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What Is Customer Churn, and How Do You Prevent It?

Customer Churn

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Author: Uthaman Bakthikrishnan

Customer churn or customer attrition is the percentage of customers that have stopped using your organization’s product or service during a specific time frame.

You can calculate the churn rate by dividing the number of customers you lost during the period – say, a month – by the number of customers you had at the beginning of that period.

For instance, let us say you start your month with 1000 customers and end with 900 customers. Your churn rate is 10% because you lost 10% of your customers.

This kind of churn rate is a cause for concern. Typically, accepted churn rates are 5 – 7% annually for a product delivered as a service. Any other licensing model should be in the 2-3% range.

Customer churn is an important metric that every organization should measure, as revenues are the lifeline of any business, and customers are the ones who provide it.

There are multiple reasons why customer churn happens. Let us look at them in detail.

What Causes Customer Churn?

  1. Price is the number one reason why customers churn. More so, when the customers don’t see value in the investments, they make
  2. Customers churn because your product or service does not make their lives easier. Your offerings don’t meet their expectations or fall short of the promised features. They stop finding any more value in using your product or service.
  3. Your service is not up to the mark. Customers want everything now and here and do not like going through a complex ticketing system or inadequate customer support. Some people complain, and others quietly move on to your competitors.
  4. Customers often churn because your competition is undercutting you on price or offering better value than your offerings.
  5. Sometimes, internal policy decisions and global contracts signed with another vendor might churn your customers. Sometimes, the customers may feel that they no longer need your product. You cannot do much here to stop the churn here
  6. Sometimes, the customers may feel that they are not the most valued customer of your organization. They may not get priority in service or support delivery and may not have access to senior leadership. This is one of the prominent reasons for customer churn.
  7. The customers may find it challenging to do business with you. It isn’t easy to upgrade the product versions, apply patches on your installation, return or reorder your products, or request a service. The natural consequence is churn
  8. Sometimes, the customer may just not be a right fit. It happens with every business, as every company cannot be a part of your target segment. It should be fine to let such customers churn

How Do You Prevent Customer Churn?

There are multiple ways in which customer churn can be handled. Some of them are:

  1. Continuously talk to your customers and understand how they use your product or service. Ask if it helps them do their jobs more quickly and what else they would require. Based on this, figure out what needs to be part of your product and keep your customers informed about your product roadmap. This would help avoid customers churning due to a lack of features and adoption
  2. Talk to your customers who are churning as to why they are leaving. See if you can identify themes and repeating issues that may be contributing to customers leaving. Knowing why they are going can help your team to be proactive about it
  3. When it comes to support and service, be proactive about it and make sure that you do everything for the customer
  4. Look at the entire customer journey and identify challenges faced by the customers. Do away with them

Besides these, do a competitor analysis and figure out what you like about them and what you don’t like. Address both of your likes and dislikes as a part of your offerings.

You would experience customer churn as a business, but it should be under manageable levels. After all, you shouldn’t be losing customers for reasons like features, functionality, or price.

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About the Author: Uthaman Bakthikrishnan

Uthaman believes in the power of creation - it gives him a high to grow something from scratch and make it sustainable. Uthaman is the Executive Vice President and helps set the strategic direction and roadmap for ClearTouch, a pioneering provider of a cloud-based call center platform for enterprises, contact centers, BPOs, and financial services companies in India.