About 44% of brands work on acquiring new customers and only 18% of brands pay attention to customer retention. At the same time, it is six to seven times more expensive to acquire a new customer than to retain an existing one. That’s why customer attrition, also known as customer churn or customer turnover, is a crucial metric for businesses. Let’s figure out what it is.
What Is Customer Attrition and How to Spot It?
Customer attrition occurs when customers stop doing business with a company or switch to a competitor. This can happen for various reasons, including dissatisfaction with a product or service, poor customer service, high prices, or a better alternative on the market.
Customer attrition can be classified into two types:
- Voluntary customer attrition happens when customers choose to stop doing business with a company. For example, they find a better alternative or lose interest in the product or service.
- Involuntary customer attrition happens when customers are forced to stop doing business with a company due to reasons beyond their control, such as relocation.
3 Signs of Customer Attrition
Here are some signs that can give you a hint that something is wrong:
- Decreased engagement. If customers stop interacting with your company, for example, they stop opening emails or visiting your website, it could be a sign of decreased engagement and possible customer attrition.
- Reduced frequency of purchases. When customers start purchasing less frequently, it may indicate that they are losing interest in your product or service.
- Complaints and negative feedback. An increase in customer complaints or negative feedback also may indicate dissatisfaction with your product or service.
6 Reasons for Customer Attrition
There are many reasons why customers leave but we’ve gathered 6 common ones:
- Poor customer service. When customers experience poor customer service, such as long waiting times, rude staff, or unresolved issues, they are more likely to leave.
- Competition. If customers find a product/service that would be cheaper or of higher quality, they might switch to your competitor. That’s why you should always monitor your main competitors to make sure your offer looks tempting.
- Lack of value. When customers feel that they are not getting enough value from your product or service, they are highly likely to leave.
- Changes in customer needs. In some cases, customers stop needing your product or service due to some changes in their lives, e.g. when parents with small kids stop buying diapers because their children grow older. In this case, there’s not so much you can do.
- Ineffective marketing. You may have the best product or service ever but if your customers know nothing about them or don’t understand their value, they leave as well. That’s why it’s vital to communicate with your customers and reactivate them, if necessary.
- Lack of trust. Another reason that may make your customers leave is if they stop trusting you, for example, as a result of unethical behavior or private data leaks.
How Customer Attrition Damages Your Business
Customer attrition can damage your business in many ways. Here are some examples:
- Reduced profits: If customers leave and you have to spend more money to acquire new customers, your profits are likely to suffer.
- Bad brand reputation: Dissatisfied customers may tell others about their negative experience, which can hurt your brand reputation. As a result, the number of new customers may fall considerably.
- Reduced customer loyalty: If customers feel that they are not important, they might not return in the future. In the modern world, it’s all about the people now, and that’s why maintaining a high customer loyalty level is vital.
- Decreased market share: According to research, 9% of companies failing to deal with customer attrition lose customers to their competitors. As a result, if your competitors are retaining customers better than you are, they can gain a larger market share.
How to Count Down Customer Attrition?
To accurately measure customer attrition, businesses need to calculate their churn rate. The churn rate is the percentage of customers lost over a given period. Here are some ways to calculate the churn rate:
- Simple churn rate. To calculate the churn rate, divide the number of customers lost during a given period by the total number of customers at the beginning of that period.
For example, if a business had 100 customers at the beginning of the month and lost 20 customers during that month, the churn rate would be 20%.
- Revenue churn rate. For this metric, divide the revenue lost from customers who have left during a given period (Monthly Recurring Revenue) by the total revenue generated during that period.
For example, if a business had $100,000 in revenue at the beginning of the month and lost $20,000 in revenue from customers who left during that month, the revenue churn rate would be 20%.
- Customer retention rate. The customer retention rate is the inverse of the churn rate and represents the percentage of customers who continue to do business with a company over a given period. To calculate the customer retention rate (CRR), start with the number of customers you had at the beginning of the period (S). Subtract the number of new customers (N) you acquired during that period from the number of customers at the end of the period (E). This will give you the number of retained customers. Divide the number of retained customers by the number of customers at the start of the period (S) and multiply by 100 to get the Customer Retention Rate in percentage.
Let's say you have a business, and you want to calculate the CRR for the month of February.
- Number of customers at the start of February (S) = 200
- Number of new customers acquired in February (N) = 50
- Number of customers at the end of February (E) = 220
Add everything to the formula, and you’ll see that 85% of the customers you had at the beginning of February were still customers at the end of the month, excluding any new customers you acquired during that period.
What Can a Brand Do to Reduce Customer Attrition?
Reducing customer attrition requires a proactive approach. Here are some strategies you can use:
- Focus on customer experience. Provide a positive customer experience at every stage of the customer journey to build loyalty and reduce attrition.
- Personalize interactions. Use data to personalize interactions with customers and provide them with relevant and targeted content and offers. Apart from retaining customers, this may also help you drive more sales.
- Segment customers by loyalty levels. To do this, you can use RFM analysis which will help you divide customers into loyal ones and those who need your attention. With this data, you’ll be able to create powerful communications suitable for each of the segments.
- Continuously improve. It’s essential to improve your products or services to meet customer needs and stay competitive.
- Track Customer Satisfaction Index. CSI can help you monitor the situation and identify problems fast. This way, you’ll have time to improve the situation while the customers are still with you.
- Offer incentives. Give customers incentives, such as discounts or loyalty programs, to encourage them to stay.
- Re-engage inactive customers. Reach out to customers who have not interacted with your company in a while to encourage them to return. To do this, offer additional bonuses, such as free shipping, discounts, or small gifts along with their orders.
- Communicate effectively. Implement the omnichannel ecommerce strategy to create a seamless customer experience and keep customers informed about your products, services, and any changes that might affect them.
This list is not exhaustive but it may give you some good ideas to start with when you deal with customer attrition.
Customer attrition is a significant challenge for businesses, and reducing it will almost certainly have a positive impact on profits and brand reputation.
It’s important to monitor customer attrition and implement strategies to reduce it. There are many things you can do to reduce customer attrition and some of the ideas include:
- Focusing on customer experience;
- Personalizing interactions;
- Segmenting customers by loyalty levels;
- Tracking Customer Satisfaction Index;
- Re-engaging inactive customers;
- and much more.
If you don’t know how to get started, let the professionals do the work for you. Contact us via the form on our website and let’s talk.