Common Causes Of Customer Churn And How To Fix It
Customer churn refers to the percentage of customers who stop using a company's product or service after a set time. It is a crucial metric to analyze the growth of a company. Companies with the same average value and acquired customers can have different values because of customer churn differences. Subsequently, customer churn is a killer metric that can directly impact the valuation of a company.
Why Does Customer Churn Matter?
As discussed above, customer churn can directly impact the valuation of a company. But it also plays a critical role in a company's profitability. It is because most of the companies' businesses come from existing customers. Research indicates that even a 5% increase in customer retention can increase a company's profit by a minimum of 25%. In addition, 80% of a company's future revenue comes from 20% of the existing customer. Therefore, keeping an eye on customer churn and reducing it is crucial.
There are numerous reasons for customer churn. Even though these reasons are sometimes unique, it is still possible to categorize the same. Here is a list of common causes of customer churn and its solution.
1. Poor User Experience
This reason is most applicable to companies that have a digital touch. If an application or software fails to provide the right user experience, users will undoubtedly shift to another platform. For instance, if a platform is helping the users to check their PNR Status in a way that sometimes the service works while other times it fails, the users will prefer to shift to another reliable platform to get the same service.
It is achievable to improve the user experience by actively looking for bugs and glitches in the software and application. In addition, the developers should take customer feedback seriously to improve the user experience.
2. Wrong Product-Customer Fit
If your product does not resonate with your customer, there is a high chance that the customers will not stick around in the long run. Such customer churn is a result of two factors. Firstly, the business is attracting the wrong customers, and secondly, the organization's sales reps are showing churn and burn behavior.
You can ensure the correct product customer fit by delivering clear messages to the customers from day one. The sales rep mustn't oversell or undersell a product or service. The pitch needs to be perfect. Furthermore, businesses should adequately research their target audience.
3. Price
Price is one of the imperative factors that affect customer churn. Customers might churn to the solution if they find another cost-effective solution. In addition, in the dynamic market, the price point is significant for a business when inflation and recession have become increasingly high.
Companies can reduce customer churn because of the price point by offering cost-effective solutions at par with the industry standard. Furthermore, they should onboard the customers to make them realize that the purchase is worth their price.
4. Lack Of Engagement
A disengaged customer using your service less frequently has a high chance that they will drop out of the benefits soon. There can be numerous reasons behind this lack of engagement. It includes but is not limited to a bad user journey, onboard problems and ineffective solutions.
Companies need to monitor the engagement rate of the users to avoid customer churn for this reason. Also, running a reactivation campaign is highly beneficial in such scenarios.
5. Customer Experience
In today's world, almost all businesses are working towards providing high-value products and services to their customers. In such a scenario, the customer experience becomes the differentiating factor. According to a survey, many customers prefer an excellent customer experience to a valuable product and service. Therefore, a poor customer experience or service can immediately result in customer churn.
Businesses can build customer loyalty by making customers feel more valued. Therefore, giving the customers all the essential support is vital to ensure they always feel welcomed. Not only improving the customer experience will reduce the churn rate but also, it will help the company to grow revenue with word-of-mouth marketing.
Different industries have different churn rates. Therefore, it is essential to know the churn rate of your sector to ensure that your company is moving towards growth. The average customer churn rate is 32%. However, it is different for different sectors. For instance, the churn rate of good SaaS companies is only 5-7%. Irrespective of the churn rate in your industry, the primary goal of your business should always be to minimize it.
