Your customer churn rate has a direct impact on your customer lifetime value and the ability to grow your business. If your customer churn rate is higher than 10%, then even if you bring on 10% new business, you’re not going to be able to grow. In fact, you’ll be burning money on marketing and customer acquisition costs so the reality is you’ll be killing your bottom line.
Well, I’ve declared war on customer churn. I’ve had enough of companies not knowing how to reduce churn and boost customer lifetime value.
So I’m here to educate you on 15 tactics you can use to fight off customer churn.
Warning: These are military grade tactical strategies that are proven to help improve your customer churn rate.
But just like entering a battle, we need to get up to speed with our enemy, so let’s look at what customer churn actually is, and why customers churn in the first place.
What is customer churn?
Optimove defines customer churn as when a customer (subscriber, user, client, etc.) ceases his or her relationship with a company.
Companies typically classify a customer as ‘churned’ after a specific team has elapsed since their last interaction. Customer churn is a key component to business growth. Knowing your lifetime customer value helps companies allocate marketing costs for acquisition. Before you can calculate your lifetime customer value, you must calculate your customer churn rate.
As discussed on Churn-Rate.com, your churn rate can be represented in a number of ways, including:
- Number of customers lost
- Percent of customers lost
- Value of recurring business lost
- Percent of recurring value lost
How to calculate your customer churn rate?
Let’s say you are an IT Support company. You have 100 clients. In the month of November, you have eight new clients sign up for your IT Services and have three ended their contracts.
The best churn rate formula to use to calculate customer churn in take the number of clients lost, divided by the number of clients at the start of the month.
3 clients lost / 100 starting clients = 3% churn rate
Why do customers churn?
Calculating customer churn is essential for any service based business that has an ongoing relationship with their customers, that is of monetary value. So if you have ongoing contracts, you need to make sure your customers are happy with your service and keep paying you. Otherwise you’ll be losing business, losing revenue and on the slide to surrendering.
Here are four benefits to tracking your customer churn rate:
- Marketing costs are expensive; you need to keep customers to make your money back.
- You need to know your customer churn rate so you can calculate your customer lifetime value
- Your churn rate has a direct impact on the ability to grow your company.
- Tracking changes in churn rate lets you identify if what you’re doing is improving customer churn or having a negative impact.
Now you know why companies need to understand customer churn, let’s look at 15 tactics you can use to reduce customer churn, boost customer lifetime value and grow your business.
1. Set and meet customer expectations
There’s nothing worse than a customer feeling as though you didn’t deliver as proposed. Setting customer expectations is a customer retention strategy that works by being clear with customer’s right from the initial sales call.
Customer expectations are set right from the sales guy. If he doesn’t set correct expectations, you put yourself in a sticky situation down the track when you can’t deliver on promises. I recommend ensuring your sales team and service team are aligned with what is expected and what promises can be made to customers.
It’s no longer ok (never was ok) for sales guys to sell the house down just to close the deal and worry about execution down the track.
I recommend companies under-promise and over deliver.
Gordon Tan, Director – R&G Technologies, Client Heartbeat
Customers love it when you exceed their expectations. It builds strong customer loyalty and goes a long way to gaining their trust. This also contributes to increased customer satisfaction and reduced churn.
2. Nail the first impression
Gail Goodman talks about Constant Contact’s ‘whoa’ factor as a key component that helped them improve on boarding and improve their churn rate. She recommends companies focus on helping customers get to the ‘whoa’ moment as quickly as possible during their first impression.
The first impression tells a customer a lot about the product or service they are going to use. You need to ensure that you focus your biggest value prop right from the get go so you can get their commitment and full buy-in.
The last thing you want is to bring on a customer that is only ‘half-heartedly’ interested in your product or service. These customers will likely churn at the first opportunity to do so. They are going to be looking for reasons to not use your product or service.
By creating a value-adding experience as a first impression, you can help educate your customer on the true value of your offering, which will aid in creating a more ‘sticky’ relationship that is less likely to churn.
Here’s a great excerpt from an article by Josh Ledgard about why the first five minutes matter:
When someone starts using a new product, they want to see immediate results. This gives them the impression that they could be even more successful as time goes on. If the first 5 minutes are painful, then the rest of the experience will be colored by a bad first… Josh Ledgard, Co-founder at Kickofflabs
3. Always be adding value
I saw Noah Kagan, Marketing Whiz and Chief Sumo, at a marketing event in Brisbane last month. One of the things that stood out in his presentation was that he said he only works for companies that have an awesome product. He considers himself not necessarily a really good marketer, but says that he chooses to work with companies that have awesome products, that sell themselves.
Knowing his background, (30th at Facebook, 4th at Mint), I can definitely understand where he’s coming from. How this relates to your customer churn rate is interesting.
Make sure your product or service adds value and sells itself.
It seems funny to say that but literally, too many companies are offering sub-par, mundane solutions that any Joe Bloggs can replicate and do the same. If any Joe Bloggs can replicate what you’re doing, how can you keep customers? You’re putting yourself in a position to churn customers.
To improve customer churn, improve your value. Improving value doesn’t necessarily mean adding new features or services, it can also mean improving your existing product or service offerings.
A great example is an accounting firm I was talking to last week. They are positioning themselves as a service provider that does more than just look after their client’s financials. What they do is offer advice beyond the bottom line by helping their clients with other related expertise. For instance, they now offer their clients our customer satisfaction tool as a way to help them measure satisfaction. It’s something small, but offers extra value that their competitors are not doing.
This is the sort of ‘stickiness’ I’m talking about that keeps customers and reducing customer churn.
4. Improve competitive advantages
What are you doing different to your competitors? What do your customers lose when they defect to a competitor?
These are the tough questions you need to be asking yourself. A competitive advantage is your point of differentiation – something that makes you different from competitors.
Jim Riley defines it as an advantage over competitors gained by offering consumers greater value, either by means of lower prices or by providing greater benefits and service that justifies higher price.
I recommend you take a look at some of your competitors and see if there is anything that separates your from them. If there isn’t anything, you’ve got some work to do. You need to establish some addition benefits of using your product or service as opposed to your competitors. Try to think of some things that you’re really good at, and make this something that only you can provide and would be a big loss if a customer stopped using your service.
If you already think you have some advantages over competitors, try to improve on them. Make them key points that differentiate you, that would make a customer choose you over a competitor.
Let me bring this together with an example.
Take a look at these two providers of inbound marketing software: Hubspot and Office Autopilot. Apart from some slight differences in product features, can you notice any other competitive advantages either way?
The biggest one is Hubspot’s robust, and insanely educational Inbound Academy. This is full of really valuable content that can help their customers create better marketing campaigns. It is something the company offers beyond the bare software product and forms as a key competitive advantage they hold over Office Autopilot.
What’s your competitive advantage?
Related: Using a Competior Analysis can help you identify competitive advantages
5. Build ‘sticky’ customer loyalty
Customer satisfaction is worthless. Customer loyalty is priceless. – Jeffery Gitomer
Loyal customers are less likely to churn because they are more invested in your business relationship and you’ve built up a long history of delivering good results and keeping promises. The big benefit of building customer loyalty is that it gives you some room for error. Let’s face it, problems will always occur, so if you’ve got a good, loyal customer, they are much less likely to leave. They’d be happy to give you another chance.
On the flip side, if your customer has no loyalty to you, they will not hesitate to defect to a competitor the instant something goes wrong.
Keeping that in mind, here are three strategies to build sticky customer loyalty:
1. Let customers know what you are doing for them
This only takes a quick call or email. Often times, as customers, we get complacent and forget how much value our suppliers and vendors are. So it’s your job to let customers know how hard you work for them. Don’t make this so obvious, just a little mention in your communications is fine. Try something like this, ‘I was working on your project over the weekend and noticed that we should do XYZ’ – this subtly shows that you are working on the weekend; you care about their project and are putting in some extra hours!
2. Write a personal email
Get personal with clients and write them an email. Thank them for their business and just tell them you were thinking of how they were doing and wanted to check in. See if there is anything you can do to help them meet their business goals.
3. Business owners must lead from the front
Everyone loves dealing with the business owner. There’s something about dealing with the face of a company, the number one man, the boss in charge. As the business owner or CEO, you should be the one engaging existing customers and building customer loyalty. Make this your priority and not anyone else’s.
6. Benchmark against competitors
Anne Miner from The Dunvegan Group believes, ‘the way a customer views their competition’, as one of three key factors that determine how strong of a bond a company has with their customers. If none of your competitors are perceived as to be better, there is a lesser likelihood the customer will leave. Make sure you are keeping an eye on your competitors and try to ensure your perceived service is better than theirs.
No business is immune to unhappy customers. In fact, even companies with the best customer service in the world will still lose up to 9% of their customers to competitors. The good news is you can do something to stop customers defecting.
How? By benchmarking your performance and customer satisfaction against competitors and others in your industry. If you are offering the best service in the industry, combined with a pretty good product, your customers will not want to leave. Why would they? You are clearly the best option.
So how can you find out where you stack up?
Use a tool called Client Heartbeat. What it does is survey your clients, measures satisfaction, then compares your satisfaction scores against your competitors and others in your industry.
Client Heartbeat analyses the data and benchmarks you against your industry. Here you can see whether you are a top performer, or have some room for improvement.
If you’re not the top performer, there are some strategies to increase customer satisfaction.
Here are three of my favorites:
- Treat your customers like they are your boss
- Focus on measuring customer satisfaction over a period of time
- Learn how to survey your customers the right way and get actionable feedback
For more, read these 9 game-changing ideas to increase customer satisfaction.
7. Focus on becoming a dependency
Adding value beyond your bare product or service creates stickiness. It creates an environment where your customers start depending on you for reasons other than just the product or service you deliver.
Let me explain this tactic with the Hubspot example again. Hubspot offers an inbound marketing software tool that helps businesses grow leads and sales by automating ‘pull marketing’.
Their ‘Inbound Academy’ is packed with lots of videos, blogs and resources to help their customers be more effective at inbound marketing. They are helping their customers get better at using their products. Since all the educational material is based around Hubspot, if a Hubspot customer did want to leave and defect to a competitor, they would be sacrificing the personalized educational materials, which I actually consider just as valuable as the tool itself.
Here are some tips on becoming a ‘dependency’ for your customers:
- Add value around your product or service that is not offered by competitors
- Focus on educating your customers around the real reason they are using your product or tool – so for Client Heartbeat, we are a customer satisfaction tool, so we educate our customers on ways to improve customer satisfaction and reduce customer churn.
- Create IP around your value-added materials. This additional value you are offering to create a dependency will actually form some IP – make sure you use this as a competitive advantage to attract and retain customers.
8. Listen to your customers
This might be the easiest and most powerful tactic I’ll be addressing. Talk and listen to your customers so you can learn what they like and what they don’t live about your product or service.
I recommend using customer satisfaction surveys to listen to customers. Why? Because they’re super easy and if you do them the right way, will give you actionable insight and feedback that you can use to help stop customers churning, and provide a better overall service to all your customers.
As a business, it is your objective to deliver an outstanding product and service so that customers remain happy, engaged and tell their colleagues and friends about your great offering.
Surprisingly, most customers will tell you when you stuff up. What they won’t tell you is when they’re about to leave and defect to a competitor. This is where intelligent customer satisfaction tools can help identify ‘at risk’ customers before they have a foot out the door.
Here are some quick tips on how to create a kick-ass customer survey:
- Keep customer surveys personalized and branded
- Make customer surveys accessible via desktop and mobile devices
- Keep customer surveys under 10 questions
- Ensure customer surveys have a clear objective and know what information you want
- Make sure you’re tracking feedback over a period of time so you can monitor changes in customer satisfaction levels
Customer surveys aren’t the only means of listening to customers. You can also pick up the phone and call them, listen to conversations via social media and discussion forums, and engage with customers at live events.
All these tactics work well, the important thing to remember is make sure you’re listening. Nine times out of ten, just by listening to customer feedback, you will be able to identify problems that are affecting a customer’s experience and you can proactively address it before the customer churns.
9. Keep your eyes open for external environment changes
External environment changes are those that you have no control over. They are often changes in government regulations, new policies, shifts in consumer behavior, economy downturns, new technologies disruption and much more.
As a business, you need to keep your eye’s pealed and make sure you are in the loop with what is going on.
Remember Kodak? They were a powerhouse in the camera game 15 years ago but they missed the ball when digital cameras came out. Their eyes were closed, left research and development too late and missed the boat completely. Companies like Song and Nikon swooped in and disrupted the market, stealing Kodak’s market share in the process.
The point here is make sure you’re prepared for external environment changes. If a better alternative comes out, your customers will be very tempted to defect. I mean seriously, who would still use a Kodak with all the other, better options available?
By staying proactive, you can meet these external environment changes head on and position your offering to keep customers, maintain market share and stop customer churn.
Another great example is the shifts in consumer behavior around B2B marketing. No longer are consumers happy to accept push advertising, they now want to consume content and work through the sales process and product evaluation themselves. Hubspot rode this wave a 10/10 and has capitalized on these shifts to now become the dominate software solution for Marketers using an Inbound Strategy. Those poor TV agencies and traditional print marketing agencies have either fluttered out of existence or have had to adapt their service offering.
What will you do if consumer behavior shifts or new technologies disrupt your market?
10. Identify ‘at risk’ customers using key indicators
Monthly recurring revenue is the key to success in any service based business. Losing customers is not how you grow a company. But fortunately, there are some key indicators that you can use to identify potential customers that are ‘at risk’ and may be looking to leave.
Client Heartbeat does a lot of customer surveys and works with companies from right around the world. In a recent customer satisfaction report, we found that one in six of our customers clients were at risk.
So how can you identify customers that are at risk?
Firstly, you need to be surveying your customers and asking the right questions. We recommend asking these six questions.
- How happy are you with the speed and efficiency at which we are able to respond to your requests?
- How happy are you with our attention to detail and thoroughness?
- How happy are you with how collaborative and proactive we are in the way that we work with your organisation?
- How happy are you with the extent to which we help you learn and provide recommendations that are in the best interest of your organisation?
- Overall, how satisfied are you with our service?
- How would you feel about recommending us to colleagues?
Now you’ve got the questions under control, here are the metrics you should be tracking:
- Customer satisfaction scores are below average. Work out the average satisfaction rating across all your customers, then flag each customer that is below the average.
- Customer satisfaction scores have dropped significantly since last survey period. Match up customer satisfaction scores across two survey periods and find customers where their scores have declined by more than 20%.
- Customer had indicated they would not feel comfortable recommending you to colleagues and friends. This is the most accurate indicator as to whether a customer is unhappy, flag anyone that says they wouldn’t feel comfortable recommending you to others.
11. Build educational material and resources
An educated customer is a customer that understands your product and its benefits. This is what you should be trying to create with all your customers, ensuring they understand the value you are offering.
I recommend creating a resource section or ‘academy’ that has a collection of articles, videos and whitepapers on how your product or service can help solve your customers biggest headaches and problems.
Everyone has problems that they need a solution for, that’s why they are using your product or service in the first place. By focusing on actually helping them solve their problems, you go a long way to building a loyal customer.
A company that does this very well in Unbounce, a landing page tool for marketers. They do a great job at producing educational material around the topic of ‘a/b testing and conversion optimization’. In fact, they are considered the industry’s authority on the topics.
— Unbounce (@unbounce) August 15, 2013
Couple of key takeaways:
- Know your target market, and know their problems
- Create material they helps solve those problems
- Link all education material to your product, so you position it as the ‘problem solver’
12: Know your weaknesses
Zach Bulygo talks about knowing your weaknesses in this article. He suggests making sure you know the answer to these two questions:
- Know why some people don’t sign up for your service
- Know what your company is not very good at
Without knowing your weaknesses, you won’t know how to fix them. Often times it is the problems your customers run into that turn out to be the result of your weaknesses.
Microsoft is a classic example of not knowing their weaknesses and a competitor, Apple, swooping in to steal market share.
Some of the common problems Windows users faced were spyware, malware, viruses and freezing. Microsoft left a lot of the virus protection to third parties like McAfee and Norton, hence only customers that were aware of the products actually used them.
On the flip side, Apple rolled out its range of computers with built in security features as standard. This was a big win for Apple and they managed steal a lot of market share before Microsoft woke up to that fact they needed their own inbuilt security. By that time, they had churned a lot of customers.
So when you’re trying to reduce customer churn, remember to identify your weaknesses and focus on trying to minimize them as much as possible. Use your strengths to counter your weaknesses and work towards strategies that eliminate weaknesses all together. This combination will help improve your churn rate.
13: Find out why customers cancel
As a business owner, you need to know why customers cancel. If you don’t know the reasons for customer churn, there is no way you can put in place new business processes that improve churn rate.
I recommend you have a system in place to identify why customers are leaving. Whether that be a courtesy phone call or a friendly email, make sure you are doing something to gather that customer feedback.
Your customers will tell you what you are doing wrong, you just need to listen to them!
This feedback will also give you actionable insight into what you customers’ expectations were of the service. Sometimes you’ll have customers leave because of poor service, other times it might be because the product did not meet their need.
This customer feedback can help you:
- Narrow down on your product-market fit
- Understand your target market’s needs and problems better
- Allocate marketing spend on most your ideal customers
To bring some perspective to the argument let’s take a look at an example. At Client Heartbeat, we find companies that only want to use our tool for once off surveys churn a lot higher than companies who want to send surveys periodically, every three to six months. The reason for this is Client Heartbeat’s biggest differentiation point is that we monitor changes and track customer satisfaction over a period of time. Hence, our product fits companies with ongoing relationships better than those who have just contractual once off purchases.
14: Know and understand your target market
Knowing your target market will help reduce customer churn. Why? Because by only bringing on customers that are a good fit and really see the value and benefits in your product or service, then you can ensure they will be happy to continue using the service.
On the flip side, if you bring on customers that traditionally aren’t a good fit, you’ll notice that they won’t see as much value, hence, probably churn.
That’s why knowing your target market, you can focus on bringing on more ideal customers, and avoiding trouble customers that affect your churn rate.
Let’s look at R&G Technologies for an example. These guys are an IT consulting and support provider in Brisbane, Australia. They offer a superior level of service than their competitors and go after a slightly bigger small business than say your local computer repair guy.
As a result, the company steers clear of customers that are only competing on price. These customers aren’t their ideal market, because they are more concerned about price than service. In the past, these penny pinchers have churned, so now the company focuses its marketing efforts on their ideal market, and avoids wasting time on the penny pinchers.
15. Track customer lifetime value of marketing channels
“Track the lifetime value of each customer acquisition channel when choosing where to spend your time and money.” - Francois Mathieu (@francoismat)
Lifetime Value (LTV) and customer churn are linked. By measuring LTV of your marketing channels you can than work out your customer churn rate for each marketing channel.
This is important because you want to know which marketing channels are more profitable, and also know how much you can allocate to each channel in the future.
Let’s take a look at a quick example.
Your company spends $1,500/month on LinkedIn ads and $1,500 on Facebook ads. Over the last 12 months we’ve seen a LTV of 24 months for LinkedIn and 16 months for Facebook.
Customers that came through Facebook have a higher churn rate than LinkedIn. You can look to improve that by using the tactics in this article, but it’s important to know moving forward that LinkedIn customers are more valuable to your company. You can now allocate marketing resources accordingly.
“A people-based analytics tool (like KISSmetrics) gives you the power to calculate your churn rate virtually automatically. This guide on the KISSmetrics revenue report gives you some basic insight into how you can use KISSmetrics’s event tracking to know when SaaS customers cancel and to calculate your churn metrics” – Chris Hexton, Vero (Read blog post)
Use these 15 tactics to improve your customer churn rate and boost lifetime value
All successful, growing businesses have one thing in common – they understand customer churn and have strategies in place to minimize it.
If you want to grow your business, you must focus on boosting your customer lifetime value through improving your churn rate. Apply these 15 tactics discussed today and you’ll go a long way to increasing customer satisfaction, creating happy customers who are loyal and will keep doing business with you for years to come.
Client Heartbeat is a customer satisfaction tool that helps you reduce customer churn. It works by intelligently surveying your customers, measuring satisfaction levels and identifying ‘at risk’ customers that need immediate attention.
Create Your First Survey For FreeSee How It Works.
Other articles that you will find useful:
- How to Improve Your Churn Rate
- Churn, Retention and Reengaging Customers
- Best Practices for Reducing Your Churn Rate