How do you reduce customer churn?
- Lean into your best customers.
- Be proactive with communication.
- Define a roadmap for your new customers.
- Offer incentives.
- Ask for feedback often.
- Analyze churn when it happens.
- Stay competitive.
If you're dealing with a churn issue, you're not alone.
According to HubSpot's 2018 State of Inbound report, 61% of respondents noted "generating traffic and leads" as their number one marketing challenge -- and that top priority has stayed consistent over the last three years.
Now, I'm no mind reader, but I'm willing to bet that the struggle to generate new demand for a business can be easily tied back to the struggle to keep existing customers around.
And while reducing churn sounds like a big undertaking, it's one that's definitely worth prioritizing: A 5% increase in customer retention can increase profits by 25% to 95%, according to research from Bain & Company.
We'll walk through a few strategies for reducing churn below. But first, let's start by defining the term to establish some common ground.
What is customer churn?
Customer churn refers to the percentage of customers that ended the use of your company's product or service during a set period of time. It's typically calculated by dividing the number of customers you lost in a quarter by the number of customers you started that quarter with.
Let's say, for example, that you started the quarter with 500 customers and lost 25. That would leave you with a churn rate of 5%.
In most cases, this number is noted as a percentage, but as Nadav Dakner of InboundJunction suggests you should state the number in a way that makes the most sense for your business.
In his article for Kissmetrics, Dakner notes the following as alternative ways to demonstrate customer churn:
- Number of customers lost
- Percentage of customers lost
- Value of monthly recurring revenue (MRR) lost
- Percentage of MRR lost
How to Reduce Customer Churn: 7 Helpful Tips
1. Lean into your best customers.
For a lot of businesses, solving for churn means identifying a pool of customers that are most likely to cancel, and refocusing your efforts to keep them on board.
However, Sunil Gupta, the Edward W. Carter Professor of Business Administration at Harvard Business School, suggests that this strategy is lacking.
Rather than redirecting time and resources to retaining any customers on the brink of churning, Gupta recommends businesses focus their attention on the most profitable customers on the brink of churning.
"If I offer an incentive to customers most likely to churn, they may not leave the company, but will it be profitable for me? The traditional method is focused on reducing churn, but we contend the goal should be maximizing profits, rather than only reducing churn," explains Gupta.
In addition to refocusing your efforts towards the most profitable customers, Gupta suggests you consider the likelihood that a customer will respond to your reengagement initiative -- whether it is a phone call, email, or larger promotional package.
2. Be proactive with communication.
By reaching out to your customers before they need you, you're demonstrating that you're invested in helping them get the most out of your product or service.
But not any old outreach will do. The type of message or resource you send to them should be directly tied to their product or service usage.
For example, if someone signs up for your product or service and you notice that they aren't leveraging all of what's available to them, you might send them a friendly nudge.
After signing up for SEMrush, I received the following email, encouraging me to check out a whole bunch of features I hadn't explored yet:
By surfacing these features early, SEMrush was able to ensure that I wasn't overlooking the tool's capabilities -- helping to keep me both interested and active.
3. Define a roadmap for your new customers.
Getting started with a new product or service can be overwhelming. And if a customer can't figure out how to navigate your product or service right out of the gate, they'll likely lose interest -- fast.
To ease the transition, it's helpful to set up a new customer onboarding process or roadmap to guide new customers through your product or service's features, functionality, and process. This approach makes it easier to manage customer expectations, while giving you complete control over the pace in which you're surfacing more information to them.
Customers that feel empowered to achieve success with the help of your business are less likely to leave, so it's important that you're constantly monitoring and iterating on your onboarding process, keeping an eye out for snags or blockers.
Looking for inspiration? Here are a couple onboarding emails I received from Grammarly -- after signing up:
Notice how the welcome email introduces a bunch of popular features to help warm me up to the tool.
New Products + Features Update
This email, sent about a week after I signed up, details all of Grammarly's latest updates and improvements. By sending this to new users, Grammarly is able to communicate their commitment to improvement, while introducing a handful of new ways for users to use its services.
4. Offer incentives.
Give customers a reason to stick around by offering them something special -- a promo, discount, loyalty program, etc. This small effort can go a long way when it comes to showing your existing customers how much you value their business.
When determining when to surface these incentives, there are a few things to consider. For one, you'll want to think about the customer's timeline: If they are approaching the end of their contract and you're worried they might not renew, providing a discounted renewal rate could be the push they need to stick around.
Another thing to consider is the customer's needs. If you predict that a customer is going to cancel after realizing that your product or service isn't what they were looking for, incentivize them to stay onboard while you work on building out a feature or strategy that will help them accomplish their goals.
The latter is a strategy that the folks at Baremetrics employed after receiving feedback from customers who were ready to cancel due to lack of features.
"We'd offer a discount on their next month of service to tide them over while we finished up what it was they looking for," explains Baremetrics' Founder Josh Pigford.
The impact? This small effort helped them save 15% of the accounts that were ready to cancel.
5. Ask for feedback often.
Customer frustration, which can ultimately lead to customer churn, surfaces when there is confusion around a product or service or lack of effective support around a particular issue.
But those concepts are vague. And getting to the root of the specific issues plaguing your business requires you to take the time to collect feedback early and often.
Depending on your business needs, creating a customer feedback loop can be as easy as setting up a survey or feedback form and sending an email. Let's check out a few examples of how this has been done by brands in the past:
Dollar Shave Club
These surveys and rating requests show the customer that you're committed to getting better -- that you're always improving.
Another way to source feedback and insights surrounding your customers' experience with your product or service? Live chat.
If you have a live chat feature enabled on your website, you can monitor those conversations to surface trends, FAQs, and common roadblocks that could be preventing your customers from seeing the full value of your product or service.
6. Analyze churn when it happens.
If you're waiting until a customer leaves your business, you're already too late to do anything about it. Instead, you should be using data before customers churn in order to build strategies to proactively prevent it.
No matter how much effort you put into the steps above, churn is a part of any business, and it will happen. The key is to use your churned customers (and your happy customers) to predict key signs of customer happiness and customer dissatisfaction so you can engage with customers and salvage the relationship before they churn.
First, start with analysis. When are customers most frequently churning? Is it 30, 60, or 90 days after they first start using your product or service? Does churn happen if customers go a specific number of days without using the product or service? Figure out how and when churn occurs for your typical customer.
Then, get feedback as outlined in Step Five above. Are customers leaving for specific reasons? What are their objections that led them to cancel or stop purchasing? Figure out why churn usually occurs.
Then, put these trends together so you can forecast churn before it happens, and reach out to those at-risk customers with tailored incentives and offers to re-engage them.
For example, here's an email my colleague, Sophia Bernazzani, received after taking a few SoulCycle classes in a row, then didn't book any others for three months:
SoulCycle most likely determined that a three-month gap in workout class attendance signaled churn, so they offered her a free class -- which got her back in the door for a few more classes.
7. Stay competitive.
Market conditions are constantly changing -- and as new software and technologies enter the space, the needs and demands of your customers will inevitably shift.
Businesses focused on what's next -- trends, technology, and product advancements -- position themselves in a good spot in terms of avoiding disruption or "the next big thing."
And while keeping your product or service on the cutting edge is important, it's also important that your customer success and support efforts remain relevant. To ensure your competitors aren't lapping you, make note of their customer success initiatives.
Are they responsive to questions on social media? Do they have live chat enabled on their website? Do they have an extensive knowledge base?
Taking cues from their strategy can help your business better serve customers and retain their loyalty.
Stop Churn In Its Tracks
Churn can really take a toll on your business -- but only if you allow it to. Reroute your company's trajectory today by applying the tips we outlined above.
To learn more, read about how to calculate customer churn rate.