Once Jeff Bezos said: “We see our customers as invited guests to a party, and we are the hosts. It’s our job every day to make every important aspect of the customer experience a little bit better.”
And what happens if your guests don’t like the party? They leave.
Customer Churn can be described just like that. The phenomena of loyal customers stopping doing business with you.
But what are the indicators that a customer is churning, and what are the reasons why customer churn happens?
Before we start getting into details, we want to clarify why reducing customer churn is critical for increasing profit. As already mentioned in this article, according to research, it is 5x more expensive to acquire new customers than to reconverting existing ones. Furthermore, a Harvard Business School report indicates that a 5% increase in customer retention rates results in 25%-95% increase in profits. If these indicators do not convince you yet (very unlikely), you can hit your google, and research it yourself. There are many more similar research that get to the same conclusion: customer churn matters as customer retention is one of the main profit drivers of any business.
Depending on the nature of your business, customer churn can be identified through different indicators: can be non-renewal of a contract, closure of an account, or longer time than usual from the previous purchase. Whatever the best indicator for your business is, you should calculate and monitor your customer churn rate, as an increase of it should serve as a wake-up call for performance deterioration.
To calculate your business’ customer churn rate, you can do the math in different ways but at the bottom line, it consists in computing how many customers have left, compared to the total customer base in a given period. As previously mentioned, it is good to monitor your churn rate, using any increase as an alarm sign for performance, but also to benchmark with your industry’s averages to see if your business has a healthy churn rate.
Unfortunately, there is no unique “healthy” rate for churn, but again, it highly depends on the nature of your business. High rates of churn are not worrying in some industries but are in other: for example, in the US the churn rate of daily newspaper in 2013 was 58%, while SaaS companies usually report rates between 5-7% – 10 times less!
Once the basics are covered, I believe that the first step to solve a problem is to understand its causes. Therefore, the question is: what are the factors that induce, or facilitate, customer churn?
We have identified 4 factors that induce customer churn in B2B, and they are:
Poor customer service:
Yes, the main reason of customer churn is not price! In fact, US Chamber of Commerce research show that most customers leave because of bad customer service. When the reason of churning is customer service, the scenario is even worse for you. In fact, you are not only losing your customer, but whereas happy customers are not automatically becoming your ambassadors, unsatisfied customers tend to spread the word: average dissatisfied customers will tell between 9-15 people about their negative experience. D’OH!
To make the picture even worse, and make you really consider being kinder on the phone, even at 7 in the morning, even if your kid was sick, even if …(I could find infinite more reasons to be rude) is that a 1 single bad experience could be the reason for a customer to churn. 1 time, even if until then you had done everything right!
Finally, the experience economy has changed also B2B customers, and products’ features, and adequate price are given for granted. What is really source of added value and will make customer stick to you is great customer service, and consistent service quality.
Lack of Value:
Especially for B2B customers, price is not everything, and customers look in their suppliers for valuable partners that provide added value to their business. If added value is not there, they will look for it in your customers, who might have done their homework and started addressing this topic and might steal your customer away.
As a first step, you must understand what value for your customers means. Most probably, if you look at your whole customer base you will not get valuable insight, or misleading one (D’OH). In fact, different customers within your customer base have diverse needs that define what is value to them; and there is where segmentation plays a role. We talked about this important topic in our Solia resources already. 😉
We recommend you take in serious consideration the topic of value. In fact, understanding the value drivers of your products is critical as you can use this analysis to improve your performances in other key areas, such as pricing (link to value pricing article) and product development.
Lack of valuable communication
Once you have understood what Value for the different segments of your customer base is, you have to transmit this added value with targeted communication, making VALUE crystal clear to them, while providing the information they are interested in.
Indeed, sending out batches of irrelevant newsletters cannot be considered communication. And can often be counterproductive as customers are likely to find them annoying and unsubscribe.
It is important to work on valuable content, sent out consistently and in a targeted manner through all information channels: newsletters, press, social medias to mention some.
Lack of listening:
Finally, you have to listen to your customers. Feedback is fundamental to improve business performances.
In general, a good practice is to systematically send feedback to all your customers. On one side, you will have first-hand data on what you could improve in your organization, on the other, your customers will feel valued and important to your business, which might result in an increase in loyalty.
Furthermore, if you see that customers are in danger to churn, you must consider calling them up or sending an email. This simple action will let you know what the reasons are why they are considering going with the competition (which gives ground from performance improvement) and might have a positive impact against churn.
In a nutshell
Reducing customer churn matters as in business you just cannot afford to lose your current customers as they are one of the main drivers for profit.
Calculating your customer churn rate, empowers you to monitor its fluctuation and to benchmark with your industry sector, assessing performance.
Finally, we identify 4 factors that increase customer churn (and no, price is not one of them):
- Poor customer service
- Lack of product value
- Lack of valuable communication
- Lack of listening
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As said, listening is key! Therefore, don’t be shy and leave a comment with your feedback on our article and which topic you would like to read next!
“Your most unhappy customers are your greatest source of learning.” – Bill Gates
