30% of salespeople say that it’s getting harder to overcome customer churn, according to SalesFuel research.
Why is customer churn so bad for business? And how can sellers track it?
Customer churn: Don’t ignore this important metric
While some sellers might have an idea of how many customer losses they experience over a certain period of time, others may only guess. Not being completely clear on your churn rate can be a costly mistake.
“Churn rate is a critically important metric for companies whose customers pay on a recurring basis — like SaaS or other subscription-based companies,” explains Sophia Bernazzani for HubSpot. “Regardless of your monthly revenue, if your typical customer doesn't stick around long enough for you to recoup your average customer acquisition cost (CAC), you're in trouble.”
Customer churn analysis is a must-do for every seller
Smart sellers calculate and know their churn rate. Business leader Anushree Tayade shares her insights in an article for JustCall, detailing the importance of computing your rate and keeping track of it. As she explains, a high churn rate can create some major challenges for profits. Specifically, sellers can reap these benefits simply from managing their churn rate:
- Preventing expenses, as Tayade notes, “Acquiring new customers is 5x more expensive than retaining the existing customers.”
- Boosting revenues. She reports that just a 5% increase in customer retention can lead to a 25% increase in revenues.
- Cutting down on workload since the existing customers are already aware of, and enjoying, the benefits of your solution.
How to calculate your rate
To learn your customer churn rate, use this formula:
(Lost Customers ÷ Total Customers at the Start of Time Period) x 100.
Bernazzani offers a simple and easy step-by-step explanation:
- “Determine a time period: monthly, annual, or quarterly.
- Determine the number of customers you had at the beginning of the time period.
- Determine the number of customers that churned by the end of the time period.
- Divide the number of lost customers by the number of customers you had prior to the churn.
- Multiply that number by 100.”
If the thought of doing any kind of math makes you panic, don’t worry. Just find one of the many online churn rate calculators and let them do the work. Besides, once you have your calculated rate, the real work begins.
The next steps
While customer churn happens, sellers do have the power to lower their rates. The key is to uncover exactly why the customer left. By analyzing and then understanding causes for leaving, you will be more equipped to prevent other losses for the same reasons.
And make sure to track everything, from your churn rates to feedback and findings after a loss. This will help clue you into trends, such as certain points in the relationship when losses typically happen or a link between usage and canceling.
Tayade recommends paying extra attention to these factors, which commonly attribute to churn:
- Product/market fit. “A poor market fit can also be the big culprit behind constant customer churn,” she writes. “If the product is not directly aligned with the needs of the customers, your churn rates will not go down. Finding good-fit customers and prioritizing them is key.”
- User experience.
- Poor quality customer experience.
Note that the customer experience can be a major factor in whether or not you retain a customer. Sellers must be proactive in their engagement and support for each and every customer, no matter how long the relationship may be.
“Providing a high-quality and personalized customer experience has emerged as a must-have for businesses today,” Tayade explains. “Brands need to ensure that their customers feel welcomed at all times. You need to engage in active listening and act on your customer’s feedback to improve the customer experience.”
Make sure you are engaging in customer service best practices, and for some professional guidance, take a look at this advice for encouraging retention.
While it’s not a pleasant task, calculating, understanding and tracking your customer churn rate is an important part of selling. Over time, you’ll be able to pinpoint reasons why customers leave and adjust your approach to prevent more losses.
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