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Why Customer Churn Happens, And What You Can Do About It

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Customers leaving your business can crush your revenue. Here’s how to reduce churn and save your bottom line.

This year, a survey was conducted that asked small business owners about their biggest challenges.

The number one response?

Attracting new customers.

But while getting new customers is an obvious win, many businesses often forget about an important, and potentially bigger win: keeping the customers you already have.

Customer churn – the loss of customers – is a big business killer. Even small increases in churn can cut your revenues in half.

Check out this example that the Punchlime team put together illustrating the impact of churn rate on revenue and valuation:

There’s no question about it: churn can crush your business, if you let it.

Today, we’ll cover the four most common causes of customer churn, and what you can do about each one.

The Four Most Common Causes of Customer Churn

If you think of your customer base as being water in a bucket, churn happens when your bucket has a leak. These are the four primary causes of leaky customer buckets, and what you can do about each one:

1) Bad Customer Service

Many companies think of customer service as a cost to be minimized, rather than an investment to be maximized.

Here’s the issue with that: if you think of support as a cost center, then it will be.

That is, if you don’t prioritize support and work to deliver excellent service to your customers, then it’s only going to cost you money…and customers.

In fact, one Oracle study found that almost 9 in 10 customers have abandoned a business because of a poor experience.

But just as bad customer service can be a huge loss for your business, the same study found that great customer service can be a huge win, with 86% of customers willing to pay more for a better customer experience.

So not only can better customer service slow down churn, it can give your business the ability to charge more; and your customers will be happy to pay.

How to deliver better customer support

2) Bad Onboarding

To your business, two of the most important milestones in the life of a customer are:

  1. The moment they sign up for your product, and…
  2. The moment they achieve their first “success” with your product

A disproportionate amount of your customer churn will take place between (1) and (2).

That’s where customers abandon your product because they get lost, don’t understand something, don’t get value from the product, or simply lose interest.

Bad onboarding – the process by which you help a customer go from (1) to (2) – can crush your retention rate, and undo all of that hard work you did to get your customers to convert in the first place.

It’s your job to make that transition as fast and smooth as possible for your customer, and that’s where great onboarding comes in.

How to improve your onboarding flow

3) Lack of Ongoing Customer Success

While onboarding gets your customer to their initial success, your job isn’t done there.

Hundreds of variables – including changing needs, confusion about new features and product updates, extended absences from the product and competitor marketing – could lead your customers away.

If your customers stop hearing from you, and you stop helping them get value from your product throughout their entire lifecycle, then you risk making that lifecycle much, much shorter.

How to ensure continued customer success

4) Natural Causes

Not every customer that abandons you does so because you failed.

Sometimes, customers go out of business.

Sometimes, operational or staff changes lead to vendor switches.

Sometimes, they simply outgrow your product or service.

And that’s okay. It’ll happen to every business.

But it’s still churn, and you can get value from acting on it.

What to do about churn due to natural causes

  • Pinpoint your red flag metrics so you can catch the slow decline into natural churn before it happens.
  • Do constant customer development to help you understand your customers’ changing needs and goals so that you can shift your strategy to address them.
  • Conduct customer exit surveys to get an idea of exactly why natural churn is occurring, and whether there’s anything you can do to prevent it.

Less Churn, More Revenue

Churn is one of the few metrics that can be directly correlated to revenue.

Reduce churn among paying customers, and you’ll be rewarded with higher revenue, guaranteed.

All it takes is learning how to spot where the leaks in your bucket are, and knowing what to do to plug them up.

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About the Author

Len Markidan heads up marketing at Groove. He’s focused on helping startups and small businesses build better relationships with their customers.

Read his latest posts or follow him on Twitter

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