What is customer churn?
Churn is when your customers stop paying and leave your product/service. Churn rate is the percentage of users who left your product/service in a particular time frame divided by the total number of users you had.
Let's elaborate with an example.
Let's say Zylker is a subscription-based streaming platform that offers its users a great variety of movies, TV series, documentaries, etc.
By the end of February, they had 35,000 subscribers. In March, 4600 users stopped paying for Zylker's subscription.
So the churn rate for Zylker is the percentage of subscribers who left the platform divided by the total number of initial users. i.e., 4600 /35000 = 13%.
Zylker's churn rate is 13%. But what's the purpose of calculating the churn rate? What can businesses learn from this rate?
Table of contents:
Why is churn a vital metric?
Churn is a vital metric because acquiring a new customer can cost five to ten times more than retaining an existing one.
Let's take the Zylker scenario again.
They have 35,000 subscribers consuming their content. If we assume they pay $10/month, Zylker makes $350,000/month.
If Zylker spends $35,000/month to keep their subscribers happy, it translates into $1/month/user.
Zylker could spend that money on improving UI, offers and promotions, or R&D. It doesn't matter. They're spending $1/month/per user to keep their subscribers happy.
However, to acquire new customers, Zylker has to
Do marketing to attract leads
Teach them how Zylker works
Inform them of the benefits they'd get out of the subscription
And put them through funnels until they become subscribers. Planning and running such campaigns would cost Zylker a lot of money.
Acquiring new customers costs more than retaining existing ones
Let's return to the scenario where 4,600 Zylker users left the platform. To bring in new 4,600 users, Zylker has to spend 5 -10 times more than what they spend on their existing users.
So it would be $5 - $10 /month/user or $23,000 to $46,000 for the new 4,600 subscribers.
In addition to losing revenue because of the churned subscribers, Zylker has to spend more to keep the total number of users at 35,000.
What do these examples tell us?
Churn is real, and if you're under the impression that there're countless fish and your product/brand can have a great catch every season, you're mistaken.
If you're not providing value to your customers, they'll leave you. You'd have to spend more to acquire new customers. If you want to learn the art of acquiring customers, check our blog on customer acquisition done right.
Why does customer churn happen?
1. The cost-value imbalance
There are many reasons why churn happens. But the primary reason churn happens is that the value your product/service is giving your customers is less than the price they pay.
You can get away with increasing your price. But when that cost-value imbalance happens, your customers will start looking for your alternatives already.
2. Attracting the non-ideal users
Only some people will need to consume the product/service how you, as a seller, intend it to be.
A segment of people would buy your product/service to solve just a few needs for their businesses. They wouldn't need your product day and night—only now and then. Since they don't benefit as much as your regular, hardcore users, they don't see your product/service's absolute value.
When you increase your price, those casual users won't be willing to pay the additional increase and will look for a way to get out. There, churn follows.
3. Disappointing customer support
Mind you, we didn't say 'Bad' customer support. Because the world has woken up to the need for customer retention, everyone knows the value of providing excellent customer support. There might be some exceptions, but everyone tries.
Customers refuse to give you a second chance when your support team makes a mistake. There is also an additional benefit that comes with providing excellent customer support. When customers are disappointed with your customer support, they don't keep it to themselves. They express their frustration on social media platforms; they disapprove of your products when their friends/family ask for a review, and they'll give you bad ratings.
All these factors and your increasing churn rate will hurt you more in the long run.
4. Bad customer experience
Customer experience is the wholesome experience your product/service provides to your users at every point of their interaction.
Some instances would be:
How easy was your onboarding process for a new user? Did they experience any issues?
How is your user Interface? Is it friendly or confusing?
Is it easy to contact your support team? How are they handling customer issues? Are they providing fast resolutions?
Do you offer multiple support options such as chat/phone/email?
Are you engaging with your users often?
Are you sharing information about the new updates you're working on with your users?
Are you listening to your customer feedback? Are you taking action on it?
It all comes under the umbrella of customer experience. When you're not offering a wholesome customer experience, churn happens.
5. Poor quality of your product/service offering
Ultimately, the quality of your product comes into the picture. If you're offering a mediocre product that doesn't have useful features and is filled with bugs, it won't provide value to your customers.
It goes without saying. Churn happens when you lag behind your competitors in terms of your engineering quality.
6. Factors beyond your control
There are many other factors involved. Among them, some are uncontrollable too.
For example, your customers might be going through some financial crisis, so they'd want to drop your product. There is nothing you can do about this.
Or a new leader might have come into your customer's organization, and the leader might prefer your competitor's product as they're used to it. You can't do anything about that.
Your customers might have pivoted their Modus Operandi toward a new direction. Because of the pivoting, they wouldn't need your product, so, they'd leave. It's beyond your scope to do anything about it.
These are some factors beyond your control that might lead to churning. It would be best if you didn't worry about that. You should worry instead about the churning issues that are under your control.
How to reduce customer churn and retain them
1. Balancing value-cost equation
There is no alternative—you have to provide the best value to your customers. Your offerings' engineering quality must be good and you've got to offer the features your users need.
You can't compromise on these and expect customers to stay with you.
That's why we'll assume you offer an excellent, competitive product/service, and we'll discuss what else you can do to reduce churn.
2. Identifying your ideal customers
When an organization fails to have a clear identity of their ideal customers, they chase after and convert wrong-fit customers.
You might be thinking, what's wrong with that as long as they pay?
When you sign wrong-fit customers, they hurt your organization in the long run. How?
You would spend time and money teaching them how to consume your product, which they wouldn't need.
They'd request features that are not in your roadmap. But you'd have to force your development team to reroute plans to accommodate those requests.
Your support team will tire of those wrong-fit customers, and morale will be affected.
This is just a glimpse of the chaos when you attract non-ideal customers. They blur the organization's vision, and you'll be moving in a completely wrong direction.
Also, when you sign up wrong-fit customers, they'll eventually figure out that you won't be useful to their goals and leave. Be vigilant about who you want to take up as your customer to avoid this unnecessary churn. Have a vision and work in that direction.
3. Being customer-first
We hear a lot about being a customer-first brand. It's easier to say than practice because there isn't a how-to guide to becoming one.
Organizations known for their customer-first approach invented their own rule book and went ahead while experimenting along the way.
If you're looking to adopt a customer-first strategy, look into what customer experience is.
How do your customers feel while using your product, interacting with your UI, or reporting an issue to your support agent?
How are your agents resolving those issues?
How are you engaging your customers? Are you listening to their suggestions and acting on that feedback?
It all comes under customer experience; you must improve on these aspects to become a customer-first brand. That's how brands earn the respect of their customers, create loyal advocates, and reduce churn.
4. Offering the best customer support
Amazing things will happen to your business when you provide amazing customer support. By providing reliable, fast, and quality customer support, you can increase your brand value and the cost of your product/service.
When providing excellent customer support, you turn your customers into loyal, free spokespersons. We're all aware of the potential of customer word-of-mouth campaigns. They'd be doing marketing for you free of cost.
5. Other factors that help you reduce customer churn
If ignored, other minor factors can lead to an increase in churn rates.
A few customers would've forgotten about their payment renewal. Sending them a reminder before their renewal date would help them get it done.
Renewal transactions would be declined due to external issues, which increases churn.
Look into such causes of involuntary churn in your industry and take precautions to avoid them.
Also, discuss this with your support team. If they feel certain customers are unsatisfied and might be looking for alternatives, proactively reach out to those customers. Ask if anything is bothering them or if they'd want new features. Just by initiating this conversation, you're making them feel valued. Then work with them to give them what they want and help them see you're what they need.
Case study: How Netflix reduced their churn
By now, a thought should've crossed your mind. This information is all theoretical, but will it reduce customer churn? Let's address that question with a story—A Netflix original story.
Among the video streaming applications, Netflix has one of the lowest churn rates. Interested in knowing what they do to retain customers?
They're not offering a mediocre product cheaply to attract the audience. They have a superior product and stay up-to-date with their market competitors. Users don't even feel bandwidth limitations, latency issues, or device compatibility challenges when using Netflix. It's designed to imitate flawless perfection.
Balancing the value-cost equation:
Netflix grew to be a perfect past-time activity. By offering a variety of genres that satisfy all ages, it has almost become impossible to remove from our daily routine.
Personalization to its core:
If you've used Netflix, you would have noticed its 'Your recommendations' column. Based on your watch and browsing history, Netflix's algorithm creates a list of recommendations for you to watch. That's alright. But you know what's impressive? The thumbnail you see in those recommendations is exclusively picked for you. Based on your viewing history, their algorithm crunches the data and selects the perfect thumbnail to attract you.
Netflix is more than just customer-centric. They're a customer-obsessed platform. One such instance would be if you look at their history; whenever their services are down, they instantly reach out to their customers and inform them of the issue instead of just waiting for the customer to reach them. By proactively reaching out to customers, Netflix manages to retain the loyalty of its users.
By obsessing over offering a great customer experience to its subscribers, Netflix manages to reduce the churn rate. If Netflix can do it, so can everyone.
Want more? Check out how FundsIndia, a financial service firm with more than 2.5 million customers, is providing the best customer experience to retain their customers with Zoho SalesIQ.
Is there a tool to reduce customer churn and retain them for life?
There isn't. Since multiple factors cause churn, developing a tool to reduce it is impossible. But there are tools that you can employ to control/reduce some of the reasons that cause churn.
Zoho SalesIQ, the live chat intelligence platform, is one such tool. It can help your customers instantly reach out to your support team. The platform offers multiple features that empower your support agents to resolve your customer queries instantly.
Using the platform's automation offerings, you can make bots take care of your customer queries and give them easy access to the essential knowledge base at the right time, even when your support agents are offline.
Zoho SalesIQ helps to provide a fantastic customer support experience, and the intelligent platform will enhance your customer's overall engagement with your product/service.