How to reduce your customer churn rate and salvage sales
Customer churn taking a bite out of your profits? Check out this comprehensive guide to discover why your churn rate is high and how to slow it down.
No matter who you are or what industry you’re in, losing customers -- a.k.a., having them churn -- is a swift kick to the financial gullet.
It’s also normal, and no matter what someone tells you, impossible to stop altogether.
But there are ways to keep your customers around for longer and cut churn down, and in this guide, we’re going to cover them.
Even better, each of the topics in this guide will help you reduce customer churn and encourage further sales from each customer.
That’s right -- we provide you with ways to boost customer retention and turn your at-risk members into loyal customers with an improved lifetime value.
As usual, let’s start with getting everyone on the same page and reviewing what customer churn is and some of its potential causes.
What is customer churn and how does it hurt your business?
It’s firstly important to understand what customer churn is and why it’s killing your business.
Simply put, customer churn -- also known as customer attrition -- is when customers stop purchasing from your business.
More specifically, it’s when customers stop purchasing regularly, like in recurring membership subscriptions.
The glaring reason why it’s so harmful to your business is customer churn hurts your pockets both in the short- and long-term.
As far as the short-term goes, a customer may leave before you can earn back your customer acquisition costs (CAC). If you’re unfamiliar, CAC includes costs like the amount you invested in marketing campaigns or the tools you used to earn a customer’s business.
Unfortunately, earning back your CAC investment can be a constant uphill battle. That’s the case for both B2B and B2C businesses between 2013 and 2018, anyway, where CAC increased almost by 50%.
As for the long-term, customers who churn will probably never purchase from your business again. They likely won’t refer new customers to your company, either -- both of which negatively impact your future earnings.
Considering the power of word-of-mouth marketing, this is a major blow to your future bottom line.
But not everything spells doom and gloom.
For some good news -- there are ways to reduce your customer churn and get into a good groove of earning reliable monthly recurring revenue (MRR).
To get there, you need to first calculate your churn rate, so you can understand just how much churn is costing you.
You can do this by subtracting the number of customers you have at the end of a period (say, one month or one quarter) from the number of customers you had at the beginning of the period.
Then, divide this number by the number of customers at the beginning of the period.
For example, let’s say you have 500 customers on January 1 and 450 on March 31. Using the churn rate calculation, (500-450)/500 puts your quarterly churn rate at 10%.
From there, you can use this customer churn calculator to understand how much customer churn is costing your business.
Don’t be too hard on yourself if your customer churn rate is higher than expected.
While subscription businesses see an average churn rate of 5.6%, rates vary drastically from business to business.
As a small business with limited resources for reducing churn, it’s not unreasonable to have a high churn rate that’s slightly above average.
The same goes for a new business: the benchmark above -- that golden 5.6% rate -- is derived from later-stage businesses. When you only have a handful of customers in the early aughts, your churn rate can and likely will be much more volatile.
As you continue to work toward reducing your customer churn, you’ll gradually see your churn rate get closer to -- or below -- that 5.6% average.
As for how to do that work, start with understanding your root causes.
Top reasons why your churn rate is high
Among the top reasons why you’re losing membership customers to churn are:
- Delivering a poor customer experience
- A mismatch between your marketing and product
- Not staying ahead of your competition
- Less-than-stellar customer engagement
Let’s take a look at customer experience first.
There’s a lot riding on providing a good user experience. 73% of consumers consider customer experience to be important in their buying decisions.
Plus, 65% of shoppers also find a good customer experience more influential than great advertising.
I.e., if your customers don’t feel valued or struggle to use your product, chances are they won’t stick around for long.
Needless to say, a bad customer experience can send more than a few shoppers running for the hills. 32% of shoppers will leave a brand they love after just one bad experience and, sadly, only 49% believe companies deliver good customer experiences.
Another reason for customer churn is you may be attracting the wrong customers.
For instance, let’s say you offer a course on writing best-selling mystery short stories. If your marketing campaigns are geared towards first-time indie authors, there’s a big chance for mismatching your prospective clients to your online course offer.
Or, similarly, there could be a mismatch between your (former) customers and brand values.
After all, 1 in 6 shoppers stop purchasing from a business because the brand’s values don’t align with their personal ones.
On the plus side, though, 35% of consumers are more likely to buy from brands that match up with their personal values after purchasing from them for the first time.
A third reason why your churn rate may be higher than you’d like is you’re not staying on top of your competition. If your customers feel other brands deliver more value than your products, that’s a solid reason to abandon your brand.
38% of shoppers listed getting more value for their money as a reason for selecting a new product or brand.
Plus, another 20% pick other brands’ products because of their superior quality or functionality.
Of course, there may be nothing wrong with your brand -- your customers may simply like to keep their options open.
On top of that, 36% of consumers simply love trying new brands.
A final reason why your customers are ditching your brand could be because of disengagement.
In one case, Bonjoro found 80% of their churn came from customers who seldom used their platform or from people who had purchased their service before gaining any value from it (and leaving shortly after).
What’s more, if you don’t have a good pulse on why customers are churning, it could lead to even more churn.
The only surefire way to find out why your customers are leaving your membership is to ask them directly, so you can fix it accordingly, just like Getsitecontrol did.
After analyzing their customers’ responses from a short survey about pricing they shared on their website, they lowered their subscription price from $19 to $9 per month and enjoyed a churn rate decrease and customer lifespan increase.
Similarly, Usersnap asked customers on their unsubscribe page why they were churning and assessed customers’ responses. They then created another product line that resulted in more customers keeping their accounts for longer.
All in all:
Customers are leaving your business for a variety of reasons, including poor customer experience, a disconnect between your audience and brand or offers, letting your competition do a better job, or lack of engagement.
Gathering customer feedback and asking your audience directly why they leave your brand is the most accurate way to discover what’s to blame.
Once you have an idea of why your customers aren’t sticking around, it’s time to put membership retention strategies into play to lower your churn rate.
Ideally, you should do so before your customers are, technically, your customers. Let me explain.
Convert free trial members with above-the-curve onboarding
A powerful way to reduce customer churn is to tap into strategies for converting free trial members into long-term customers.
To do so, nurture your trial customers to a sale during their entire trial period, which is a huge opportunity to make your customers fall in love with your brand.
First and foremost, provide value.
This is something you can do straight out of the gate during the onboarding process, like in this onboarding email from Glitch, which recommends two tasks for new users to get started with. It also offers a tip for using their service and spotlights apps available on their platform.
On top of that, Glitch likewise links to their help center and customer support forum at the bottom of their email.
You can follow in the footsteps of Glitch and offer new trial users valuable resources, guidance, and support in an onboarding email. These all help them gain immediate value from your brand.
If you do, you’ll satisfy most consumers.
77% of consumers who feel that businesses should offer value-added information to their customers think brands should provide information on how to get the most out of their product.
Plus, another 73.4% want information on different ways to use a brand’s products.
The lesson? Customers want to know how to succeed with your product, so give them everything they need to do so.
(On the topic of resources for customer success, we’ve got an abundance of support, coaching, articles, and help for you and your online business on the other side of this free, no-obligation trial.)
Another effective way to convert free trial members into lifetime customers is to make sure they stay engaged with your brand’s product or service. If they fall to the wayside, send them a re-engagement email (using an email marketing tool, so the process is automated).
For instance, Lowe’s sends a re-engagement email to their unenthused customer base to inform them about what changed, and improved, while they were away.
This entices inactive users to revisit a brand that now appears to be shiny, new, and improved.
Alternatively, another powerful way to convert trial users to customers is to offer incentives and discounts.
Probably painfully obviously, customers love discounts. So much so that 93% of consumers say they’d make repeat purchases with a brand that offers good discounts.
You can offer free trial members a discount in a welcome email, like Charles Tyrwhitt does in an email that gives new subscribers a 20% discount.
Or you can follow Airbnb’s approach, where they offer a coupon alongside an outlined perk of purchasing their offer, like this email with a $200 coupon and the perks of 24-hour check-ins and local wine and snacks.
Basically, the best way to reduce churn follows the same logic as the best way to apply medicine:
An ounce of prevention is worth a pound of cure.
So start early, give your trial users the extra push they need, and provide value out of the gate.
Do that, and before you know it, your churn rate will start to drop -- and if you use the tools in our next section, you’ll get to watch it happen in (almost) real-time.
Tools to track, manage, and prevent customer churn
There are several tools for tracking, managing, and preventing churn. They range in complexity from your standard vanilla to your do-it-all spaceship. Chances are, you’ll need the former and not the latter.
The best churn tools help you retain customers by providing one of four things:
- Failed payment recovery data
- Customer insights
- Customer success data
Wondering how important analyzing your customer insights and data is when it comes to reducing your customer churn?
The answer is very.
Having the right metrics, reporting, and analytics in place is vital for pinpointing where your growth problems exist.
90% of analytics and business professionals claim that data and analytics are key to their organization’s digital transformation initiatives.
Granted, they’d be out of a job if they didn’t say that, but that’s a lot of people who make smarter decisions with data.
So, what are your options?
Let’s start with failed payment recovery tools. We like Churn Buster, which is a platform that helps you catch passive churn from failed payments.
Churn Buster’s focus is on failed payment recovery for ecommerce, SaaS companies, and digital subscription companies.
For a tool that helps uncover customer insights, check out YesInsights, which is a platform that reduces customer churn by sending satisfaction surveys.
By collecting data from your customer research, you can analyze it to discover signs of customer dissatisfaction before churn occurs.
Conversely, tools like FirstOfficer, a subscription analytics app, lets you track and identify your brand’s growth problems.
The app helps you track customer churn by analyzing subscription metrics for Stripe payments.
Alternatively, if you’re looking for a tool to help you with analyzing customer success and customer satisfaction data, look to tools like ChurnZero.
ChurnZero is a real-time customer success platform that provides subscription-based business insights (like membership websites) on product usage and customer health. These are key metrics to track if you want to keep your customers engaged and happy.
As great as all of these tools are, there are and will be customers you can’t save -- and some of them will demand refunds.
But that’s not always a bad thing.
In fact, that’s an opportunity.
How to create and execute a refund policy that sells
Contrary to what you might think, all is not lost after losing a customer or getting a refund request.
Creating a seamless return and refund policy experience may encourage customers to purchase from you again in the future and reduce the odds of them abandoning your business altogether.
For one, 95% of shoppers claim that how well a business handles their returns influences their decision to shop with them again.
What’s more, 96% of people say they’ll shop with a brand again if they had an “easy” or “very easy” return experience with that business.
Plus, each time a customer asks for a refund, it’s an opportunity for you to recommend an alternate product that would be a better fit for them.
How’s that for turning a refund request into a sale opportunity?
By recommending a product that’s a better fit for your customer, you have a chance to show your customer how much you care about their happiness and success and that you’ve taken careful consideration of their unique needs and preferences.
I.e., you get the chance to stop churn before it happens.
To leverage this shiny opportunity, create a refund policy that first considers the conditions of which your customers can receive refunds, answering questions like:
- Will you have a no-questions-asked policy? or
- Is it only after a customer has been a paying member for a certain number of months that they can receive a refund?
Additionally, you can also offer an exchange or credit for a product, and only offer a refund if no other options are desirable to your customer. The main point is to clearly define your refund conditions and then, hopefully obviously, stick to them.
For an example of how this works for creators, check out Creative Strategies, who offers refunds to customers who purchased a digital product but didn’t download it. Requests for downloaded products are assessed on a case-by-case basis.
After setting your conditions, next decide for how long you want to offer refunds (i.e., Two weeks? A month? A year?) and then decide which of your products your refund policy applies to.
Refunds may not work for monthly memberships, for instance, but may be better suited for ebooks and online courses. Or, you may only be willing to refund annual membership fees for unused months.
If you’re wondering where to start, you can use templates or a refund policy generator as a jumping point for crafting your policy.
Then customize the template to fit your brand and address your business’ unique policies and customer situations.
Whether you use a template or not to get started, be sure to write your policy in clear, transparent terms, so it’s easy for your customers to understand.
Then, once you have your policy in hand, publish it prominently on your website where your customers can easily find it.
This is a significant detail considering 33% of shoppers claim they won’t buy from a retailer if it’s difficult to find a business’ return and exchange policy.
To that end, it’s wise to have a standalone page that houses your refund policy.
To be extra explicit, you can send an email with your refund policy after your customers make a purchase.
That way, you can either quickly offer a refund or recommend a replacement product and minimize any potential frustrations your customer may face.
This creates a win-win situation for you and your customers by not only giving them a hassle-free experience, but it also lets them know you’ve thoroughly considered their perspective and needs, which may encourage them to make future purchases.
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Shrink your customer churn rate with our churn-burning tips
While avoiding customer churn altogether is impossible, there are proven ways you can reduce your churn rate.
To win the fight against customer churn, let’s recap:
- Customer churn is when your customers leave your business. While it’s detrimental to your business, there are ways to up your retention rate and reduce your churn rate.
- Customer churn happens for a variety of reasons, including poor customer experience, a misalignment between your audience and brand and/or offers, delivering less than your competition, or a low level of customer engagement.
- To convert your free trial members to lifetime customers, give them immediate value, support for experiencing your product’s benefits, re-engagement messages, and discount incentives.
- Tools like Churn Buster, YesInsights, FirstOfficer, and ChurnZero help you analyze your customer data, track your churn metrics, and proactively take measures to reduce churn.
- By drafting an easy-to-understand refund policy that’s easily accessible for your customers, you pave the way for a hassle-free experience that can convert churn into opportunity. It’s a “you miss every shot you don’t take” approach to churn.
With these tactics at your fingertips, it’s time to put your fear of customer churn to the side and enact your churn fighting plan today. Avengers -- I mean, creators -- assemble!