Many companies that don’t know how to reduce churn end up investing more heavily in acquisition strategies as a solution to increased cancellations and customer loss.
This is one of the frequent mistakes made by organizations, and it can cost the business its financial health.
This is because, even if investment in marketing and sales is high, it does not mean that your brand is able to retain customers in a sustainable way.
In other words, you can generate a large number of leads and make many sales, but if the customer experience after purchase is not satisfactory, you run the risk of constantly losing customers.
Thus, in addition to not being able to expand your business consistently, your company loses a lot of money.
According to Kotler, acquiring a new customer is 5 to 7 times more expensive than keeping them in your base. Do you understand the importance of strategies to reduce churn?
To help you with this, in this article, we have separated 5 practical tips on how to reduce churn and increase your company’s revenue.
Stay with us and keep reading!
What is churn rate?
First of all: do you know what churn rate is?
Churn rate refers to the rate of turnover, and can also be translated as cancellation rate.
It is an index that indicates the quality of the relationship between customers who have terminated their business relationship with an organization and the total number of active customers within a given period.
Generally, churn is associated with broken contracts, lack of renewals, and the end of purchases that were previously made on a recurring basis.
Cancellations are natural in companies, and it is impossible to achieve a zero churn rate.
Even so, high consumer dropout rates can result in a number of harmful consequences for the company, such as:
- decline in business profitability;
- negatively impacted reputation;
- difficulty in establishing partnerships;
- unmotivated sales team;
- difficulty in making financial projections;
- increased competitive pressure.
Do you understand the importance of knowing how to reduce churn? Without a strategy like this, your business simply cannot thrive.
How is the churn rate calculated?
To know how to reduce churn, you first need to know how to calculate it.
The calculation of this index involves the ratio between the number of customers who terminated their transactions and the total number of customers at the beginning of the same period, including new customers.
The basic formula for calculating the churn rate is expressed as follows:
Churn rate = (total number of customers who canceled / total number of customers in the period) x 100
Let’s imagine a company that has 1,000 active customers at the beginning of the quarter. During this period, 50 customers decide to cancel their contracts or stop doing business with the company. Applying the churn rate formula, we have:
Churn rate = (50 / 1000) x 100
Churn rate = 0.05 x 100
Churn rate = 5%.
A churn rate of 5% generally represents a low turnover rate, which is excellent for business.
However, to determine whether a churn rate is good or bad, it is necessary to evaluate the rates of companies that share the same business model, product lines, and target audience.
How to reduce churn?
Regardless of the quality of your churn rate, it is crucial to know how to reduce the cancellation rate in your company. After all, it will always be necessary to optimize customer retention to promote sustainable growth.
Below, we list five strategies to reduce churn. Keep reading!
Develop a customer success process
Developing a customer success process is essential for both B2B and B2C companies.
Customer success is simply the process of ensuring that customers are achieving their goals with the products or services they have purchased. In practice, this involves:
- customer onboarding practices;
- anticipating needs;
- customer-centric culture;
- customer nurturing and education;
- monitoring indicators and metrics associated with customer satisfaction.
This process helps provide a more enjoyable customer experience right from the start of their journey with a brand, which reduces the likelihood of dissatisfaction and, consequently, churn.
Create a benefits club
Creating a rewards club is a way to reward loyalty and add value to your interactions with customers.
In addition, by offering benefits to your customers, you add a competitive edge to your retention strategy.
To do this, provide exclusive benefits, recognize customer purchases, encourage them to stay engaged, and create a more lasting relationship.
Improve customer service
There is no way to reduce churn without offering quality customer service.
If your rates are high, it is important to take the time to review your entire process, including the channels used, the support team’s approaches, service practices, and the tools used for this purpose.
This will allow you to identify inefficiencies and areas for improvement that may be contributing to increased churn.
Listen to customer feedback
According to Bill Gates, “your most dissatisfied customers are your greatest source of learning.”
Therefore, a recommended practice for reducing churn is, as soon as a customer cancels or significantly reduces their purchase frequency, to understand the reasons behind that decision.
Opening a dialogue with your dissatisfied customers allows you to implement strategic changes that are entirely focused on retention.
But of course, you don’t need a cancellation to request feedback. Satisfaction surveys are essential for maintaining relationships and gaining an ongoing understanding of customer needs and expectations.
It is also interesting to implement a customer service center as a channel where customers can express their concerns, ask questions, and get support quickly and efficiently.
Improve customer management with a CRM
If you want to take care of your customer relationships, investing in a CRM is essential.
A CRM system will help you centralize all your customer information in one place, as well as record interactions so you don’t miss any important data and know how to personalize your approaches.
More than that, CRM allows you to record the entire purchase history, which is crucial for identifying purchasing patterns and anticipating customer needs.
This way, you prevent valuable customers from getting lost along the way and keep churn rates under control.
So, what did you think of our tips on how to reduce churn?
We hope you understand the importance of investing in a CRM system to strengthen your customer relationships, as well as the competitive advantage that loyalty clubs can provide.
Now, all you need to do is implement these strategies in your action plan to reap the benefits of a significant reduction in churn and an increase in customer loyalty.
Good luck!