Losing customers is as natural to business as gaining them. ‘Customer Churn’ is a measurement of your customer gain-to-loss ratio. Low churn indicates a well performing business in a stable environment, whilst high churn can be a sign of bigger business or environmental challenges.
A certain amount of natural customer churn is to be expected as people grow, change preferences or pass-away. And a business might experience a relatively high rate of churn that is standard for their product or industry.
It’s the rate of ‘un-natural’ churn that you need to monitor closely. This is when your numbers creep above what YOU deem to be regular or acceptable.
A higher than average churn rate can be a result of a number of factors - here’s our list of the top 4 things to keep in mind if you notice any significant changes in your customer base.
1. Warning Sign of Changes in The Marketplace
An increasing rate of customer churn can indicate a significant change in your marketplace. These changes can be seasonal (see point 2) or more permanent. A more permanent change can reflect waning demand as your product’s lifecycle nears its end.
This kind of change is most often seen in the consumer technical product industry where new technology replaces old (e.g. VHS), or where a company doesn’t evolve quick enough to keep pace with wider industry changes (e.g. Nokia).
In both cases, the ending of an technological era was preceded by a noticeable drop in sales and a high churn rate. These warning signs however went unheeded by both companies who went out of business and lost significant market share respectively.
2. Identifies Seasonal Effects
Seasonal effects also impact churn. It is important to monitor any changes over a reasonable period of time so as to eliminate seasonality from your business decisions, or alternatively, alter your business strategy accordingly. Even a negative effect can create a very positive opportunity.
Another thing to consider is that seasonality can appear in 2 forms:
- Regular: A repeatable seasonality based on cycling events such as winter, or ‘Back to School’
- Irregular: A less regular seasonality that affects different markets or regions at different time, such as the Brazilian soccer world cup
Both have effects on customer gains and losses.
Whilst there’s not really much you can do about these seasonal effects, you can either learn to expect them and plan accordingly, or alter your business strategy to even out the effects over the course of a financial year.
3. Indicates Problematic Customer Service
Sometimes customers leave because they are unhappy with your levels of customer service, and feel they will get better treatment elsewhere.
Unlike points 1 & 2 which affect an industry as a whole, this type of churn is specific to your company.
Whether caused by under-trained Customer Service Representatives (CSRs) or ineffective internal processes, the result is the same - unhappy customers that vote with their feet.
CSRs are the face of your business and should be given the tools they need to ensure that your brand is properly represented, and your customers are receiving the best service possible. In this post we’ve highlighted 7 Top Customer Service Tips for Dealing with Unhappy Customers.
Ineffective Internal Processes
Manual, complex and time-consuming internal processes are highly ineffective and almost always result in revenue leakage and high churn rates.
An often cited example is that of a frustrated customer needing to present the same information to multiple departments before finding a solution. Customers very quickly become frustrated by the ‘disconnected’ nature of your business and don’t understand why your departments don’t (or can’t) communicate effectively with each other.
The good news is that most of these problems can be solved. The damage to your reputation however, may take longer to reverse.
Not sure if you need help with efficiency? Check out this post to see if any of these apply to you: 9 Signs You Need Help With Efficiency.
4. Indicates Problems with your Product
Defective products, products that don’t perform as advertised and products of very poor quality are all factors that will result in high rates of customer churn. Customers trust your marketing and product promises. If those are not as per expectations, they will become disappointed and churn to your competitors.
You may sell lots, but if customers are unsatisfied they will [best case] not come back and [worst case] tell all of their friends, family and random acquaintances. Resulting in an exponential decrease in sales - not a good thing at all.
This effect is usually seen relatively quickly after the release of a new product - giving you a clear indication as to the cause of the churn. And, hopefully, a window of opportunity to fix it.
Customer Churn is a natural part of business. However, if those rates change or are higher than expected you could have a bigger problem on your hands.
Regularly tracking and analysing your churn rate gives you a deeper insight into both your business’s performance (product and service) and marketplace environment (trends and seasonality). This allows you to quickly identify the cause, and work towards rectifying the situation.
Having a very clear view of your key business metrics goes a long way to analysing and monitoring the performance of your business in general. A great business Dashboard is the essential to having a global view of those key business metrics. Flick through our Slideshare on ‘6 Reasons why a Great Dashboard is Essential to your Business’ to find out more. For more information about customer service and how to use all the benefits of automation, read this post.