Understanding Customer Churn: Key Insights for CMOs, Marketers, and VP’s of Digital

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understanding customer churn BLOG

Customer churn poses a significant challenge for companies striving to maintain sustainable growth and profitability. (Hi. That’s all of us, right?!)

Add to that the current economic uncertainties, and customer churn is at all all-time high for many brands.

As CMOs, marketers, and VP’s of Digital, understanding the intricacies of customer churn is paramount to implementing effective retention strategies.

Today, I’ll dive into the concept of customer churn, explore its underlying causes, and provide actionable insights to help you combat it.

Defining Customer Churn

Customer churn refers to the rate at which customers discontinue their relationship with a company or cease their subscription to its products or services. In essence, they stop coming back. Ouch.

Churn is a crucial metric that quantifies customer attrition and directly impacts revenue and growth potential.

The Customer Churn Formula

The formula for customer churn typically involves calculating the churn rate, which is the percentage of customers who stop using a product or service over a given period of time.

The basic formula for churn rate is:

Churn Rate = (Number of Customers Lost during a Period / Total Number of Customers at the Beginning of the Period) x 100

Additionally, here it is visually expressed by HubSpot:

Churn rate graphic by Hubshpot

To apply this formula to your business, you need to collect all necessary data.

Follow these steps:

  1. Determine the time period: Decide on the specific time period for which you want to calculate the churn rate, such as a month, quarter, or year.
  2. Count the number of customers lost: Identify the customers who have stopped using your product or service within the chosen time period. This could involve tracking cancellations, unsubscribes, or inactive accounts.
  3. Calculate the total number of customers at the beginning of the period: Determine the total number of customers you had at the start of the selected time period. This can usually be obtained from your customer CRM, database, or records.
  4. Apply the formula: Use the numbers from steps 2 and 3 to calculate the churn rate using the formula mentioned above. Multiply the result by 100 to express it as a percentage.

Once you have calculated the churn rate, you can analyze and interpret the results to gain insights into customer retention.

This information can help you identify potential issues, make improvements to your product or service, and implement strategies to reduce churn.

Your ultimate goal should be to monitor and address customer churn so you can work towards increasing customer satisfaction and loyalty (aka “reduce churn”).

What Causes Customer Churn?

As marketers, grasping the nuances of customer churn allows you to identify pain points and implement strategies that foster customer retention.

But, how do smart marketers go about doing that?

First, you need to understand what’s causing your customers to turn away from your brand.

Uncovering the Causes of Customer Churn

To effectively tackle customer churn, it’s essential to recognize the common factors that contribute to customer attrition.

To clarify, these often include subpar customer experiences … during any part of your customer’s journey.

  • Inadequate onboarding processes
  • Lack of personalized engagement
  • Pricing issues
  • Competition

Another way we work on churn with our clients is through NPS scores, social media sentiment analysis, and online reviews. Similarly, there are a myriad of ways you can keep up with what’s being said about your brand.

By conducting a thorough analysis of, and leveraging, customer feedback, you can pinpoint the specific triggers behind churn in your organization. However, you’re going to need gobs of data to get there!

The Role of Data Analytics in Churn Prediction

Above all, data analytics plays a pivotal role in predicting customer churn by uncovering meaningful patterns and correlations.

By leveraging advanced analytics tools, you can identify early warning signs that indicate potential churn. For example, this can look like declining engagement, decreased purchase frequency, or prolonged periods of inactivity. As mentioned, brand sentiment plays a big role here.

Here’s a look at one of our client’s actual monthly sentiment scores:

example sentiment score for a pet brand

Obviously, we dig much deeper into the data than what’s shown above. However, this gives the client an at-a-glance look at how they performed in the given month versus the previous month. A+!

You’ll need to find a cohesive way to take all of your data points and merge them into both qualitative and quantitative data sets.

Using customer data enables you to proactively intervene and implement personalized retention strategies to prevent customer attrition.

Effective Retention Strategies

Once you have all of the above, you need to take targeted actions to mitigate the impact of customer churn.

To combat churn, implementing robust retention strategies is imperative.

These can include:

  1. Enhancing Customer Experience: Prioritize delivering exceptional customer experiences at every touchpoint. Focus on personalized interactions, efficient support channels, and proactive issue resolution to strengthen customer satisfaction and loyalty. Also, be quick about it!
  2. Implementing Customer Success Programs: Establish customer success initiatives that monitor and optimize customer outcomes throughout their journey. By providing proactive guidance, valuable resources, and continuous value delivery, you can foster long-term customer loyalty. Don’t forget to make note of your big brand advocates!
  3. Leveraging Predictive Analytics: Harness the power of predictive analytics to identify customers at high risk of churn. By identifying these customers early, you can tailor personalized offers, incentives, or targeted campaigns to re-engage them and prevent attrition. [Check out our friends at Trust Insights for help with analytics!]
  4. Implementing Loyalty Programs: Develop robust loyalty programs that reward customer engagement, repeat purchases, and referrals. By incentivizing customer loyalty, you create a sense of value and exclusivity, increasing the likelihood of customer retention.
  5. Focusing on Communication and Feedback: Open and transparent communication channels are pivotal in combating churn. Encourage customers to provide feedback and actively listen to their concerns. Regularly collect and analyze customer feedback to identify pain points and areas for improvement, enabling you to make data-driven decisions that foster retention.

Prioritizing Customer Retention

Finally, by gaining a comprehensive understanding of customer churn, you can develop proactive measures to enhance customer loyalty and drive long-term success for your organization.

Understanding customer churn is essential for CMOs, marketers, and VP’s of Digital seeking to drive sustainable growth and profitability. By comprehending the causes of churn, leveraging data analytics, implementing effective retention strategies, and fostering open communication, you can proactively combat customer attrition.

Customer churn is a dynamic challenge. Continuous monitoring and adaptation are key to maintaining a loyal customer base. By prioritizing customer retention, you can establish a solid foundation for long-term success in today’s ever-evolving business landscape.

Frequently asked questions (FAQs) about customer churn:

1. What is customer churn? Also known as customer attrition, churn refers to the rate at which customers or subscribers stop doing business with a company over a given period. It’s a critical metric for assessing customer retention.

2. Why is customer churn important for businesses? Understanding churn is important because it directly impacts a company’s revenue and profitability. High churn rates can indicate problems with customer satisfaction, product/service quality, or competition.

3. What are the common causes of churn? Churn of your customers can result from various factors, including poor customer service, high prices, product dissatisfaction, and competition. Identifying the specific reasons for churn is crucial for reducing it.

4. What strategies can businesses use to reduce churn? Businesses can employ several strategies, such as improving customer support, offering loyalty programs, acting on customer feedback, and ensuring product/service quality to reduce churn.

5. Is it possible to prevent all churn? No. Some churn is natural and unavoidable due to factors like changes in customer needs or circumstances. However, businesses can minimize churn through effective retention efforts.

6. How can data analysis help in reducing customer churn? Data analysis plays a significant role in churn reduction by identifying patterns, trends, and customer behaviors that indicate potential churn.

7. What’s the difference between voluntary and involuntary churn? Voluntary churn occurs when customers intentionally cancel or stop using a service. Involuntary churn results from factors like failed payments or account closure due to non-compliance with terms of service.

8. How often should businesses monitor customer churn? The frequency of monitoring churn depends on the nature of the business and the industry. Many businesses monitor churn on a monthly or quarterly basis, while others do so in real-time to take immediate action when necessary.

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Brooke B. Sellas is an award-winning Customer Marketing Strategist and the CEO & Founder of B Squared Media. Her book, Conversations That Connect has been recognized nationally and is required reading for a Customer Experience class at NSU. Brooke's influence in digital marketing is not just about her accomplishments but also about her unwavering commitment to elevating the industry standard of digital customer experience and customer marketing.
Conversations That Connect
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Category: Customer Experience, Customer Management
Tags: B Squared Media, Brooke B. Sellas, Brooke Sellas, customer churn, customer churn formula, customer churn rate, customer retention, customer retention strategy, data analytics, how to reduce customer churn
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