It’s not possible to keep every customer.  It’s essential to understand why customers defect and how to address the causes. An important measure to track is your churn rate. 

Why You Should Measure Customer Churn

While many companies measure customer satisfaction, it is also important to measure retention and defection to understand your customer churn. If repeat business is an important driver for your business, then capturing your customer churn rate, identifying customers likely to churn and relating churn to customer value should be part of the metrics you track.  Your churn rate is the percentage of customers who end their relationship with your company in a given time period. If your cost to acquire is high, it takes a long time to acquire new customers, and if it takes awhile for a customer to become profitable understanding your churn rate is an important metric of business health.

And there are financial implications too. According to Vic Hunter, author of Business to Business Marketing, it can be 30 to 40 times more expensive to acquire new customers than it is to manage existing customers. A 5 percent increase in overall customer retention equates to a 25 to 55 percent increase in the profitability of a business.

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Staving Off Customer Churn is Smart Business

Before you can address customer churn, you need to understand if and why customers are defecting. Being able to plan a course of action, first begins with understanding the underlying reasons of defection. This means you need to do some homework. One of the best ways to learn the underlying reasons is to regularly conduct customer satisfaction and voice of customer research.  Often defecting customers find it easier to tell a third party why they left.  To tease out the core reasons, consider using an outside resource to call every customer who has defected, say in the last six months, to ask them why they.

Identify Your Primary Customer Churn Culprits

You know the 80/20 rule? The law of the vital few. In this instance, we’re suggesting that 80% of problems can be attributed to 20% of causes. Once you conduct the research and begin to dig into your data, you can identify trends. Over the years we have learned that service quality issues are the biggest culprits of churn. Often these service quality issues fall into one or more of these categories:

• poor reliability of service
• lack of responsiveness
• customers feel estranged or disenfranchised and/or
• lack of confidence/trust

Once you identify and cluster the reasons behind defection you will be able to create a plan to address the primary reasons. You may find that rather than creating a customer loyalty program, what you really need to do is improve service quality or address product or pricing strategies.

Use Your Customer Churn Analysis

If you haven’t analyzed your customer churn, we encourage you to do so. To do a churn analysis you will need to establish in what time frame they are no longer a customer. By analyzing customer purchasing data you can measure your churn rate.

So you have your churn rate, now what? Often a company does not understand how to use the data to identify a customer likely to defect. You may need to conduct customer research to help you determine why customers defect so you can develop initiatives designed to reduce this number and track whether they are working.

Your customer defection research should:
1. Verify they are no longer a customer
2. Provide insight in the primary reason they left (price, product features, customer service, location, etc)
3. Provide insight into whether they plan to or have purchased your products and services from another company
4. Identify which company or companies they are now buying from
5. Provide insight into what, if anything, your company could have done to keep the business

By looking at your retention and churn rate data, five questions will naturally surface. Getting the answers will most likely require conducting some customer primary research and calculating customer value.

These five questions are:
1. Who is churning?
2. What is current and future value of these customers?
3. Which customers that are churning do we want to keep?
4. Which customers are at risk for defecting?
5. How will we retain the ones we want to keep?

A key part of churn analysis is to understand the relationship between churn and value. It may be alright-even necessary-to let some customer, those that are not profitable and haven’t the potential to be profitable, go.

Create a Complaint Management Process

Who wants to hear complaints?  You do! As part of your effort to stave off customer churn, you will need a process that makes it easy for your customers to complain, directly to you.  Wouldn’t you rather your customer come directly to you with an issue then tweet it out to the public domain or publish a negative review?

A complaint management process is more than a “share a review” process. And this can’t be one of those, we’ll build it and they’ll come approaches. Co-Operative Financial Services (CFS), found that customers are reticent to voice complaints because they don’t believe  their complaints will be addressed, etc. So you will need yo more than  a link on your website that says, “Share An Issue, Concern or Complaint.”

Create a complaint management strategy that encourages customers to complain so you can focus on preventative measures. To increase the number of customers who complain so you can address issues at the source, consider some of these mechanisms:

• Initiate post-service feedback surveys immediately following a service encounter and PROACTIVELY CALL customers with low ratings.
• Establish a process to contact customers on a rolling basis to gather feedback associated with primary churn culprits.  This is more than your typical customer satisfaction survey. You goal is to track changes in your churn culprit.
• Reduce barriers to complaints across all service channels. Use your polling capabilities on your website to request regular feedback rather so the burden on finding your feedback link is on you and not your customer.
• Train all employees, especially the front line, those who have routine direct interface with customers (accounting, sales, marketing, technical support, customer services, the call center, etc) that service recovery starts with how you react to complaints. Rather than being defensive, employees need to be trained to be responsive, empathetic, and personal. Avoid the empty “I’m sorry” platitudes and be careful of scripting how your employees respond to frustrated customers.
• Avoid standard emails that say, “Thank you for your inquiry. Someone will be contacting you shortly.” Complaints require a more customized response that acknowledges the specific issue and indicates who will be contacting them and when.

These processes take time, focus, discipline and of course money. However, remember, resolving issues and heading on defections is far more effective and inexpensive than trying to win-back a customer.  When there’s a process for customers to complain they have a way to channel their concerns, anger, fears, worries, questions, or complaints to your organization in a timely and convenient manner, potentially keeping these from erupting in major crises. If developing your complaint management system or designing methods for capturing and analyzing customer churn are new to you, we highly recommend you, we highly recommend you tap experts. 

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