Customer Churn: Main Causes and Ways to Minimize

Customer loyalty is the basis for the effective development of any business. It is a kind of asset, the value of which should not be underestimated. But even if your company puts a lot of effort into attracting and retaining customers, you cannot rule out the possibility that the audience will still leave. That is, it is important to understand that customer churn is a completely natural phenomenon. But it still needs to be kept under control, because if the audience starts leaving en masse, it will cause serious problems for the business.

And these will not only be financial losses, as a result of which you will stop making a profit, but also reputational ones. With a massive outflow of the audience, the process of attracting a new buyer becomes much more difficult, the cost per lead increases. Increased investments in advertising and the search for new marketing strategies will be required. Statistics show that attracting a new client costs a company about 5 times more than retaining regular ones.

What is customer churn, how to calculate it and what indicators are considered normal? For what reasons can a business encounter such a phenomenon and how can this be avoided? Are there solutions that will help to accurately determine the causes of customer churn? Why should a business monitor this indicator? What actions will help reduce the churn rate? These are the questions that will be relevant for absolutely any business operating in the market today. And we will try to find the answers to them in today's review. The information provided will help you navigate the issue of customer churn and understand what needs to be done to keep this indicator within the norm.

What is customer churn and how to calculate it

By such a term as customer churn (CR) we mean an indicator that will indicate the number of people who stopped interacting with the business during the period under study. That is, this is a loss of audience, expressed in the absence of payments on their part, purchases, subscriptions and any other formats of interaction with the company. If we talk about the average indicator for the market, then the monthly customer churn rate is about 3-5%. But you should not focus too much on these indicators. Here, everything largely depends on the size of the business, how long it has been operating in the market, and the niche where it operates.

So, the larger the company, the lower the churn rate should end up being. If we analyze the performance of large-scale business representatives confidently operating in the market, then the CR here is less than 1%. At the same time, for start-up companies and startups, this figure can reach even 20% in the first period after launching on the market. And this will be considered the norm.

If we talk about customer churn rates for different business niches, then there are also significant discrepancies. So, for a business operating in the niche of daily demand goods, the churn rate is approximately 8%, in the education sector - up to 10%, for SaaS services - 6%, in retail - 5.5%, in the niche of digital services and entertainment - 7%, in the field of software - 3.5%. Let us repeat that this is an average indicator for the market as a whole and the situation in each specific case may be completely different, but it is still considered normal.

But in any case, it is important to know how to calculate customer churn. Only by knowing this indicator will you be able to keep it under control and respond promptly in situations where there is a serious deterioration. Each of you can perform such calculations independently, since the customer churn formula is quite simple. You simply divide the number of customers who left during this time interval by the total number of your business audience at the beginning of the reporting period, and then multiply the resulting figure by 100%.

As you can see, the formula for calculating customer churn is quite simple in mathematical terms. But here a problem may arise with the input data. So, initially you must understand which customer you will consider to have left. If we talk about some services, these may be users who deleted their account during the reporting period or those who have practically stopped using the product. In FMCG retail, this would be a person who has not made a purchase in the same month.

Initially, you will simply need to take a certain reporting period of time as a basis. Often this is a month or a quarter, since this is the frequency with which it is recommended to check CR indicators. But here, too, everything is not so simple, since the frequency of purchases will be completely different for different businesses. If for everyday goods it will be a month, then for seasonal products - a year, and for luxury goods it can be even more.

You also need to correctly calculate the number of lost customers. There is also a formula for this. To find out how many people left you during the reporting period, you need to add to the total number of audience at the beginning of the period the number of people who came to your business during this time, and then subtract those who left. To make it clearer, consider the calculation of customer churn using an example:

Let's assume that at the beginning of the reporting month you have 500 customers. At the end of the month, you have 550 customers, but the number of new ones is 70. Then we get that 20 customers left you. Then according to the customer churn formula we get: (20/500) x 100% = 4%. Now that you know how to calculate customer churn and can determine the appropriate indicator for your business yourself.

If you see that your customer churn is higher than normal, if you observe that the situation is getting worse from month to month, then it is time to understand why this is happening and provide for a number of measures aimed at reducing the churn rate. Now we will give 10 main reasons that cause customer churn and tell you how to minimize the risks in each case.

Poor quality of goods or services provided

According to statistics, customer churn in almost 80% of all cases occurs as a result of the low quality of the goods or services that the business provides. And the fact that in its advertising the company will actively talk about the fact that they offer the best products in their category does not guarantee that the result will meet expectations. In order to present their product in the most favorable light, they often overstate its characteristics. As a result, the buyer feels deceived. And if a positive experience gives a start for subsequent active interaction with the brand, then negative ones, on the contrary, contribute to the fact that the client leaves forever. And even if you offer super-profitable discounts, the person will not return to you for purchases or orders.

Unfortunately, no business is insured against low-quality goods. It may well happen in practice that a new batch of the same product that was bought before will not be good enough. But it is in your power and ability to minimize potential risks. This can be done by following these recommendations:

• Carefully control the quality of the product at all stages. If you are a manufacturer, then we are talking about technological processes. If you are a supplier, check each batch carefully.
• Make it a habit to fill out checklists before each shipment of goods. That is, here we are talking about checking each unit of production before sending it to the buyer.
• Conduct regular audits of production processes and suppliers. This will allow you to minimize the supply of defective goods.
• Periodically launch product testing. For this, you can use special focus groups. This will be especially relevant in cases where we are talking about launching a new product on the market.
• Involve mystery shoppers in your work from time to time. They will be able to evaluate not only the quality of the product, but also the level of service, and point out weaknesses.
• In your advertising, be sure to highlight not only the advantages, but also the limitations of the product, if any. Let's say you sell cosmetics. In this case, it will be necessary to indicate what skin type it is suitable for, whether there are any restrictions on use, potential allergic reactions, etc.
• Be sure to provide guarantees, indicate the possibility of returning the product. It is optimal to provide an additional form on the site through which the buyer could return those products that did not suit him as quickly as possible.
• Conduct additional training for your staff, telling them how they should respond to user complaints, point out the need for the most polite behavior and a sincere desire to help a person with their problem.

You must understand that original advertising content, bright pictures in an ad or video, an idealized scenario often cause inflated expectations in the audience. People are really sure that they will receive something that will produce a "wow effect". And this can ultimately play a cruel joke on you, because the product may turn out to be quite ordinary. That is, it is important for you to provide the audience with the most reliable information.

It would also be a good idea to think about what exclusive conditions you can offer your customers. Perhaps this will be a lifetime warranty on your product, a free replacement if something unforeseen happens, etc. Surely, it goes without saying that advertising a quality product and ultimately offering the audience a low-quality version of it is a waste of time. this is not what will prevent churn rate.

Low level of customer service

Customer churn is a fairly common phenomenon in cases where their service is not given the attention it deserves. This can be a long wait for a response, problems left unresolved, the use of template excuses. All this is guaranteed to cause irritation and a sincere desire to go look for the necessary goods or services from competitors, where the service is at a high level and there are no problems with competent support. If you have been working in the market for a long time, if you delve into current trends, then you probably know that most customers rely on an individual approach, a quick response to requests. Recent studies by Microsoft confirmed this fact: over 90% of users noted that it is incompetent service that has a significant impact on their loyalty to the brand.

That is, today every business representative must understand this point and take measures to improve the user experience. So, statistics show that waiting for a response to an inquiry, whether it is an email or an online request, within an hour is the norm for most of the audience. But at the same time, almost half of people expect to receive a response literally within 15 minutes. Accordingly, if your response time is longer, you can be sure that part of the audience will leave.

And the audience does not like generalized answers. What do you think will be the reaction of the buyer if your manager recommends studying some document in response to his inquiry instead of providing competent advice? That is, there are a lot of nuances here, and people become more and more demanding every day, value their own time, expect a personal approach. And the client is guaranteed to be dissatisfied if the manager's response to his inquiry is incompetent, that is, does not help solve the problem.

How can such risks be minimized? Here are some simple tips:

• Pay attention to training your staff. You need to conduct trainings on developing empathy from time to time. They will teach employees to listen to customers, delve into their problems, and look for ways to solve them.
• Think about automating monotonous and routine work. This is what will significantly simplify the work of managers, reduce their workload and allow them to focus on solving more important tasks. In some cases, it would be a good idea to connect a chatbot to work, including one powered by artificial intelligence. Thanks to this, you will be able to trust the neural network to move the buyer through the initial stages of the sales funnel, and managers will be connected to the service directly at the last stages of cooperation.
• Implement a service quality assessment system into your business. Make sure that all conversations are recorded. This way, you can check at any time how competent the service was.
• Create your own knowledge base, fill it with video instructions, if it is relevant for your business. So, if we return to the topic of selling cosmetics, you can record several training lessons on the use of a particular mask, the features of applying makeup using concealer, etc. It will also be useful to create a block with the most popular questions and answers (FAQ), filling it with really useful information.
• It is advisable for medium and large businesses to use a CRM system. This will allow you to instantly access the history of requests from each individual client, increasing the level of their service, and along with this, loyalty to the brand.

In any case, do not forget about personalization. Address clients by name, never limit the time of communication: one person will only need 5 minutes to answer their question, and communication with another can drag on for an hour - and this is normal. Moreover, you can provide a hybrid model of audience support by involving a manager and an AI bot. Thus, the bot will be able to enter into communication upon the first request, and instantly, which in itself will improve the user experience. And this will continue until the bot understands that it cannot answer questions. In this case, it will automatically redirect the client's request to a real manager. But at the same time, the manager will see the previous history of interaction and will be able to engage in communication as effectively as possible.

Incorrectly selected channels for communicating with the audience

Despite the fact that today there are a huge number of variations for interaction between the audience and business, many companies still rely on email. But this is something that has already lost its relevance in many niches. Moreover, the response time here is often much longer than when using other channels, and the communication itself is in any case too formal and dry. And the sending process itself is quite problematic: you need to go to your mail service, specify the recipient's address, fill in the subject of the letter, and only then state the question itself.

We have already said that the modern audience values its time, thinks about its own convenience. And it is quite natural that the audience relies on more convenient, simple, and efficient ways of communicating with a business representative. So, instant messengers and social networks are often chosen. But in any case, it is important for you to provide as many channels as possible for interacting with potential clients. So each buyer can choose the most convenient option for themselves.

But integrating your resource with the service desk will help improve the convenience of serving the audience for managers. Thanks to this, all audience requests, regardless of the channels from which they come, will be sent to a single system. Here, you can also, if desired, connect a chat bot, which will be available to the audience around the clock.

Presence of an unpleasant user experience

Here we are no longer talking about service from managers, but directly about your site. Perhaps the outflow of customers is observed because your site has an overly complex interface that does not allow you to find the desired goods or services as quickly as possible. The problem may also be hidden in the page loading too long, the lack of clear payment methods, etc. The more clicks a person must make to find what they are looking for, the higher the CR indicator will be. That is, bad UX — this is what, among other things, will also lead to an outflow of the site's audience.

To fix such a problem, use these recommendations:

• run A/B testing of the interface before providing access to the site to absolutely all users;
• use tools such as Google Optimize, Optimizely to identify problematic elements on your site and eliminate them before launching on the market;
• connect the TinyPNG tool to work for image compression, start the process of caching information, which will increase the page loading speed;
• think about how you can simplify all those processes on the basis of which your site works: auto-filling of fields, guest payment without registration, etc.

It is also important to understand that user experience is not only the interface of your site. Today, UX has already significantly gone beyond the site. Users evaluate how well the product is packaged, whether it has detailed instructions. They even pay attention to the appearance and behavior of the courier. And all these points are important to consider in practice if you want to create an image of a reliable and solid brand that cares about its audience.

Targeting the wrong audience

A high churn rate can be the result of mistakes made when creating a portrait of the target audience or neglecting these works. As a result, it turns out that your advertising attracts those who do not need to buy this product, those who are looking for a product of a different class. Again, returning to the example with cosmetics, it is important to understand whether your product is aimed at the mass market or is it a premium expensive product. It is clear that a girl who is looking for La Prairie Life Matrix cream for herself will clearly not buy the "Cucumber" cream from Nevskaya Cosmetics even if she follows your ad to the site.

Solving such a problem is quite simple. Initially, you need to analyze your customer base and on its basis create a portrait of the target buyer. Particular emphasis should be placed on those who come to you for a purchase again and again, have increased loyalty to the brand. It is important for you to highlight their distinctive features, understand what exactly attracts them to your product, and evaluate the communication channels used. When drawing up a portrait of a potential buyer, it is imperative to take into account gender, age, interests, values, and income level. Using this information, you can build an advertising campaign that will attract people who are obviously interested in your product.

Competitors have more interesting offers

Be prepared for customer outflow if your competitors launch attractive promotional offers. This is especially common among young brands that are just appearing on the market. Their marketing is more aggressive and aimed at taking customers away from long-established companies. To implement such ideas, additional discounts or simply reduced prices are offered, often even at a loss to themselves, as well as original features.

To survive in all this, it is important to constantly monitor the trends happening in the market, as well as:

• launch a loyalty program for customers;
• offer personalized discounts on the eve of holidays or birthdays;
• provide additional bonuses for reposts, reviews, attracting new customers;
• create a unique technical proposal demonstrating your main advantages, emphasizing the successes that you have managed to achieve through long-term work in the market;
• improve the level of service, set up mutually beneficial cooperation with them.

That is, you need to create such an ecosystem that the audience would not want to leave even if they see lower prices for similar products. And for this, it would not be a bad idea to analyze your closest competitors and always be literally one step ahead of them.

Lack of meaning, value in the brand

The modern audience relies not only on high-quality products, but evaluates everything that is hidden behind them. So, today there are a lot of fans of organic food products, those who look for compliance with high environmental standards and requirements in the brand's products. People also choose companies with a strict social position, those who rely on the transparency of their work, open pricing.

This means that it is important for modern brands to think not only about the product, but also about their own mission, goals. And this should clearly not be earnings. Think about the ideas and directions that are closest to you, what you would like to change for the better around you, what of this the audience could share, and then focus on them, giving your company a certain meaning, following the values.

Payment problems

There is always a possibility of customer outflow after an unsuccessful attempt to pay for products on the site. Alternatively, this may happen due to a technical failure independent of you, but most often it is about an inconvenient method of depositing funds for the audience, about an unsuccessful experience of paying for an order. These may be cases when additional funds are debited from the user's card in the form of commission fees, when several stages of confirmation are required, etc.

You can significantly simplify the payment process and provide increased user convenience at this stage if you offer different ways to deposit money. For example, this could be a bank account, a transfer to a card or a QR code, using the fast payment system or even Yandex.Money. And the more of these methods you can offer, the higher the chance that each of your customers will find the most convenient solution for themselves and will be able to transfer funds without any problems.

Quite often, the audience is wary of the payment process itself, especially if they have already had a negative previous experience. How many cases are there when the goods were paid for by card, but they never reached the buyer? And here it is important to show people your openness and honesty. Give people the opportunity to contact the support service and talk to real managers. And even if there were any problems with payment, it is important to establish their cause as quickly as possible and find a suitable solution. If a person really suffered from a failure in your system or from the incompetence of the staff, offer compensation, a gift. This is what will help smooth out the negative.

Mistakes in Marketing

In practice, there are often cases when a business launches too compromising, provocative advertising. Here, one goal is pursued - to evoke emotions in the audience. But along with positive ones, there is also a risk of negative responses. If your advertising resembles intrusive pop-ups, spam, or demonstrates irrelevant products - this will definitely cause irritation and unsubscribes from mailings.

This means that it is important for you to think through your advertising strategies to the smallest detail and not launch them on the market without preliminary development and testing. The following recommendations will help to fix this problem:

• provide for segmentation of your audience, dividing buyers by interests, preferences and other criteria;
• make a schedule for launching trigger emails, for example, a day after an abandoned cart;
• experiment with ad headlines, checking their effectiveness during A/B testing;
• think through the context of the advertisement down to the smallest detail: it is important that the advertisement does not irritate;
• avoid excessive aggressiveness in the design of the advertisement and its content, move away from eye-catching headlines that do not correspond to reality;
• work with focus groups on the subject of ethical checking the content used;
• connect geotargeting to your work, which will allow you to show the most relevant ads to residents of each region.

In any case, you should focus on customer focus. It should become the basis of your corporate culture and be manifested in every detail, from the content of the message to live communication with managers.

Third-party factors

A high churn rate can also be the result of situations that do not depend on you at all. Thus, your clients may have different life situations, be it illness, moving, job loss, reaching a different level of earnings. And we cannot exclude the emergence of global problems: pandemics, economic instability, political conflicts, etc.

Of course, no business can foresee something like this, and those strategies that were aimed at the long term ultimately turn out to be completely ineffective. What can be done in this situation? Just be ready to make adjustments to your business at any time, responding to the changes that are happening. That is, you need to make your business as flexible as possible and able to quickly adapt to current trends. It is also important to monitor global trends and respond competently to a particular situation, while avoiding conflict.

Find out exactly why customers are leaving

The effectiveness of solving the problems that have arisen directly depends on how accurately you understand the reason for what happened. Only by eliminating it will it be possible to ultimately reduce CR. So, today there are several ways to identify the exact reasons for customer churn:

1. Always collect feedback from your customers. This is what will help you improve your service and products. This can be done during a telephone conversation, by filling out special forms via email. Moreover, this is a great way to find out what the audience wants and ultimately offer the most relevant products.
2. Assume a number of reasons that could contribute to the churn rate, and then test each theory using A/B testing. This is what will allow you to confirm your own guesses with high accuracy, and then take a number of measures aimed at eliminating such a problem.
3. Make it a habit to communicate with employees who interact with clients. Ask them to take notes during the conversation, identifying negativity, individual desires, as well as all those moments that will help your business develop and work to meet the needs of the target audience.
4. Monitor the reviews that your customers leave on third-party sites on the Internet. Alternatively, these can be special forums, review sites, social networks. Thanks to the availability of specialized tools from the search engines Yandex and Google, you can automate the collection of all mentions of the brand on the network, which will greatly simplify the processing of data.

As you can see, there is nothing complicated in these methods. But you will definitely know the reason for the outflow of customers and will be able to find the best ways to eliminate this problem.

Why is it so important to control the CR indicator?

Control over the churn rate indicator is one of the mandatory tasks that every business that wants to effectively develop in the market must perform. This is what will allow you to solve 2 key problems facing every company.

1. Maintain a good level of profit. Each customer who leaves is a minus from your income. If a large number of people leave, this will have an extremely negative impact on the overall profit and stability of the company's work in the market as a whole. It is also important to consider that the average purchase check of regular customers is about a third higher than that of new ones. At the beginning of the review, we also talked about the fact that attracting a new client costs 5 times more than retaining an old one. If you have a new product, you will be able to sell it to an existing client with a probability of 70%, while to a new one - about 10%. And then - simple math that will help you understand the full benefit of minimizing customer churn.
2. Reduce the costs of adjusting the brand development plan. Of course, it is difficult to find a business that would fully satisfy absolutely every customer, but still, if you manage to form a truly loyal audience, then your original values, goals, as well as strategies for achieving them will be practically unchangeable. You will be sure that you have regular customers, and these same customers will always be able to purchase the high-quality products they need.

If these arguments are enough for you, then it's time to implement regular churn rate monitoring in your business.

Additional recommendations for reducing customer churn

If you analyze all the information that we provided in today's review, you can highlight a number of key recommendations that will allow you to reduce customer churn and ensure stable business operation in the market. In particular, we are talking about the following points:

• Think about whether you can improve the quality of your products, as well as the level of service from managers. Here it will be useful to listen to customer feedback, because only people know what they expect from a business and why they stop interacting with it.
• Show your customers the value of your product. This is especially true for brands that supply expensive and complex products to the market, such as software or luxury real estate. The fact is that the initial price may seem too high to customers. And here it is important for you to show all the benefits that they will receive from the purchase. If it is luxury real estate, then you should focus on exclusive energy-efficient materials, original design, thoughtful layout, the presence of a service company, etc. If it is software, then show using the case of other customers what business problems it can solve and how much it will simplify the upcoming work.
• Try to reduce prices, at least temporarily, until you reduce the outflow of customers, offer gifts, bonuses for the purchase. Often, the audience leaves a business because another company offers them more favorable terms of cooperation. And here it is important for you to literally beat the offers of your competitors.
• Make it a habit to solve the problems that customers will have with your products as quickly as possible. Initially, you need to apologize and take measures to sort out the current situation. Think about compensation for the negative user experience.
• Simplify the selection process as much as possible. Provide a well-thought-out filter system, sorting, remove additional columns in the order form. That is, you need to take all actions that will significantly simplify and speed up the process of interaction between the buyer and your site. You can find out what people do not like about your site from their responses.

It is also important to remind customers about yourself from time to time, but do all this without intrusiveness, obvious spam. You can periodically send out a mailing list with new products, congratulate people on various holidays, including birthdays, inform them about promotions, special offers. In any case, all this information should be useful to the audience.

Let's sum it up

Let's repeat that absolutely any business can face customer churn. It is important not to panic, but to delve into the situation as deeply as possible, find out the reason for what happened and take a number of measures aimed at improving the situation. You must understand that attracting new customers will not solve the problem of the outflow of regular customers, but at the same time significantly increase your expenses.

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