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Top 10 reasons for customer churn and how to prevent it

Last updated

18 April 2024

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Dovetail Editorial Team

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You probably already know that customer acquisition drives business success. There’s no shortage of advice out there for developing new client marketing, landing more sales, and how to use research tools for more customer conversions. However, today’s leading companies also know how to monitor the customers who engage and fall off after the first purchasing experience.

Customer churn is a top priority for growing enterprises in 2024. Read on to find out what you need to know about customer churn, its most common causes, and insights to help prevent it from negatively impacting your bottom line.

What is customer churn?

Customer churn is a term that represents client turnover. It’s an important metric for businesses to measure. It highlights customers you converted into buyers who, at one point, stopped buying from you.

Customer churn metrics are typically measured over a set period of time. To find out how many customers you lost, follow this formula

Customers lost over a set period of time = (total customers at the start of the period + new customers gained during the period) – total customers at the end of the period

So, let’s imagine you had a count of 120 customers at the end of November. Your business landed 10 new customers by the end of December. The total number of customers you had at the end of December was 125.

(120 + 10) – 125 = 5

You can now calculate your churn rate. Here’s the equation to use:

Churn rate = (number of lost customers/total customers at the start of the period) x 100

So, your monthly churn rate for December would be:

5/120 = 0.0416

0.0416 x 100 = 4.16%

The adverse effects of customer churn in business

Customer churn is expected in any industry and business. Buyers will come and go for different reasons, both voluntarily and involuntarily. However, if you’re not monitoring churn, you could experience adverse effects and miss valuable opportunities to improve.

The more customers your business churns, the more money you’ll spend attempting to recoup the loss. Most business owners know it’s far harder to sell to a new customer than it ever is to sell more to an existing customer. So, unchecked customer churn, without continuous review and analytics, could significantly impact your bottom line.

What are the reasons for customer churn?

As you look for ways to better control your company’s customer churn, first, you need to recognize some of the factors at play. Knowing what might inspire a customer to stop buying from you will help you strategize relevant solutions.

Explore these top 10 reasons for customer churn in today’s business climate, along with the recommended fixes that will enable you to get your churn rates back on track.

1. You’re attracting the wrong customers

Whatever your product or service, you likely have an ideal customer or target persona in mind to focus your marketing. Churn can occur when you inadvertently attract buyers these personas don’t represent. These people are likely to buy once and fall off your radar.

How to solve it

Poor customer–product fit is a cause of churn that you can reverse. Take a look at your company’s marketing and messaging. Revisit your buyer personas and evaluate them. Look for opportunities to have a better understanding of what your ideal clients need from your product or service.

You can realign any advertising and marketing content to solve your ideal customers’ unique problems, reducing overall churn. Remember, solving customer problems is more impactful than simply listing your product’s features.

2. Your customers aren’t achieving their desired outcomes

Some customers fail to become loyal, repeat buyers because your offering didn’t meet expectations or deliver desired outcomes.

When companies focus on the short game, they may overlook the importance of driving long-term results. Quick-sale products or campaigns designed to close first purchases quickly can help boost your bottom line, but those customers will churn unless you have a dedicated funnel and onboarding process to keep them engaged and coming back.

How to solve it

Follow-up post-sale communication will ensure you maximize every opportunity to help customers achieve the outcomes they seek. Constant communication will transform one-time customers into long-term brand advocates.

3. Your customer support experience needs work

Another common cause of customer churn is poor customer support.

Buyers today have high customer service expectations. They want on-demand solutions and seamless transactions. They also want immediate answers to their questions and hassle-free remedies for any issues they encounter. Customers won’t buy after their initial purchase if your teams aren’t meeting those high standards of support.

How to solve it

To fix churn related to customer service, consider prioritizing better service before, during, and after the first sale.

Make customer care a profit center for your organization with robust staff training, tiered levels of support for each customer engagement, and 24/7 access.

From call center outsourcing to chatbots, make sure everyone who engages with your company has additional layers of support to help with questions or concerns.

4. Your customers think your competitors can do it better

Customers will churn if they believe they can get a better service, price, and value from one of your competitors.

Competitor monitoring, which includes active listening and campaign review, has to be a priority for any organization. Know what your rivals are saying and offering so you can find opportunities to stand out and be relevant. If you believe pricing is a cause of churn, spend time evaluating your price structure so you can maintain a competitive edge.

How to solve it

Explore ways to better package your offerings and get creative with your value propositions to separate your brand from your competition. If customers believe your competitors are doing a better job, find your weaknesses and prove them wrong.

5. Your offering has bugs customers believe you can’t fix

Your product or service may be directly driving customer churn. If your offering has bugs (or it appears to have bugs), buyers may go elsewhere.

When you’re looking for bugs, remember that their size is irrelevant. They can cause churn, whether large or small.

For example, Loot Crate was a popular box delivery subscription service for gaming and movie genre products. It grew so quickly that the company couldn’t keep up with delivery and demand. Customers began unsubscribing when their “loot” didn’t show or arrived without t-shirts, as promised.

How to solve it

The lesson here is that growing pains and hiccups happen. It’s your company’s ability to authentically communicate with customers about fixing the bug that will keep them loyal.

Look for ways to efficiently spot issues, communicate updates and fixes, and incentivize customers to stay.

6. Your customers no longer see your product’s value

This kind of churn occurs when your target customer no longer thinks your product or service has value.

Here’s a real-life example. Streaming movies and digital subscriptions for television and film have revolutionized how people consume media. In that digital transition, the movie rental business (think Blockbuster Video) experienced mass customer churn. Customers no longer believed the product had value.

How to solve it

You’ll need to find an innovative way to position yourself as a new solution. This might require more in-depth market research or internal product analysis.

To avoid the same fate as Blockbuster, your brand will need to diligently reposition for value. As a first step, consider using a customer satisfaction survey (CSAT) to see how your customers feel about their purchases.

7. Your customers think your offering is too expensive (or too cheap)

Pricing can be a motivating factor for customer churn. Customers will stop buying if they think your offering is too expensive for the value it offers.

Churn can also occur if they believe your discount prices are too low. They may assume you’re offering a low-quality product or service that reflects the low cost.

How to solve it

Precision pricing requires ongoing assessment, but it will stave off customer churn when executed effectively. Find the optimized pricing sweet spot for what your company offers with continuous product improvement and market evaluation to spot trends.

8. Your customer’s credit card has expired

One of the simplest, fixable causes of customer churn is expired payment methods.

For example, you might be losing sales because your customers need to be reminded to update expired credit card details online. They might not be aware of an expired payment method or other profile updates they need to make.

How to solve it

Contact the customer and create a communication process that sends emails or texts reminding them to update their details online. As long as they value your product or service, they will be happy to keep their details up to date.

9. A poor onboarding experience

Customer onboarding experiences matter. Not having a dedicated process in place to welcome new buyers into your client base can lead to churn. You may need to improve the onboarding experience if, for example, you’re not personalizing the customer welcome message, setting clear instructions, offering dedicated support channels, or issuing feedback surveys.

How to solve it

Effective onboarding often includes efforts to

  • Enhance product/service “stickiness.” (Product stickiness refers to the ability of a product or service to retain users and keep them engaged over time.)

  • Reduce time to value.

  • Know customer health scores.

  • Identify customers who are at risk of churn.

  • Implement routine customer communication.

  • Provide educational resources to improve the customer experience during onboarding.

10. Security and privacy concerns

Nothing tanks customer trust quicker than a security breach or privacy problem, especially if they don’t think you can handle it and protect their data.

How to solve it

Today, most companies make their security and privacy initiatives publicly available to promote transparency and build confidence.

Consider revamping any efforts that are lacking in your organization and sharing them with your customers. Set up mechanisms to protect your customers and their data, and create a contingency action plan if an issue occurs. This will help build long-term brand trust and reduce your overall customer churn.

Reduce churn using a customer insights platform

Today’s leading companies make churn management more efficient with the right tools. Leverage the features and benefits of a great customer insights platform to streamline your customer analytics and reduce churn. Use software solutions that make gathering and analyzing real-time customer data easy for your teams.

Find the right customer insights platform that offers these features:

  • A digital solution to speed up customer data analysis

  • A method for archiving past research to avoid repeat data collection

  • Scalability to customize growth with compliance features in mind

FAQs

Why is preventing churn critical for SaaS companies?

SaaS companies rely on subscription software revenue on a recurrent basis. This is what makes monitoring and preventing churn mission-critical. Higher churn rates can quickly erode revenue streams and reduce profits.

What is high customer churn?

Mature brands should aim for an ideal churn rate of 5–7%, according to Forbes. Small businesses and startups will usually hover around 10–15% churn rates on average.

Churn rates higher than these general averages are considered high.

Is some churn unavoidable?

Yes, some customer churn is to be expected and completely beyond your control. While the insights above can help you prevent voluntary churn, be prepared for instances of involuntary churn.

Here are some examples of involuntary customer churn:

  • Customers can’t afford it: it’s a cash flow problem on their end that is unrelated to your offer.

  • Outdated equipment or software: customers don’t have the hardware or software needed to fully leverage what you’re offering.

  • User or management changes: your customers may have restructured and changed up key users or management, impacting how they make purchasing decisions.

  • Customers move on: customers might leave the market altogether, like company clients that close facilities or consumer customers who opt out of your offering because they no longer need it.

  • Regulatory changes: new laws, regulations, or compliance measures coming into effect may impact a customer’s ability to buy or use your product.

As your company strategizes for ways to onboard new customers, remember to also monitor and improve your customer churn. Use the insights here and from your customer behavioral metrics to inform how you make business decisions in an ever-changing market.

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