solutions like Docebo help you achieve such a level of customer satisfaction that they’ll be reluctant to leave. Be it through webinars, gamification, microlearning, interactive training materials, blended training, and other methods, these platforms can help you design truly effective customer training capable of reducing churn. Watch the video to learn more about how learning management systems (LMSs) can aid the customer training process.
5. Build a community
People like becoming part of a community and having others with whom to share similarities. Why shouldn’t one of these communities revolve around your brand/product? If customers feel connected, they become loyal. And if they’re loyal they’re far less likely to churn. Here are some ways you can build a community for your brand:
- Create a social media group where your customer success team can engage with customers.
- Create a blog post section where you can invite members to submit articles.
- Add social learning into the mix by creating a discussion board for customers to share tips and experiences.
6. Identify why churn is happening
As we’ve mentioned a couple of times already, some churn is inevitable. But this doesn’t mean that you shouldn’t be proactive about it and uncover the main reasons why customers churn in the first place. You can use that information to prevent others from leaving in the future or even salvage some relationships in the here and now.
One effective way to discover why customers are leaving is to ask them directly, preferably in a phone call. If you feel this is too much, consider conducting an exit survey. In either case, ask simple and direct questions to figure out why they’ve left and if there’s something you can do about it.
You should also take a look at the broader picture and look for trends of high and low churn rates. Try to figure out at what time after starting their onboarding program most customers churn. Is it a week, a month, 90 days? This data helps uncover bottlenecks throughout the customer’s lifetime cycle.
Keep in mind that some SaaS products, like fitness apps, for example, usually experience seasonal churn. They’ll tend to see an “explosion” of new signups around the New Year, only for a spike in churn to follow a few months later. SaaS companies with seasonal churn can make great use of incentives around those periods or make extra effort to educate customers on the benefits of continuing what they’ve started.
7. Gather feedback
It’s generally good practice to conduct regular surveys and gather customer feedback. These give you a pulse reading on how things look from the customers’ perspective. They also can tell you if there’s something you need to change before things take a turn for the worse.
NPS surveys are especially great at determining customer loyalty toward your brand or product. Just remember to keep them short and simple. There is such a thing as survey fatigue. Also, follow up with a thank you message, either in-app or by email, thanking them for taking the time.
8. Dedicate account managers to important customers
According to the Pareto principle, more commonly known as the 80/20 rule, roughly 80 percent of results are generated by just about 20 percent of causes. This is as true in nature as it is in business. What this means is that a handful of your customers are generating most of your revenue. Therefore, it’s in every organization’s best interest to provide the best care and attention to those clients.
A good way of achieving this is by assigning them a dedicated customer success manager. They can conduct regular check-ins on how top customers are doing. They can also listen to their wants and needs, and provide further tips and insights on how to get the most out of your product or service. They can even upsell various features or upgrades with the right customers while they’re at it.
It’s also important that these clients have a direct line of communication with their success managers. Either through a customer relationship management system or a dedicated Slack channel, customers should be able to get in touch without having to go through a frontline rep.
9. Offer long-term contracts
Sometimes, the main reason customers switch over to the competition is that they don’t have sufficient time in their subscription plan to reap enough benefits to justify their investment. If the renewal date is around the corner and they’ve not reached that “aha moment” when they actually experience the benefit, they’ll likely consider alternatives.
Let’s take the same fitness app example as before. It’s unlikely for the app user to achieve their fitness goals in a month or two, so it’s probably around that time some will seriously consider canceling their monthly subscription. But by offering them longer plans like three months or six months, they’ll have time to see the benefits and decide to continue.
Consider creating these subscription plans based on how quickly customers can reap the benefits the product has to offer. You should also work to optimize your onboarding strategy to shorten that time-to-value metric and match it to your subscription plan.
10. Price strategically
Finding the right price for your product or service is not always as easy as it sounds. Too high a price or a sudden price increase may deter people from subscribing or continuing their subscription, thus increasing the churn rate. Too low a price, on the other hand, may suggest “questionable quality” to potential users.
Consider designing a flexible pricing strategy that allows customers to pay only for what they need and use in the beginning. This way, they’re more inclined to subscribe and remain loyal. Your customer success managers can upsell them once new customers get accustomed to your product and begin deriving value from the basic features they’ve initially selected. The occasional discount will sweeten the deal and encourage further customer retention.
11. Analyze your competitors
You should always keep a close eye on the competition because they are definitely keeping an eye on you. Look for what they’re doing in terms of customer satisfaction and retention. Do they have a well-designed customer onboarding process capable of engaging customers? Is their subscription plan more flexible than yours?
The point is to see what they’re doing right, what they aren’t, and how you can improve your own processes to get ahead of them. If they’re performing better than you on multiple fronts, you risk losing your customer base sooner rather than later.
12. Analyze your audience
Last but definitely not least is the target audience. In a lot of cases, customers churn because the product is missing a key feature that’s able to satisfy their needs. It could also be the case that your product can’t integrate with the rest of the tech stack the client is using in their daily processes. Whatever the case, the customer will eventually look elsewhere and you’ll experience churn.
This doesn’t mean that you necessarily have to update your product to fit every single potential customer. It means that you should target those customers who are a good fit for your product. By analyzing your audience, you can also design a customer onboarding and learning program tailored to their specific needs and requirements.
With Docebo Learn, for example, you can personalize the onboarding program so that every one of your customers reaches that time-to-value in record time. You can also facilitate mobile learning in over 40 native languages, manage multiple domains for different audiences, or generate custom reports for further insights and better decision-making.
Now over to you
Customer churn is inevitable but it’s also something that can be managed and kept under control. These actionable insights can help you reduce it to below the acceptable level or even lower.
Consider also an LMS that can boost the effectiveness of the customer onboarding program, increase customer engagement, and drive retention. Schedule a demo with Docebo today and see what it can do for you.