How can CRM system eliminate customer churn: complete guide (part 1)

What is customer churn?

Customer churn is a percentage of customers who quit using your company’s goods or services within certain time period. We are going to learn what is it, and how can you deal with customer attrition with the help of CRM (Customer Relationship Management) software for your marketing teams. 

This metric is extremely important for all businesses, but for those who receive payments through subscriptions, it is even more important. Additionally, it is obvious that there is a direct correlation between customer churn and customer retention - if you have 80% of customer retention, you have 20% of customer churn then.

Customer churn rate has precise benchmarks for most popular industries, and it also differs for B2C and B2B companies respectively. As statistics show, for B2B companies, average customer churn rate is of around 5%, while for B2C companies, it is around 7%. Let’s look at precise statistics sorted by industries:

software development — 4.75 %;

• digital media and entertainment — 6.42 %;
• education — 7.22 %;
• retail — 7.55%;
• business and professional services — 6.59%;
• healthcare — 6.03%.
• It is clear that by reducing the customer churn rate, you increase your revenue and direct profit.

How to calculate customer churn rate?

Let’s find out what is the customer churn rate formula.

Customer churn = (C1-C2)/C1 *100%

Here we’ve got:

C1= number of customers at the beginning of the period we measure

C2 = number of customers at the end of the period of time we measure

Thus, (100-80)/100 *100% = 20% of customer churn rate.

Why is customer churn a bad sign for your business?

Yeah, we do know that customer churn is a problem as it is, and there is no reason to describe why is it bad. Nonetheless, most people look at customer churn only as on factor that make them lose money – while it has many other negative consequences for your business, so that’s why we have decided to write this part.

Customer churn reduces prospective profit

Even the smallest increase in customer churn can affect company’s opportunity to grow. Only on the US market, companies lose up to 140 billions of dollars yearly due to customer churn. This makes business fight with all the issues that come with customer acquisition, as customer retention becomes a difficult option.

As Gartner states, 80% of your profit is generated by 20% of your clients – that’s why customer retention is just more important than customer acquisition, at least when it comes to business continuity and stability.

Customer acquisition is much more expensive than customer retention

Different studies point out that customer acquisition is from 5 to 25 times more expensive than customer retention, which means companies that are focusing on customer acquisition are just doing everything to be borrowed under expenses on their marketing efforts.

This doesn’t still mean that you have to stop customer acquisition strategies, but you have to find balance – retain customers that are your current customers, and acquire new ones.

• Customer churn harms brand reputation
• Customer churn harms not only brand profit, but brand’s reputation too. The studies show, that more than 60% of customers quit brands because of poor customer service and bad experiences they received as brand’s customers. This will turn into a bad side of world of mouth marketing – the customers who will leave you will tell their friends about bad aspects of your service and communication with customers, which means you will lose many prospective customers.

Customer churn reduces Customer lifetime Value (CLV)

Remember that each customer journey (customer lifecycle) to purchase a product or service is unique. There are many factors that influence their decision to cancel a purchase, and these factors can exist at any stage.

For example, if the user experience of a software or application is too difficult for users, they are less likely to use it on a regular basis or recommend it to friends.

Therefore, treat customer churn not as a problem associated with the end of a contract, but as a challenge that grows as the customer moves through the sales funnel.

Customer churn destroys your sales forecasting strategy

It is not easy to accurately predict future revenues, market demand, and customer behavior when churn rates fluctuate. This uncertainty will make it difficult to allocate resources effectively and make strategic decisions.

According to a McKinsey study, the ability to predict customer churn before it happens allows businesses to run more targeted campaigns and create content to re-engage customers.

Customer churn destroys up-sales and cross-sales opportunities

For any company, the value of a customer does not end with the purchase of a product or service. There is a greater value that includes additional potential revenue.

Cross-selling and upselling are ways in which companies capitalize on this additional revenue potential of customers. During upselling and cross-selling, customers are influenced in several ways. To encourage them to look at other products available for purchase.

Studies show that the response rate to a product or service from cross-selling is 2-5 times higher than from cold selling. About 30%-35% of total revenue in e-commerce is the contribution of cross-selling and up-selling strategies.

Customer churn harms your competition efficiency

Your competitors don’t sleep when you fail. This is why when you experience increases in customer churn, your competitors, who have more optimistic customer retention rates, keep earning money and growing while you are trying to deal with the trouble. It is clear that they will win valuable time and use it in their favor when you are struggling.

Customer churn leaves you without customer feedback

Bill Gates once said “Your most dissatisfied customers are the greatest source of knowledge for your business”, and we can’t disagree with that. Customers who had customer experience – no matter whether it was positive or negative – can provide you with direct guidelines on how to improve some aspects of your business, and when you lose customers, you lose your biggest advisors. How can you measure customer satisfaction or customer loyalty without customer surveys? The only way to build stable customer relationships and reduce the risk of churn is to make your customers happy in the way they see it – and loyal customers will remain loyal. 

Customer churn harms your customer service team productivity

Customer service teams have to spend time on resolving customer issues, providing customers with quality service and collecting customer feedback about goods and services company provides. The same works with sales team and customer support team. When there are less clients, it is difficult to work productively, isn’t it?

Why businesses lose customers: the most common reasons for customer churn

Understanding the reasons for customer churn is a fundamental step in solving the problem and reducing this indicator.

Top 6 reasons for losing customers.

😢 You do not understand your target audience well enough

Even if you’ve been working with customers for a long time, it doesn’t mean you always know what they want. A proven way to understand your target audience is to conduct market research, analyze your existing customer base, and create an ideal customer profile. This will help you identify the key needs of people and, accordingly, adapt your lead generation efforts.

😢 Your service is not up to date

An increase in customer churn rate can be an indicator of poor customer service.

According to Jeff Toyster, 46% of customers expect a response to their email within 4 hours, and another 12% of them expect a response within 15 minutes (during business hours).

This shows that you need to evaluate the performance of your teams that work with customers face-to-face. Quality customer service should not only apply to new people, but existing customers deserve excellent service as well.

😢 The value of your product is not obvious

If you don’t provide adequate support to customers who are new to your product, they won’t learn how to use all of its features. As a result, your audience will likely stop interacting with you because they won’t see the benefits they signed up for.

😢 Poor user experience

If your product works perfectly and without interruption, your customers are likely to stay with you. Conversely, if your product has a lot of bugs and is difficult to use, you’re guaranteed a significant customer churn rate.

😢 You are lagging behind competitors

Another reason why you may lose customers is that competitors simply do their job better than you. You may have a top-notch product or service, but if your customers decide that your competitors are better at meeting their needs, they will simply stop working with you.

Observe your competitors, identify their weaknesses, and find ways to stand out from them. For example, check their pricing policy. Understand how your competitors package their offers and find a way to offer a better deal.

Also, identify where you can have an advantage in the competition. Perhaps your products or services are known for their value for money, or your business offers excellent customer support.

😢 You are using outdated communication channels

More and more customers value communication with companies through social media and messengers.

For example, the Zendesk CX Trends report says that in 2020, the number of customers who prefer to communicate with companies through messengers increased by 110%.

In general, excessive customer churn will put a significant strain on your business, and if you don’t take action, it can lead to the closure of your business.