What can you do about customer churn?

Although 96 percent of businesses fail within ten years, some companies manage to become successful enterprises. Companies like Apple, Berkshire Hathaway, and General Electric manage to thrive even though they face considerable trials—but how? What are these companies getting right that so many others are getting wrong? They keep clients onboard.

interview deskThese companies get a few other things right, too, but when it comes to customer retention, they refuse to leave a single box unchecked.

With a five percent reduction in churn leading to a 25 to 125 percent increase in profits, it should come as no surprise that your company can benefit significantly from reducing its churn rate. And with new information and customer retention software that can help decrease your churn rate today, there’s no excuse for not improving this aspect of your business.

Below, you’ll find more information on customer churn, its importance and how you can retain more customers.

What is Customer Churn?

The software as a service (SaaS) industry is primarily responsible for making churn a noteworthy metric. Churn is equal to the number of customers you lose every month divided by your total overall customers. For example, if you have 100 customers and you lose three, your churn rate for the month will be three percent.

Acceptable customer churn rates often fall somewhere between 10 to 20 percent churn per year. Churn standards often vary by industry. For example, SaaS rates are considered good if they’re below seven percent.

One other thing that’s important to note about churn is that the percentages as mentioned above aren’t universally accepted. Although a five percent churn rate might be acceptable to you as a business, venture capitalists and other funding parties prefer churn rates of around two percent a month.

Finding Your Customer Churn Rate

As mentioned above, the most basic way to calculate customer churn is to take the number of subscribers or customers you lose every month and divide that number by your total customer base. Some companies will claim that they have a negative churn rate because they add more customers than they lose every month, but industry experts suggest that businesses avoid this method because it often provides a less comprehensive picture of their consumer retention success.

mrr-churn-analysisChurn can also be calculated with revenue as the baseline. With this approach, companies first derive their monthly recurring revenue (MRR). Then, they take the amount of their canceled MRR and divide it by an interval of time multiplied by total MMR at the beginning of the period.

How to Reduce Customer Churn

There’s no hard-and-fast rule when it comes to what you should and shouldn’t do to reduce churn. Contemporarily, large businesses primarily use the following techniques: they give their customers fewer chances to terminate their relationship, they conduct a survey, or they invest in a customer retention software.

Whether you know it or not, you’ve probably been subjected to the first retention strategy. Companies that enlist this technique start by offering a free trial of their product or service. Once the trial is up, they just bill the free trial user annually. This approach seems to improve customer churn efficiently, but at the end of the day, it might only delay the inevitable. After all, if you’re unhappy with a company, you’re going to stop doing business with them eventually.

Surveying customers is another way to try and prevent churn. Call your customers or send them an email and ask them what they like—and don’t like—about your product. This technique will give you a greater understanding of what causes people to become valuable customers so you can try and replicate their experience. As you get to understand your customer base better, you will begin to learn what is essential to the people or companies you serve and what needs attention.

Last but not least, you can reduce customer churn with the help of a software platform. This is often the preferred approach because it provides companies with more valuable customer churn information than the two other strategies combined. Customer retention software offers real-time data that are key to reducing current churn and preventing it in the future. If this is the route, you take to make sure to study the options you have before you. So tools deliver insights on data while others, like VisualCue, offer actions to consider as you monitor your client base. No matter how you plan to take on your churn rate, remember that, it is best not to wait!