Are you struggling to keep customers? A high churn rate can be a big problem for any business and have a huge impact on your bottom line. As you might know, just a 5 percentage point increase in customer retention rate can boost revenue by 25-95%.
In this post, we’ll discuss 19 simple ways to improve churn management in your business.
My goal is to provide you with a game plan to help you retain more existing customers and improve your bottom line.
What does Churn Mean?
Churn is a term used to refer to customers who have stopped doing business with you, and is particularly important for companies with a recurring revenue business model.
Finding ways to lower churn is often overlooked and underappreciated, since most companies are overly focused on customer acquisition. Churn is a silent killer and crippling for any business – a high churn rate can quickly eat into profits and prevent growth.
Churn Rate Measures
Churn rate indicates how many customers leave your company over a certain period of time. To calculate churn rate, you need to divide the number of customers who left you in a given time period by the total number during that same period. While rate measures vary, most SaaS companies track both monthly churn rate and annual churn rate.
- Monthly Churn Rate (MCR): The amount of customers that have canceled their services over a given month as a percentage of the total number of customers in the same period.
- Annual Churn Rate (ACR): annualized version of MCR
- Average Churn Rate: accounts all churned customers over a given period of time
Why is Churn Management Important?
Churn management is a critical tool for small businesses to understand and manage customer churn.
It’s important to investigate why clients are leaving and what you can do to prevent them from going elsewhere. Understanding the reasons for churn is key to reducing it, as well as understanding which strategies work best to keep your current clients happy.
Churn management can include all sorts of management strategies: improving customer service, creating a world-class onboarding experience, offering discounts, or providing incentives like loyalty points.
Effective churn management has a whole host of benefits: strengthening customer relationships, identifying opportunities for improvement, increasing retention rates, and ultimately helps enable growth.
Types of Customer Churn
Customer churn can manifest in different ways, but all churn falls into two categories.
Voluntary churn occurs when customers choose to end their relationship with a company, such as switching providers or discontinuing their subscription. This type of churn can be caused by a wide variety of reasons, including low customer satisfaction or the emergence of a competitor.
Involuntary churn happens when customers unintentionally lose access to your services and are forced to leave due to factors beyond their control.
This could be due to a variety of things:
- Technical problems with a bank or credit card (or false fraud)
- Customer losing their credit card (or it gets stolen)
- Customer forgets to update their payment info when their card expires
While most companies focus on reducing voluntary churn, studies show that involuntary churn makes up 20-40% of overall churn (ProfitWell). On the flip side, the good news is it’s possible to recover 70-80% of these failed payments.
How Do You Manage Churn?
Now that we understand what churn is and why it’s important, let’s dig into some churn management strategies for your business.
The first step towards reducing churn is to track it on a regular basis. You need to be able to measure customer behaviors over time to identify any changes or trends in churn rates.
Once you have the data that identifies the reasons for customer churn, you can start taking action to prevent it.
Ways to Reduce Voluntary Churn
1. Understand Your Customers
The first step in improving churn management is to understand who your customers are and why they may be leaving. The goal is to identify customers who have a high likelihood of churning and why.
This can be done through surveys, focus groups, customer interactions and analytics. Use this customer feedback to improve your product or service so that it better meets the needs of your customers.
A few ideas:
- Consider creating a simple survey that you send out after each interaction with a customer. This could be an email survey, a physical survey, or even a short phone call. Ask simple questions like, “Is there anyway we could make your experience even better?”
- Use Customer NPS to measure satisfaction and identify clients who are unsatisfied with your product or service and are at risk of cancelling. Can you give these people special attention?
- If a customer churns, try to conduct an exit survey to determine what could have been done better. Exit surveys can be surprisingly revealing around why customers stop buying.
- Use RFM Customer Segmentation: RFM is a segmentation method that divides your clients into groups based on their past behaviors. This helps you to identify your most valuable clients (i.e. most money spent), which types of are most likely to churn and allows you to tailor the customer experience accordingly.
2. Offer a World-Class Onboarding Experience
The goal of customer onboarding is simple: to build a relationship and help new customers get the most out of your product or service. Having a great onboarding experience for new customers can go a long way in reducing churn rate.
It’s the first impression customers have of your company: how you engage with customers post-sale can set the tone for the rest of the relationship.
Remember this: what you do after the sale is more important than what you do to get the sale in the first place.
Your onboarding journey can reassure customers that they made a wise purchasing decision and is a great opportunity to create an emotional bond.
I’ve created a post walking through how to set up an onboarding journey, but here are a couple key points:
- Make sure that you’re doing everything possible to stay in front of your clients (and overdeliver) after they’ve made a purchase.
- Have a plan for how you’re going to stay in touch and what actions you want them to take during each interaction.
3. Increase Early Activation of Your Product or Service
Getting your clients to start using your product or service as soon as possible is a great way to reduce your customer churn rate.
You can improve customer churn rate by offering tutorials and resources that help clients understand how to use the product quickly and easily can go a long way in increasing engagement.
Another idea is offering rewards for early activation, which can be very effective in encouraging clients to take action right away.
4. Implement a Customer Loyalty Ladder
Designing a customer loyalty ladder is an excellent way to keep customers engaged with your brand and improve customer retention. It’s a customer journey progression to take clients from initial contact with you and eventually turn them into evangelists for your business.
I’d recommend checking out my detailed post on a 5 step process you can implement to wow customers and create raving fans. Implementing this strategy will get you well on your way to creating a loyal customer base that will stick with you for years to come.
5. Establish Use Patterns and Make Your Product Indispensable
It’s important to understand how customers are using your product or service – how can you delivering products and start delivering experiences?
Identifying key use patterns can help you make sure that customers are getting the most out of your offering, and making them feel like it’s indispensable in their lives.
Understanding these patterns can help you identify ways to improve your offering and ensure that clients are getting the most out of their experience.
6. Prioritize Customer Satisfaction with Excellent Service
There are few things that will skyrocket your churn rate more than poor customer service.
Having an outstanding customer service team is essential for retaining customers. A team that is knowledgeable, responsive, and helpful can be the difference between a customer staying or leaving.
Providing support through multiple channels such as phone, email, and social media can help meet the needs of customers in different situations. Think about also offering self-service options like FAQs or tutorials can be beneficial in helping customers troubleshoot any issues they may have.
By responding quickly and efficiently to customer inquiries and addressing any issues promptly, you can ensure that customers feel valued and appreciated.
7. Build In Customer Retention Hooks
Retention hooks are features or benefits that keep clients engaged and incentivize them to stay with your product or service.
These could be anything from exclusive offers to early access to new products. Additionally, offering rewards for referrals or discounts for loyal customers can also be effective in increasing customer retention.
8. Optimize Your Cancellation Process (Win Back Strategy)
When a customer decides to cancel their subscription or service, think about how you can build in an effective win back strategy.
Make it as frictionless as possible for them to continue with you:
- Give helpful information during the cancellation process (including how to pause a subscription if they need a short-term break)
- Offer them incentives (special discounts) to stay with your product or service
- Provide personalized messages that offer alternatives or solutions for their concerns
- Easy access to customer support to solve any issues
9. Encourage Annual Contract Upgrades
Offering clients the opportunity to upgrade their service or product can be a great way to keep them engaged and prevent them from churning.
Providing discounts for upgrading or adding features can also help clients feel valued and appreciated.
10. Stay Engaged with Your Customers and Maintain Personal Relationships
Having a personal connection with customers can go a long way in fostering loyalty. Taking the time to get to know your customers and understand their needs and preferences can help you create personalized experiences for them. Additionally, providing incentives such as loyalty points or rewards programs can also be helpful in retaining customers.
Regularly engaging with your clients is a great way to keep them engaged and reduce churn. This can be done through email, social media, or other forms of communication. Providing helpful resources, offering discounts, and giving timely responses to customer inquiries can all help keep customers engaged in the long term.
11. Increase the Frequency of Communication
This is an extension of the above but I want to emphasize it. The #1 secret to extending the life of a customer is communicating with your clients.
The more communication you have, the more trust is established, and the more they will consider you friend who cares. Think about offering a mix of value, personality, and special offers to keep them as a customer. Most business don’t communicate near enough – I want you to remember it’s impossible to overcommunicate as long as you are not boring.
Use any good excuse you can find to connect:
- Tell them about new products that are arriving
- Give them a heads up about special sales
- Educate them on ways they better use your product/service and reach their goal
- Entertain them with stories about your business and weekly activities
- Write to wish them a happy birthday and happy holidays
- Give unannounced bonuses
- Case studies, success stories, and testimonials of successful clients
- Ask them for referrals and offer them incentives for referrals
12. Reactivate Inactive Customers
Have you ever tried sending reactivation emails? Reactivating inactive customers can be a great way to reduce customer churn rates and are a simple way to win back past customers. Best of all, they’re easy to set up and don’t require a lot of effort on your part.
Here are a couple resources I’ve created to help you roll this out quickly:
Ways to Reduce Involuntary Churn
13. Automatic Card and Account Updates
If you are using a payment gateway like Stripe, they have worked with credit card companies like Visa to automatically update cards without any action from the customer.
14. On Site Notifications
Provide a gentle reminder inside your website to give clients a heads up their payment method is about to expire (very easy with a tool like Intercom).
15. Pre-Dunning Emails
Send out automated emails when their payment method is about to expire. This allows you to proactively get in front of the expiration.
16. Automated Payment Retries
If a card has expired or is declined, you could work with a vendor using retry logic to automatically keep trying until it goes through. This uses machine learning and AI to accurately predict the best date and time when a card payment is likely to go through (i.e. after your customer’s pay day).
17. Offer Flexible Payment Options (with Backup Payment Methods)
Giving clients the option to choose how they want to pay (credit card, debit, ACH etc.) can make it easier for them to purchase.
You can request clients to enter two payment methods when signing up, so you have a second option if the first payment method fails. On this downside, this of course requires effort from the customer.
18. Ask that Customers Shift to ACH / Debit
If you want to tackle the root cause of payment failures, you can try and limit your reliance on credit card payments.
If you ask folks to switch to direct bank debit (ACH), this can be a dramatic improvement, as the failure rate is only 0.5%. Direct debits usually take a few days to get into your merchant account, but you can drastically reduce failures.
19. Consider Alternative Payment Systems
You could consider implementing backup payment processors in the event of outages. Another way to be prepared is to regularly audit your payment systems and procedures to make sure they are up to date. This can help you identify potential issues proactively.
As we covered, churn management is an essential tool for businesses to ensure a high retention rate and reduce your customer churn rate.
By understanding the types of customer churn and utilizing these strategies, you can reduce their customer churn rate and keep current customers engaged for the long run.
I hope you found this helpful – I’d love to hear from you in the comments if you have any other ideas on how to avoid high churn rates.