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Digital Marketing 10 min read

Three Steps For Reducing Customer Churn

Ayesha Renyard photo

Ayesha Renyard

Content Writer @ Galactic Fed

Published 05 Jan 2021

If you’re a part of a small business—and your main focus right now is to attract new customers—throw your hand in the air!

According to a 2020 survey, gaining new customers is the greatest challenge for small businesses.

Why? Because businesses—big and small—should be more focused on keeping their current customers around. If they feel dissatisfied, they’ll walk. This is called customer churn. 

You may think you can outrun this problem by just attracting more customers, but these fresh faces hardly make up for what your current customer base does for your revenue.

Just take a look at these stats: 

  • According to Gartner, 80% of a company’s future revenue will come from just 20% of its existing customers.
  • Marketing Metrics claims that the probability of selling to an existing customer is 60-70%, while only 5-20% to sell to a new prospect.
  • According to Forrester, it costs 5 times more to acquire new customers than it does to keep an existing one. 
  • A Bain & Company study suggests that a 5% increase in customer retention can increase profits from 25% to 95%. 

Sure, keep your prospects close—but your loyal customers closer. Here are 3 simple steps to reduce customer churn. 

1. Analyze your customer churn

Asking why a customer left is like asking why somebody broke up with you. It’s an awkward—sometimes difficult—conversation. What you don’t know won’t hurt you, right? 

Well, it certainly won’t help you reduce your customer churn rate.

Yep, this isn’t just marketing mumbo jumbo; you can measure and track customer churn.

To calculate your churn rate, divide the number of customers lost during a period of time—say, in a quarter—by the total number of customers at the beginning of a quarter. 

Even seemingly small, single-figure increases in churn rate percentage can quickly have a major negative effect on your company’s ability to grow. What’s more, as the graph below indicates, high churn rates are more likely to compound over time. (Dun, dun, dun.)

Source: ProfitWell)

So our first word of advice? Confront the problem head-on. 

Here are three tactics for better understanding customer churn: 

  • Pay attention to reviews/third-party forums: Reviews—be it on your site or a third-party forum—are very telling as to what’s working and not working. Perhaps they love the product, but the shipping and handling are awful. Or, they love your services, but your platform has way too many technical bugs to enjoy it. 

While you’re investigating, don’t be an internet lurker—especially on your own website. People like to feel heard. Perhaps you can’t fix the problem right away, but a word of acknowledgment can go far (See: all of those edited reviews on Amazon for after some solid damage control.)

  • Lean on your customer support team: Because they work directly with customers, your support staff are your front line workers. They possess valuable nuggets of information on your customers and what their pain points are. Seeking feedback from staff and looking at support ticket data are ways to pull information from this precious resource.  
  • Ask for feedback from customers: When customers decide to stop paying for your products or services, you should be asking for feedback. It may hurt the ego a wee bit, but it’s important to understand why they no longer see the value. Did they have a bad experience? Is the product or service hard to use? 

More often than not, you’ll get some constructive information. Depending on your business, surveys (such as an NPS survey), chatbots, social media, emails, and even phone calls are all appropriate ways to seek feedback.

How to Read Your NPS Survey Score (Source: Netigate)

NPS Survey score description from detractors to promoters.

We encourage you to seek feedback proactively. Continual communication and check-ins with your customers—on how they’re experiencing your products or services—helps you foresee any reasons for churn, as well as builds long-lasting relationships with your customers.

2. Identify at-risk customers AND VIP customers

There are two segments of your customer base that you should keep an eye on: at-risk customers and your most valuable customers. Customer retention is not only about damage control but also keeping your most profitable customers happy. 

At-Risk Customers

After analyzing the reasons for churn, you’ll become aware of certain actions, or maybe the lack of actions, that your churned customers made. This knowledge can help you foresee if someone (who is behaving similarly) is likely to leave your company soon. And there’s your chance to act. 

Besides receiving disgruntled comments, here are a few other ways to detect at-risk customers:

  • Customer inaction: This one is tough to track because, by definition, it’s not an overt occurrence. Inaction not only refers to a customer’s failure to make an expected purchase, but it also refers to their failure to engage with the company at all. Inaction can also manifest in an individual’s failure to “keep up” his customer profile within a company.  

Examples are subscribing to your service but then not using it. Or slowing the number of purchases they make. Perhaps their credit card information expired six months ago. These are all indicators that they’re—for lack of a better word—ghosting you. 

A scared cartoon character Homer Simpsons.

Source: GIPHY

  • Elementary questions and too little/too many support tickets: If you notice customers are asking basic product questions long after they should be, it’s a sign that they won’t or haven’t fully adopted your product. Similarly, a low number of support tickets could also indicate that customers are not very engaged with your product or service.\ \ On the opposite end, too many support tickets is a pretty obvious sign that people are unhappy or struggling to use and enjoy your product. Although this can be an overwhelming issue to deal with, use this as fuel for your customer retention program. Can you identify any patterns in this support ticket data? 

VIP Customers

We often focus our attention and resources on our unhappy customers, but it’s just as important to reward the high spenders (to keep ‘em spending!). 

To identify these VIPs, you can measure their customer lifetime value (CLV), which is the total amount of money that a customer will spend from acquisition through the (hypothetical) end of the relationship with your business. 

Based on your customers’ existing data, you can use this basic formula to calculate CLV: the average spend per order, multiplied by the average number of purchases in a year, multiplied by average retention time in years. 

Metric shows how much net profit your company can make of one customer over time.

Source: Retently.com

Food for thought: It’s easy for people to say you should offer rewards, promotions, and discounts to all your unhappy customers—but do the math. Will you remain profitable? 

Or is it more worth having a strong rewards program for your VIP customers? People love to feel like they’re a part of an exclusive club—early access to sales, free shipping, and other little perks will go a long way for building relationships with these big spenders.

3. Improve Your Support Materials and Resources

Let’s say you sell a gadget that can open cans, sweep the floors, and walk dogs. People are all over it, but how the heck does it work? As much as it sounds great, if people don’t know how to work the darn thing, they’ll churn.

A big reason for customer churn is when customers no longer see the value. If they can’t get the product to work, they won’t see a whole lotta value in it, will they?

A positive onboarding experience is significant for keeping customers around. According to this study on customer churn, poor onboarding is a leading cause of customer churn. Consider it your first impression. 

But let’s not put all that pressure on your employees’ shoulders. You should also offer a full library of educational materials and resources. 

What type of educational materials are we talkin’? 

  • Video tutorials: 
  • Product demonstrations: 
  • Written instruction manuals: 
  • Webinars
  • Assembly guides
  • FAQ web pages
  • Chatbots 
  • Blog posts 

Just our two cents—when it comes to educating users, videos are not just a “nice to have,” they’re a “must-have.” In this study, 68% of respondents said they prefer watching a video to learn about a new offering, versus 15% who prefer reading text; 4% prefer infographics, presentations, or pitches; and 3% prefer ebooks manuals.

People also like the opportunity to ask questions—so chatbots, FAQ pages, and even webinars are great for offering personalized support. 

And to hype up your products, never underestimate a good blog post. It helps your SEO and provides more opportunity to talk up your product (and why it’s so much better than your competitors!)

PLUS, having a strong knowledge base puts less pressure off of your support team, allowing for scalable customer support. If you plan on growing your business (is that even a question?), then it’s important to offer resources that can help customers troubleshoot independently. 

Goodbye Customer Churn, Hello Customer Retention

You know what we like about these tips? They’re actually easy. They don’t involve any crazy HTML code, widgets, schema, header tags—none of that crazy digital marketing stuff. It’s all about getting to know your customers, their needs, and providing them the right support to want to stick around. And the return is pretty obvious. (Did you read those stats?!)

We probably got you all excited about reducing customer churn, didn’t we? In that case, reach out to us on how to develop a customer retention program. At Galactic Fed, it’s all about going up and to the right.

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Ayesha Renyard photo

Ayesha Renyard

Content Writer @ Galactic Fed

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