Customer churn costs you directly and indirectly, now and in the future. That’s why it’s your number one priority for driving growth.
In this article, we’ll explore the true cost of churned customers. We’ll also discuss how to reduce churn by understanding customer needs and prioritizing customer education.
Let’s start with the real cost of churned customers.
The Cost of Customer Churn
When a customer leaves, you know it will impact short-term profits. That’s why we generally respond by driving more leads. But churn may be costing you more than you realize.
This is obvious. When a customer churns, your revenue takes an immediate hit. You lose whatever revenue they would have generated now and in the future.
Keep in mind, 65% of a company’s business comes from existing customers. And customers typically spend 67% more after the 2.5 year mark (months 31-36) than they do in their first six months.
Your real growth occurs with loyal customers, so every churned customer inhibits your long-term potential.
Higher Growth Costs
To maintain growth, you need to acquire two customers for every churned customer — one to replace the lost customer and another to add new revenue.
Keep in mind, it costs more to acquire new customers than to keep them, so you’ll be spending more to grow your business.
Reduced Customer Lifetime Value
Customer lifetime value (CLV) measures the value of a customer over their lifetime with your company. It takes into account current revenue plus future potential purchases, including monthly fees, upsells, cross-sells, referrals, and word-of-mouth recommendations.
Clearly, the longer a customer is with you, the more revenue they’re likely to generate. They’re also more likely to buy more products and services or upgrade their plan.
That being the case, the longer you can retain customers, the higher your net revenue will be. When a customer churns, they lower your CLV and future profits.
Impact of Negative Feedback
Churned customers don’t always go quietly into the night. If they share their negative opinions on review sites and social media, it can damage your reputation, credibility, and trust.
According to Trustpilot, 89% of global consumers check online reviews as part of their online buying journey, and 49% of global consumers consider positive reviews one of their top three purchase influences.
But bad reviews can also affect existing customers, because they validate and amplify any dissatisfaction customers may be feeling. This can lead them to reconsider their purchase, leading to more churn.
Loss of Valuable Data
When customers churn, you not only see a drop in revenue, you also lose valuable data that could help you improve your products.
Active customers give you a wealth of knowledge around their behavior, preferences, and habits. Churned customers impact the amount of usable data you can use to make informed decisions.
This creates a vicious cycle. Without data from churned customers, it’s harder to identify when a customer is dissatisfied. That makes it harder to address issues with future customers, resulting in more churned customers.
Hidden Costs of Churn
When a customer churns, you typically invest time following up with them and trying to resolve their issues. You may also incur processing fees if you have to issue a refund. All of this costs time, money, and effort.
That includes the opportunity cost of investing so heavily in a churned customer. Every minute an agent spends on a churning customer is time they could have spent supporting a long-term customer.
The Real Cost of Customer Churn
The actual cost of customer churn depends on your business, the costs of acquiring and supporting customers, and the value of each customer. But as you can see, it begins to add up:
- Lost revenue (immediate and future loss)
- Fees associated with refunds and cancellations
- Lower growth rates
- Lower customer lifetime value
- Potential lost revenue from people who read bad reviews
This explains why a mere 5% reduction in churn can raise revenue up to 95% (Harvard Business School). It also makes churn reduction your number one strategy for protecting your business.
How to Reduce Churn
Fortunately, there are simple steps you can take to minimize the risk of churned customers and keep your customers satisfied and engaged.
Provide Quality Customer Service
70% of churned customers cite poor service as the cause. And more than half (54%) U.S. consumers say that most companies’ customer service needs improvement.
The bar is pretty low. You can easily stand out by improving the customer experience.
Aim to deliver the highest quality services, products, and experiences. Train agents to be empathetic and patient with customers while going above and beyond in helping them.
Listen to your customers. What were they expecting when they purchased from you? Are they achieving the outcomes they were looking for? If not, why? How can you proactively resolve these issues?
Track Customer Behavior and Sentiment
Customers often signal their dissatisfaction well in advance of churning. Their usage of the product or service drops. They may visit specific pages on your website, such as the return policy page. And they may show a poor sentiment on support calls or in your community.
To stay on top of customer sentiment, you need to ask for feedback. Your goal isn’t to hit a specific number. It’s to understand what the customer needs and wants, and how you can make it easier for them to achieve it.
Prioritize Customer Education
New users need strategic onboarding to make your product an essential part of their lives. Experienced users need ongoing education to get the most from your product.
Customer content should be provided in a variety of channels and formats. It should not only help them learn the key features of your product, it should help them understand all its use cases.
Create a mix of educational content: tutorials, webinars, FAQs, and step-by-step articles. Make it easy for them to find help in whatever format they need.
Minimize the Cost of Churn with Retention Solutions
To keep customers from churning, you need to proactively focus on retaining them. The first place to start is with the customer experience. Make sure every touch builds trust and loyalty.
Then focus on helping customers get the most from your product or service. Give them support materials and access to training that turns new users into superusers.
Need help reducing customer churn? KA Media develops personalized retention strategies that lower churn and raise profits.