‘Customer Churn’:
The Big, Bad Wolf of Business.

The term customer churn has to do with how many of your customers and clients return to use your services after they have used them once or more. The Collins English Dictionary defines the word “churn” as a “machine in which cream is shaken to make butter.” We’re not talking about that sort of churn though. We are referring to the informal use of the word meaning ‘to spin’ or to ‘churn out large quantities of something’. In this case, the large quantities of something your business might be producing and sending out into the world are your customers. No business wants to lose their custom. Repeat, loyal customers are the bread and butter of many businesses and we know you want to do everything you can to retain them. If butter churning is your thing and you feel our title has misled you, we apologise and wish you well in your dairy-based endeavours, but if you want to know about what customer churn means for your business, then we suggest you read on.

Customer churn

What is ‘Customer Churn’?

According to Hub Spot, “customer churn is the percentage of customers that stopped using your company’s product or service during a certain time frame.” It’s important to find out what your customer churn statistics are, because then you can gather data on how often customers are repeating their experience with your company and how many aren’t. The changing numbers can also give you an indication of what events or promotions worked to boost your business, and which failed. Hub Spot has a handy customer churn calculator which can be a useful tool to help you learn about your customer churn ratio. You can access this by clicking here.

Although we highly recommend getting to grips with your company’s churn rate numbers, you should bear in mind that there are a number of ways you can calculate your churn rate. We mention this so that you can choose the right method for you. Some ways of organising your churn rate figures are:

  • The number of customers lost.
  • The value of recurring business lost.
  • The percentage of recurring value lost.

Why is ‘Customer Churn’ important?

Simply put, knowledge is power, and this knowledge is something your business can flounder without. The fact is that it costs a lot more in advertising and marketing to attract new customers than to retain your old ones. This questions the preconception that new is always better. The figures strongly disagree in this instance. We could explain it ourselves, but

Hub Spot puts it so well. Your churn rate is “important because it costs more to acquire new customers than it does to retain existing customers. In fact, an increase in customer retention of just 5% can create at least a 25% increase in profit. This is because returning customers will likely spend 67% more on your company’s products and services. As a result, your company can spend less on the operating costs of having to acquire new customers. You don’t need to spend time and money on convincing an existing customer to select your company over competitors because they’ve already made that decision.” Beautifully put… What they said. Moving on.

How can I avoid customer churn?

Now you know what customer churn is, we’re certain you want to know how to avoid it altogether. Unfortunately, that’s rarely possible unless you genuinely corner the market, and people have no choice but to come to you for the product or service that you offer. Hub Spot says that, “obviously, your company should aim for a churn rate that is as close to 0% as possible. In order to do this, your company has to be on top of its churn rate at all times and treat it as a top priority.”

Some practical ways you can improve your churn rate is to focus on your most loyal customers. They are the ones your bank balance will miss the most if they jump ship to one of your competitors. You can spend your time trying to tempt the churners back with offers, promotions and discounts but if they weren’t spending that much to begin with, you could end up losing money with all the time and effort you spend on trying to make them reconsider. Another way you can help your churn rate is to use the data you’ve gathered to establish for what reasons these customers are leaving. For example, if many customers leave in one particular month, take a look at what else occurred in that month. That may help you to figure out what event made them decide to stop dealing with your company. If many customers churn after they reach a certain age, then ask yourself how you can better appeal to or cater for that age group. Another way to discourage customers from churning is to regularly offer discounts and offers to your client base. If people feel you care about them by getting consistent communications, they’re more likely to back your business over others.

What is the cost of customer churn?

It is common knowledge that it costs more to attract a new customer than to retain one, but what are the statistics to back that up? Well, according to Forbes, “it can cost five times more to attract a new customer, than it does to retain an existing one.” With the costs of marketing, advertising and so on, the costs can mount up trying to get more people to hear about you. It can get particularly expensive if you’re trying to work out your marketing on your own, without a marketing professional by your side. This is because people often waste resources, time and effort trying to shout in the ear of the wrong demographic. It’s a waste of everyone’s time chasing down people who have no use of your services.

We’re not saying that new customers are bad. New customers are good for your business, they’re just not quite as good as old ones. That is chiefly because customers who have dealt with you before and are willing to do so again, are statistically more likely to spend more than ones who haven’t. Perhaps this is because new customers are more cautious. You get one shot to impress a new customer and it stands to reason that they don’t want their gamble to cost a ton. Forbes also writes that “increasing customer retention rates by 5% increases profits by 25% to 95%, according to research done by Frederick Reichheld of Bain & Company.” This is because customers you can retain are spending more than cautious new customers, so it is well worth investing your time and money into your existing customers alongside trying to attract new ones.

Now that you are properly armed with everything you need to know about customer churn and customer retention, you can go forth and multiply! Your revenue, we mean. If you need any more information on customer churn, or need help collating or collecting data, Deearo Marketing is always here to help. We only want the best for your business, so you can trust us to put you and your customers at the centre of all we do. Get in touch with us today to find out how we can help your business grow, or like us on social media to get more free, helpful marketing tips and advice.