When companies underestimate the key factors that predict customer churn, the consequences impact finances, human resources, word of mouth, and more. Fortunately, there are simple solutions to predict customer churn so you can reduce your churn rate and prevent turnover from happening in the first place.
What is Customer Churn?
To start at the beginning, customer churn (sometimes referred to as “logo churn”) occurs when someone stops purchasing your products and services. Some companies look at churn at the revenue level vs. the customer level. Tracking revenue retention has value, but it’s a different calculation, and it’s essential to differentiate them.
Customer churn identifies the rate at which individual customers leave a company, while revenue retention evaluates the overall dollars retained. When customers upgrade their level of expenditure, looking at revenue retention can hide a company’s churn problem. There’s more detail on this distinction here. This article will focus on helping companies predict the potential for customer churn and combat it before a customer decides to leave.
Since churn is, effectively, rooted in someone saying, “I don’t want what you’re offering anymore,” it’s important to unpack the issues that lead customers (or clients, donors, members, etc.) to make those decisions. That’s especially true because unhappy customers are unlikely to tell you what they’re thinking. In fact, only one in 26 will complain – the rest will simply leave.
Why is customer churn a problem?
Customer churn is a problem for several reasons. The most obvious is the financial impact of churn. There’s a direct hit to revenue when a customer leaves.
Churn is the ultimate “leaky bucket” in business. If you have a leaky bucket, you can keep filling the top of the bucket with more and more water. But the water will just drain out through the holes. The more you frantically fill, the more that you lose. It’s exhausting and unending until you do something to plug those holes.
This analogy is exactly what happens with a company’s finances when they have a churn problem. Sure, companies can dump money into lead generation activities, add to the sales team, roll out cool marketing initiatives. Those are seemingly “easy fixes.” But they are false solutions until companies address the reasons customers are leaving in the first place.
Most of the time, companies focus on the financial implications of churn. But even when they’re losing a significant amount of money, companies can underestimate the real impact of churn, particularly in the long run. A relatively small shift in churn rate can mean a difference of tens of millions of dollars in revenue over a few years.
The Churn Virus is a white paper by Alignmint Growth Strategies’ CEO, Ali Cudby, and Principal Strategist Tim Conder. It explores the financial impact of customer churn over time for subscription-based companies. In one example, a company with a 12% churn rate earns $54 Million after nine years. Had the company improved that churn rate, they could have been worth $100 Million in the same span of time.
Download your free copy of The Churn Virus to get the white paper and access to calculators that let you see the impact of churn for your company.
While the financial implications of churn are important, they’re not the only key factor that predicts customer churn. Companies with churn problems also suffer from indirect costs, which range from employee dissatisfaction to negative word-of-mouth. These are also problems that must be addressed for companies to grow and achieve their market potential.
Factors That Affect Customer Churn
The factors that affect customer churn are relatively simple, given the complexity of the problem and its severity for companies. These factors can be summed up in a single word: Alignment.
How does alignment address a customer churn problem?
Companies aligned with their customers have processes to assess and address the key inflection points across the customer lifecycle. They build relationships by making customers feel seen, heard, and valued and develop consistent processes so that employees know how to develop those relationships over time.
Key moments for alignment throughout a customer relationship can include:
- Ensure customer expectations during the selling process match the reality of their purchase and proactively address any gaps.
- Evaluate engagement during implementation, particularly if the timeframe in which a customer achieves value is longer than expected, and communicate effectively.
- Examine the relationship with your key contact. When that relationship goes South, you likely have a problem that needs to be addressed to prevent churn. Build processes to manage expectations and improve engagement.
- Analyze customer usage of your products and services and address any dips proactively. Drops in use are a vital indicator of misalignment between the value your company has promised and the reality for your customer. Find your leading indicators and take action when customers hit any tripwire notifications.
Your company needs processes to address your unique indicators of misalignment. Your processes can be manual (person-to-person interaction), automated, or a combination of the two. But suppose you miss the indicators of an unhappy customer and don’t take steps to realign with them. In that case, you are much more likely to receive a customer churn notification versus a renewal.
How are you building processes to proactively identify potential churn and stop it before it happens? At Alignmint Growth Strategies, we help companies prevent customer churn by developing consistent processes that inspire retention and growth.
Design Your Company’s Path to Next-Level Growth
Your company may have great product-market fit, a well-designed product, and sales/marketing teams that bring in new customers. But when those wins are met with a churn problem, it becomes impossible to grow and meet revenue targets.
Successful churn reduction strategies align your company to boost customer lifetime value…aka retention.
At Alignmint Growth Strategies, we deploy churn reduction strategies so that you hit your revenue targets and maintain momentum.
Customers spend more, stay longer, and refer like crazy. Employees feel connected to your vision and confident they can be successful in their work. And leaders focus on progress and growth.
Discover the churn rate reduction strategies that work best for your company by making an appointment with Alignmint Growth Strategies. Connect with us today.