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Growing a business

Why Do Customers Churn?

What is Churn?

Churn (also known as churn rate, customer attrition and customer turnover) is when businesses fail to keep customers coming back to buy.

Why is Churn important?

Churn is an important business key performance indicator because it is generally less expensive to keep your existing customers than acquire new ones. New customer acquisition can require investment on many channels to reach new people and tell them about your brand or product. By keeping hold of the customers you’ve already worked hard to acquire you can enjoy benefits of repeat business and lower your overall customer acquisition costs (or Cost Per Acquisition: CPA).

Other problems contributing to churn include poor product quality generating high return rates, poor employee treatment and even copyright infringement lawsuits.

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A brand that starts out as a shooting star can quickly fizzle out because it couldn’t sustain its momentum and keep customers happy.

How is Customer Churn Calculated?

Churn is the percentage of total customers who choose to stop using your service during a given period. 

For example, to calculate the churn rate for a subscription business, divide the number of cancellations in the period by the number of subscribers at the beginning of the period.

Why aren’t your customers coming back (churning)?

If you’re seeing a higher customer churn rate than you want (5-7% annually is average in retail; anything over 10% is cause for alarm), you’re probably uncertain about what’s really causing customers to leave. It’s time to put on your detective’s hat to get to the bottom of this mystery.

Fixing key business problems that keep customers from coming back can require asking some tough questions and considering a different look at what your organization can improve, including.

By asking these 5 questions you can identify why your customers are churning and how to reduce the churn rate in your business.

1. Is your customer service meeting expectations?

Computer manufacturer Dell is no stranger to complaints about its customer service. Back in 2005, a prominent customer began complaining publicly in a now-famous post referred to as Dell Hell. But the computer retailer didn’t ignore the backlash. Instead, it began building what has since been applauded and copied by dozens of other brands: its Social Media Listening Command Center, as well as a Customer Advisory Panel.

These programs were designed to understand customers’ frustrations with calling and speaking to customer service reps with thick foreign accents or being transferred again and again before reaching someone who could help. After making serious changes to its customer service, including rerouting of calls less and enabling customer service reps to solve callers’ problems, Dell was able to earn an 83% loyalty rating from customers.

Poor customer service can be a hidden problem that businesses aren’t aware of. Chances are, they’re not aware of the costs either: 91% of customers who are unhappy with a brand will leave without complaining about their issue. If customers aren’t telling you they’re unhappy, you’ll need to investigate in order to discover the source of their discontent.

The first step is talking to your customers. That means interacting with them one-on-one, whether that’s through conversations at checkout in your physical store or with a follow-up email after an online purchase. You can also send an anonymous survey to customers after a purchase asking for feedback, offering a special coupon or gift card in exchange for their input.

Your objective should be to find out how both the purchase experience went, as well as to gain insight into what they thought of the product. Were there issues? Was it up to expectations? What could you have done better? The more personalized your communication is, the more easily they’ll open up, particularly if they had a negative experience.

2. Are your products subpar?

You might think what you sell is amazing, but if your customers don’t feel the same way, they won’t be back. This is hard to hear, but you must be open to feedback about the quality of your products.

Not only do online product reviews help prospective customers decide what to buy, but they also give your business invaluable insight into where it can improve. If you don’t give customers the opportunity to review individual products on your site, see what they’re saying about your brand on Yelp, Facebook, or Google, where they can leave feedback and ratings. Look for what your customers struggle with and where your brand isn’t meeting expectations.

This might be hard to decipher for a clothing retailer, but product insights can be found in common themes from customer feedback. One way to make this easier is to categorize feedback, say for style, fit, value, and comfort. When you find patterns, your team can figure out the specific dissatisfaction, and take measures to improve the products or to find a different supplier. While shoppers like low prices, a majority value quality over price, and will be more likely to come back if they know your products are durable and reliable.

Make feedback part of the return process – this way you can quickly spot issues so returns don’t eat away at your profits.

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When a customer calls customer service or uses your online return process, ask them the reason for the return, including a field they can leave a comment in.

Also make sure your quality control process is thorough. If you buy from a supplier, try examining all of the products, not just a handful. This can cut down on returns and keep customers happy.

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3. How’s your website experience?

Your website needs to be easy to navigate and search on, otherwise, you can lose customers just because there are too many steps in your checkout process. This is especially true for mobile users.

You can hire an ecommerce UX expert to help you determine if your website is easy to navigate and the checkout process is smooth. If there isn’t room in the budget to hire an expert, you can also do this in-house. The first step is to identify key metrics that will tell you about the effectiveness, efficiency, and satisfaction visitors experience when visiting your site, such as:

  • Speed to load a page (especially on mobile devices)
  • How easy it is to find a page in the menu navigation
  • How long the checkout process takes
  • How much information is required at checkout
  • Lack of quick and easy payment options
  • How easy it is to accomplish a goal, like finding an item or buying a product

Make a list of tasks to analyze and then have your team perform the tasks. Any time your research shows it’s difficult to find a product, a page takes more than a few seconds to load, or there’s a broken link, take notes and remedy the problem.

Other issues that can turn people off from your website include:

  • walls of text (as opposed to shorter paragraphs with sub-headers, bullet points or lists)
  • poor product photos (or lack of photos). It’s best practise to include product photos on white or neutral background and a lifestyle shot of the product in use with human interaction.
  • annoying pop up’s (especially on mobile devices)
  • poor mobile experience. Check your analytics to see what ratio of your visitors are using mobile devices vs desktop.
  • no security badge displayed (a security badge like SSL assures shoppers that your safe is trustworthy to buy from).

4. What’s the perception of your brand?

A few positive reviews on Google or Yelp is no excuse to become complacent. Every customer has a different experience with your brand, whether it’s online or in your physical store, and it’s up to you to stay on top of what people are saying about you—on review sites as well as social media or blogs—so you’re aware of how your brand is perceived.

For example, Dell took the initiative to work on its brand perception, including a social media listening command center that helped it tune into what people were saying about the company online. After gathering the insights and feedback, the real magic happened when Dell actually acted on feedback.

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Understanding brand perception is one thing. Doing something about it is something else entirely.

Negative press and reviews can color how others see your brand and keep them from becoming a customer, so it’s important to monitor all the places people are talking about your business.

If you see negative comments, take a deep breath, and don’t take it personally. Treat it as feedback and remember the customer is always right. You can respond and apologize for the customer’s bad experience and work to make it better. If they complained about the product, invite them to return it or exchange it. You could even offer a discount on the next purchase or send a handwritten apology note with a special gift. If they had a bad experience with one of your employees, offer them a gift card for their inconvenience.

Responding promptly and publicly will show others you want to make customers happy, and may negate the effect of the original review. Likewise, monitor brand mentions on social media and blogs and respond when necessary.

5. Do you have a high stockout rate?

If a shopper visits your store or website and finds you’re out of a product she wants to buy, she might opt for a similar item or come back when it is in stock…or she might go to the competition to get it.

This isn’t an issue just for brick-and-mortar: in fact, online stores generally see higher stockout rates of physical stores, and it’s all too easy to type in another website to make a purchase if one site is out of an item.

While you may not be able to prevent all stockouts, you can at least try to predict your needs ahead of time or hold greater safety stock. Inventory management tools enable you to stay on top of inventory numbers without manually having to count products, and can alert you when you’re getting low so you can reorder before you’re out of stock.

Final thoughts

It’s all too easy to paper over these issues by increasing your marketing spend, but you’ll continue to see high customer churn if you don’t take measures to fix what’s broken.

Dell’s story is also one of hope: A customer who leaves once is not gone forever.

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You can win back unhappy customers.

Like every successful business, learning from your mistakes and courageously admitting you’ve made them is the first step. Working hard and keeping a persistent effort to realign your processes, products, and customer service to better serve your audience will get them to start coming back and reducing churn.

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