Customer Churn and Its Impact on Business

Customer churn or also called churn rate is a number that is a source of concern in a business.

Increasing customer acquisition costs (CAC) and market competition make this often happen and make many businesses lose customers.

However, it is one of the important matrices in evaluating a business. Knowing this number will make businesses understand the facts about how customers change and retain their brand.

So, what is customer churn and its impact on business? Here is more information for you.

Definition of Customer Churn

Quoted from HubSpot, customer churn is the presentation of customers who stop using products or services from your business/brand within a certain period of time.

The number that shows customer churn is called the churn rate. The way to calculate it is by dividing the number of customers who decrease in a certain period of time by the number of customers you have at the beginning of that period.

For example, your business evaluates the number of customers per quarter. Then the number of customers lost for 3 months is divided by the number of customers at the beginning of the quarter.

For example, you have 400 customers at the beginning of the quarter and 380 customers at the end of the quarter, then your business churn rate is 5% because you lose 5% of your customers.

Usually customer churn is reviewed every month and reported at the end of the month. It should be noted that each industry has different churn rate calculations and understanding your business market is important to reduce churn rates.

Ideally, a business should have the lowest possible churn rate, which is close to 0%. This indicates high customer retention. Efforts to reduce churn rates are important because in business, losing customers will have fatal consequences.

Causes of Customer Churn

Reporting from Net Hunt, here are some reasons why your business experiences customer churn:

1. Wrong in Determining Consumer Targets

One of the potential causes of your business experiencing customer churn is the wrong target market / consumer target. When your business does not have a clear buyer persona, the target consumer will also not match the product or service to be offered.

To prevent this from happening, a business/company must have clear branding and buyer persona to be more focused. Conduct market research, analyze existing consumers, then create a buyer persona to identify the characteristics of the appropriate consumers.

2. Lack of Customer Support

A business/company that supports its consumers well will not lose customers, on the other hand when a business does not have adequate customer support it will result in customer churn.

For example, they do not get a reply when they need help, the existing features do not help, of course your product or service will be abandoned.

3. Need Development in Customer Service

How your business's customer service is developed also affects customer churn. Bad and unresponsive customer service will be a minus point that causes customer loss.

Some signs of customer service that consumers avoid include long waiting times, general and unhelpful support, and ineffective problem solving.

4. Lack of Communication Channels with Consumers

Social media channels and other communication media with consumers can be the cause of customer churn if not managed properly. Currently, many consumers prefer to interact and communicate with businesses/companies through social media.

5. Lack of Consumer Trust

If a brand rarely interacts with consumers, does not provide support, and updates, of course there will come a time when your consumers lose trust and switch to other brands/products. This is also one of the causes of customer churn due to ineffective consumer management.

The Influence and Importance of Customer Churn

How much customer churn in your business/company will be seen from the churn rate figure. Why is this churn rate then an important matrix and needs to be considered?

Customer churn means losing consumers, and it needs to be considered because to get new consumers, you will need more costs than retaining consumers.

A study states that increasing customer retention by just 5% can result in a 25% increase in your business profits. This can happen because your old customers who remain tend to return to using your brand's products/services and spend more money.

You don't need to think about competing with other companies when you can retain customers because of this tendency. Although it doesn't have a big impact, customer churn results in increased costs, which is why it is a serious matrix that must be considered in business.

How to Reduce Customer Churn

1. Focus on Customers

Don't focus too much on things like discount offers, incentives, and gifts for customers who want to leave your product. However, try to focus on customers who stay and make them stay.

2. Analyze when there is a decline

When there is a decline in customers, use the numbers to analyze. This will help you understand why they left your product/service and measure through analysis to create a solution.

3. Show Concern for Customers

Don't just interact with customers who contact you, but try to show concern for customers by interacting, helping, and supporting them.

That's why customer churn is important for your business. It is important to understand consumers because in business, consumers/users of your products and services are your greatest assets.

If you want to increase customer satisfaction with your business, Prasmul-Eli has a Customer Satisfaction & Relationship Program that you can follow.

Can be done online with a professional coach, develop your career and business. Read more information here.