In today's digital marketing-focused world we often focus the majority of our time on attracting new customers and adjust our products to appeal to more market segments. However, we have to realise the importance of maintaining customers as it is equally, if not even more important than attracting new ones.

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Today I will talk about customer churn which, simply put, is the rate that customers stop doing business with you. Understanding this concept is key to properly structure your business plan and marketing budgets. 

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Here at Visio we are often appealing to our clients to look at this concept twice and understand how we are structuring their strategy and focusing not only on attracting but also on maintaining.

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This blog might be slightly about explaining how important it is to retain customers and that kind of is the point because customer churn rate is a key indicator that reveals how effective your customer retention efforts are and where you may be losing long-term value.

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Understanding Customer Churn

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Customer churn simply refers to the percentage of customers who end their relationship with your company over a specific period of time. 

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This is a core metric needed to understand your customer satisfaction and the effectiveness of your retention strategies.

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Churn Rate Formula: (Number of Customers Lost During Period ÷ Total Customers at Start of Period) × 100

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For instance, if you start the month with 1,000 customers and lose 50, your churn rate is 5%.

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It is key to understand that acquiring a customer costs on average 5-7 times more than retaining one (depending on the industry). Logically, in the example above, if you would gain 50 new customers during that time period, it makes sense to look at your marketing budgets and possibly find out that retaining those 50 would have been much easier and cheaper than acquiring new ones. ​​Of course, the actual cost-effectiveness of retention vs. acquisition depends on several factors like customer type, churn reason, and acquisition source.

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Also it is impacted by the final value that the new customers bring compared to the retained ones. But having great LCV (lifetime customer value) can produce sustainable profit long-term, if you want to know more about LCV/CLV click here.

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And yes, for some businesses it may be difficult to properly adjust this metric. Such as for retail, finding your time period may be difficult. The solution can be that your time period will be X months. If a customer doesn't return after X months, this customer has been lost. Align it with your retention strategy timelines.

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The Financial Impact of Churn

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It is obvious that when these problems actually become big and real we notice them in our business pretty easily. The goal here is to understand that we should monitor these values closely so we avoid a bigger problem. 

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For example, you can inspect and fix negative brand perception when your churn rate rises by 5% and it will be much earlier than if you would notice it when your customers give negative feedback, and tell you that they are leaving. The snowball might be rolling already.

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Here are a few examples I find important to point out:

1. High Acquisition Costs: Acquiring new customers is often more expensive than retaining existing ones. Check your marketing budgets to understand and maybe change your strategy and focus more on retaining customers.
   
   
2. Reduced Lifetime Value: When customers leave prematurely, you miss out on the potential revenue they could have generated over time. Learn more about this in our LCV/CLV blog.
   
   
3. Stunted Growth: A high churn rate means you're constantly replacing lost customers, making it challenging to achieve net growth especially if you are in a niche or saturated market.
   
   
4. Negative Brand Perception: Frequent customer turnover can indicate deeper issues within your company, potentially harming your brand's reputation and hugely increasing your marketing budget which will be less and less effective.
   
   

Common Causes of Churn

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The causes for high churn rate are extremely individual but overall I would suggest looking at these segments:

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• Poor Onboarding
  

• Lack of engagement with your customers

• Unresolved issues and bad customer support

• Better offers from your competition, often combined with low satisfaction

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Strategies to Reduce Churn

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As usually there may be many different strategies to tackle high churn rate, these are few you should look at first:

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1. Early engagement: Ensure new customers understand how to use your product and see immediate value. Look at signs of disengagement like low click/open rates.
   
   
2. Regular Communication: Keep in touch through newsletters, updates, and personalized messages to maintain engagement. You can use social media or real life events.
   
   
3. Solicit Feedback: Regularly ask for customer feedback to identify areas of improvement.
   
   
4. Reward Loyalty: Implement programs that recognize and reward loyal customers.
   
   
5. Monitor Customer Behavior: Use your analytics to identify signs of disengagement, high churn rate and immediately inspect what is causing it.
   
   
6. Continuous Improvement: Regularly update and improve your product or service based on customer feedback, market trends, etc.
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Some final words

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Every business will have to deal with customer churn and so it is important to understand it and know how to tackle it. I'm sure we will do well on addressing customer churn as with the right data and mindset, improving customer experience becomes much more achievable. The two core ideas though I hope you remember are…

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Calculate and monitor customer churn regularly before bigger problems appear, and second, understand the value of lowering customer churn rate in the marketing budget.

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I really hope you learned something new today or got a great idea on how to improve your business.

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If you have any great idea or you have experience of tackling high customer churn rate in your business please let us know in the comments down below and let's discuss and learn.

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Thank you for reading,

Damian from Visio.

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