6 Ways to Reduce Customer Churn
December 21, 2022
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Here’s a little secret: gaining new customers is 5 to 25x harder than retaining existing ones.
If you’re not hitting your revenue goals, it could be because your churn rate has increased. If you’re losing customers instead of retaining them, it can hinder your growth and hurt your profitability.
While some customer churn is inevitable, there are some immediate steps you can take to reduce churn and increase customer satisfaction.
What is customer churn?
When customers decide to cancel your product or service, potentially switching to another provider, you’re experiencing churn. Your churn rate should be as low as possible, although it can vary depending on your industry and target market.
In general, B2C churn is higher than B2B since B2B purchases include more research and decision-makers per customer. Also, subscription industries like SaaS have lower churn rates than manufacturers or wholesalers.
How to measure your customer churn rate
The first step to reducing churn is knowing your current number.
Calculating your customer churn rate can be more challenging than it sounds because the straightforward calculation relies on your business and customer base being stable and unchanging.
There are two ways to look at churn: based on the number of customers and based on revenue.
Measuring churn based on customers
Assuming that all customers pay the same amount and are equally likely to cancel during a specific period, you can calculate customer churn based on how many users you lose each month or year.
Choose the length of time that matches your average contract period—if customers renew each month, monthly is great, but if the contract is annual, you’ll want to look at annual churn.
- Start with the number of customers at the beginning of the period
- Then measure the number at the end, excluding new customers
The percentage is (Cstart-Cend)/Cstart
Measuring revenue churn
Another way to look at churn is based on monthly or annual recurring revenue. As before, you’ll want to choose the timeframe that matches your average contract length.
The calculation is very similar:
- Record your starting recurring revenue
- Record your ending revenue, excluding new sales
- Calculate the percentage decrease
Why it’s important to reduce customer churn
If you’re getting plenty of new customers, you might think that customer attrition isn’t that important. But, unfortunately, that’s incorrect.
The rule of thumb is that it costs 5X as much to win a new customer than to keep an existing one. On the other hand, increasing customer retention by only 5 percent can increase profits by 25 percent to 95 percent.
The other thing to remember is that loyal customers can become brand advocates and refer high-quality leads to your business. One of the most significant benefits of a positive customer experience is that delighted customers can do a lot of free marketing for you.
So if you’re interested in lowering costs, increasing profitability, and having powerful brand advocates, you need to know how to reduce customer churn.
6 ways to reduce customer churn
Build mission and purpose into your business
The first step is to look at the big picture. Is there a clear mission and purpose behind what you do? Even something as simple as selling shoes can be meaningful.
When your business focuses on making a difference, you’ll inspire your customers and employees. Your customers will be excited to spend money with an organization with a clear vision, and they’ll be more loyal.
As Simon Sinek said, “People don’t buy what you do; they buy why you do it.”
At the same time, your employees will be more excited about what they do. Employees want to feel like their work has meaning and makes a real difference. It helps them feel a connection with your organization and lowers employee turnover.
Passionate employees treat customers well, share their passion with others, and give customers a more consistent experience with your business.
Building a sense of mission and purpose into your business is one of the best steps to improve customer churn, customer service, and workplace culture.
Target the right audience
How do you get loyal customers that understand your value and don’t jump ship based on saving money with a competitor? First, you target the correct audience, starting with your marketing.
Make sure your marketing focuses on the value of your products and services, responsiveness to customer feedback, excellent customer service, and more.
Don’t focus on price, freebies, or short-term promotions. The best B2B buyers look for solutions to their problems, not the lowest price. You want to appeal to those people, not the deal-chasers who are here today but gone tomorrow.
A targeted marketing strategy can help you reach the right customers, which will help you reduce churn and improve your profitability.
Create customer training certifications
Another effective way to reduce customer churn is to create robust customer education programs.
Customer education helps users get the most out of your product or service, especially certification programs. They’ll realize more value and learn the answers to common questions and concerns.
As a result, educated customers have less frustration with your product or service, are more engaged with the solutions you offer, and are more likely to recommend that product or service to others.
Customer education programs drive a 6.2 percent increase in organizational bottom-line revenue, a 7.4 percent increase in customer retention, and a 6.1 percent decrease in support costs.
Take advantage of customer feedback
How often do you collect customer feedback? And how often do you take action on it?
It’s common for businesses to ask customers for feedback and equally common for those customers to feel ignored when their suggestions aren’t implemented. Unfortunately, this can damage customer loyalty even more than not asking for feedback at all.
What can feedback tell you?
- Popular products and features that you should highlight in your marketing
- Frustrations and stumbling blocks that need to be addressed in product improvement or customer education
- New features to focus on developing
- How your customer experience feels and how you can improve it
You can get customer feedback in various ways, including surveys, ratings, customer reviews, and through your customer support channels. Pay attention to common questions and concerns, favorite features, where customers spend the most time in onboarding, and other trends.
Responding to customer feedback can help you build customer loyalty and reduce churn.
“The only way to get a better price is to change providers.” Unfortunately, that’s been true in many industries for a long time. If you don’t reward customers for sticking around, you may experience a lot of churn.
Unfortunately, many businesses focus on growth to such an extent that winning new customers is the only metric they consider. This means using high prices, so your current customer base subsidizes your new customer incentives. Why would any customer stick around long-term to be treated that way?
Instead, realize the value of your current customer base. You don’t have to spend additional money to win them over— they’re already with you. Reward them for that.
Base your customer program on what your best users truly value and the issues that cause churn. Some ideas include:
- Showcasing the new features you’re about to release, and if customers might cancel before they roll out, offering a discount until the rollout date
- Assigning individual customer success managers to your most valuable customers to ensure they have all their needs met
- Having a robust referral program that allows brand advocates to get discounts, prizes, and other benefits
- Creating a customer education program that offers rewards for completion
- Developing a community that invites customer feedback, shares success stories, and allows users to find solutions to problems and questions
When you take steps to showcase how much you value your customers, you can dramatically decrease churn related to your competitors’ incentives.
Upsell and Cross-Sell
Another way to lower customer churn is to offer related upsells and cross-sells. Brands like Apple, Google, and Amazon are skilled at creating an ecosystem of products and services that can be hard to move away from.
Think about how you can create an ecosystem of high-quality products and services that not only help your customers experience more of your value but also make it harder to move away from your solutions.
When you upsell and cross-sell, you also provide more value to your most engaged and enthusiastic customers while increasing their loyalty and improving your company’s profitability.
Prevent customer churn and improve revenue and profits
Remember, the customer journey doesn’t end after the sale. Taking steps to reduce customer churn can significantly impact your success. As we noted, a minimal decrease in churn can increase your profitability.
Not sure where to start? An All-in-One Learning Platform like WorkRamp can help you create a customer education program to reduce churn and increase customer engagement.
Learn more about how WorkRamp can help you drive more engagement and revenue through scaleable customer training. Contact us to schedule a free, personalized demo.
Complete the form for a custom demo.
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Anna SpoonerFreelance Writer
Anna Spooner is a digital strategist and marketer with over 11 years of experience. She writes content for various industries, including SaaS, medical and personal insurance, healthcare, education, marketing, and business. She enjoys the process of putting words around a company’s vision and is an expert at making complex ideas approachable and encouraging an audience to take action.
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