Customer loss isn’t a fun topic. It takes lots of effort, money, and time to gain customers. So, losing them is always a blow to the ego. Stats consistently show that it costs up to five times more to get a new customer than it does to keep one. Yet, so many companies focus on customer acquisition instead of retention. In fact, only 18% of companies in the United States value retention over acquisition.
What does all of this have to do with churn? The answer is simple. To get a handle on customer retention, you must understand and analyze customer churn.
Let’s talk a bit about customer churn. We’ll look at what it is, how it’s useful, and why you should be analyzing it.
What is Customer Churn, Anyway?
If you don’t know what churn is, it’s simply a number or percentage that represents the total number of customers who stop doing business with you over a given period. They either stop buying products, end their regular subscription, or otherwise quit their relationship with you. These are customers whose business you had earned, but couldn’t keep. It isn’t a metric that most people like to discuss, but unfortunately, it’s a critical one.
There are several different methods for calculating churn. The most popular methodology lies in finding the percentage of customers lost over a given time frame. For example, if you began with 200 customers at the beginning of the year and ended with 150 customers at the end of the year, you would have a churn percentage of 25%. That means that you lost 25% of your customers in that year.
You can also look at customer churn as a flat number. Using the example above, your churn rate would be 50, because you lost 50 customers. Additionally, some companies like to look at the total value lost instead. This enables them to stay laser-focused on the actual ramifications and profit consequences of customer churn.
Why Customer Churn is Important
Regardless of how you calculate, customer churn is a necessary and often painful metric. So, if it’s not fun to calculate, why do it, right? Wrong.
In the U.S. alone, businesses lose about $83 billion each year thanks to customer churn. (That’s billion, with a “b.”) Additionally, in study after study, customer loyalty and customer retention remain vital factors for maintaining and increasing profitability.
If you aren’t calculating churn, then you’re choosing blissful ignorance over actionable change. Avoiding the calculations won’t diminish the loss of customers. Instead, it just eliminates your option to make a difference. However, knowing the number isn’t enough.
You have to do more. You have to dive deep and do something called a customer churn analysis.
What is Customer Churn Analysis?
The real changes and insight happen through analyzing the churn. It’s about digging your heels in and picking apart the data. Customer churn is a type of data analytics and a powerful motivator for people dipping their toes into big data.
The analysis helps answer the question of why. Why did our customers leave? While it’s not as simple as asking and getting a response, once you understand the metrics, and what you’re looking for, it gets easier to navigate.
Essentially, in churn analysis, you’ll be looking at your entire business from a bird’s eye view. You’ll be collecting and dissecting your products, marketing, process, demographics, employees, customers, and more to get a full picture of what’s happening. Sometimes the answer is straightforward, and others, it’s more convoluted.
In general, people stop doing business with a company for several reasons, which can include:
- Customer support problems
- Money strain
- Lower prices with competitors
- The product offered doesn’t address their needs
- Product only applicable in certain seasons
This list is in no way complete, but it gives you a firm idea of the types of reasons people jump ship. And, here’s the thing, customer loss is inevitable. You are going to lose customers from time to time. It’s just a part of doing business. However, your goal with churn analysis is to mitigate and minimize the issue.
You want the ability to look at your company and know what’s working and what isn’t. For example, through analyzing churn, you might realize that you lost most of your customers after changing a shipping policy. Or, perhaps you’ll realize that all your clients who leave do so after talking to one specific employee. Maybe, you’ll discover that your competitors keep underselling you.
Customer churn analysis allows you to notice these patterns and trends and then predict future problems. Moreover, and most importantly, customer churn analysis gives you the insight you need to fix customer experience issues.
Taking the time to do so will not only lead to better customer satisfaction but ultimately, committing to tackling customer churn will result in higher profits for you and your company.