5 Reasons Why Customers Churn

You’ve likely heard that it can cost anywhere from five to 25 times as much money to acquire a new customer than to keep an existing one. While this number can seem extreme, it makes a lot of sense once it’s broken down.

Customer churn is the rate that customers leave your company—which, in turn, means that you must acquire new customers to make up for those that have churned. The cost of customer churn is found using the equation:

# of churned customers/total customers = customer churn

When this is scaled, you can begin to understand why performing customer churn analysis is so important. With so many variables like segmentation and seasonality, keeping track of churn is a difficult (but necessary) task for your business. 

To perform a customer churn analysis, you need to first understand why customers decide to leave your company. Here are the main reasons why customers churn. 

1. Product is not meeting customers needs

You’ve likely heard the phrase “underpromise, overdeliver” before, and it is so well known for a reason. If your customer feels like your product is not meeting their needs and expectations, they are going to be unhappy and could decide to move on to a competitor. 

2. Unsatisfactory customer service

Seeing as over half of consumers would stop doing business with a company after just one bad experience, it’s clear that having quality customer service is an essential part of reducing customer churn. With the rise of AI chatbots and multichannel customer service efforts, creating a seamless customer experience is easier than ever when your money is invested the right way. 

3. Not a good product fit

In some situations, the product is just not a good fit for the customer, regardless of customer service or touchpoints available to augment your services. With these customers, the money spent on acquisition goes to waste when they churn immediately—which is why having accurate and in-depth market research is a crucial factor in determining your business’ success. 

4. Lack of touchpoints with the customer

Without enough consumer touchpoints, your customers may not understand how to use your product properly or may not feel valued as a customer, leading them to become frustrated and churn. Once a customer purchases your product, you still need to put in the effort to ensure they stay a customer. Whether it is through email discounts, a membership program, or birthday freebies, maintaining customer touchpoints after conversion is essential to minimize churn. 

5. Customer moves to a competitor

Your customer could move to a competitor if you are not able to offer them an advantage in either price or quality. It’s essential to be monitoring competitor offerings to ensure your product or service is able to play in the same space with a sustainable competitive advantage. 

If a competitor can offer them the same quality at a lower price, or higher quality at the same price, it’s an easy decision for your customer to churn and move to your competitor’s offering. Performing market research on competitors is necessary to ensure you are staying competitive in your market and minimizing customer churn. 

Summary

Understanding why your customers are churning is a crucial first step to be able to conduct churn analysis. However, it’s important to be strategic about how you are analyzing customer churn. A quality churn analysis should include evaluating competitors, investigating complaints, tracking cross-channel sentiment, pinpointing drop-off points, and carefully segmenting your customers. For a complete guide to the best strategies for customer churn analysis, check out the infographic by Chattermill below.

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