Customer Retention Analysis: Identify Risks and Avoid Churn Before It Happens

Published by Patrick Anidi on

Never lost a single customer- said no marketer ever. Customer churn is a common reality in every business, and a data-driven approach is necessary to manage it.

 

Let us start with the basics.

 

What is Customer Churn?

Customer churn represents the rate at which customers stop using your product or service, hence ending revenue flow to your business. In other words, customer churn shows how well a business retains customers. It is calculated by tallying the number of lost customers in a quarter by the number of customers during the present quarter.

 

Customer churn can mean trouble for most businesses. So why do customers churn, and how can it be reduced? A good customer retention analysis provides the answers you need to build a data-driven strategy that reduces churn.

 

What is Customer Retention Analysis?

Customer retention analysis simply answers the “how,” “why,” and “when” of retention. In other words, it involves figuring out how long users remain active before churning and the factors contributing to their exit.

 

A customer retention analysis provides the answers to questions such as:

  1. What counts as an active or inactive user?
  2. When are customers most likely to churn?
  3. How does churn affect your business profitability?

 

The fact about customer retention for B2B is that there’s no silver bullet for every business. Each business has different customer personas and products, and so their strategies have to be tailored to meet each of them.

 

For example, if your business has high ticket customers who purchase yearly contracts, they are less likely to churn. And if they churn, it significantly affects your bottom line. On the other hand, you have many small-ticket customers, each averaging a customer lifecycle span of 6months, your churn rate will be higher, but you would also be compensating it with new customers. So, there is no way to tell what is a good or bad churn rate in general.

 

Image Source: Pointillist

 

Proactive vs. Retrospective analysis:

When it comes to customer retention analysis, you can either be proactive or retrospective with your strategy. In a proactive analysis, marketers analyze data and identify customer behavioral patterns that indicate when customers are most likely to churn, usually before it occurs. This enables marketers to be proactive with their marketing strategy and spot customers right before they pick up the phone to cancel.

 

For example, if you have CRM software, you may notice that customers who are not really active are most likely to churn within the first 30 days of signing up. The ideal approach would be to re-engage these customers through a recurring marketing campaign and offer discounts on their next renewal.

 

Developing a proactive retention analysis requires accurate data, the right marketing tools, and an analytical mindset capable of implementing changes based on data findings.

 

Retrospective analysis, on the contrary, involves analyzing the outcome of marketing strategies to figure out what worked and didn’t work. The reactive analysis is usually the last line of defense a business has because it involves throwing all resources and efforts to save the customer from leaving. It might simply mean you are trying to regain the customer by offering discounts after requesting to cancel or have already canceled.

 

While proactive strategies can be highly effective, it also makes sense that a customer may still have a negative experience with your product or service. For example, your marketing campaign results can reveal that a significant proportion of your customers churned because of a faulty funnel. In this case, the damage would already have been done. You can only implement adjustments to improve the performance of your future campaigns.

 

In summary, this doesn’t mean that a proactive customer retention strategy should be chosen over the reactive strategy. What matters is how the data is analyzed and interpreted to retain customers. Sometimes, combining the two approaches works best for most businesses.

 

Methods to Reduce Churn

Dealing with churn may seem like an uphill battle, but the good news is that churn can be appropriately managed. To get you started, here are 10 customer retention strategies you can implement.

 

1. Define a roadmap for new customers

It can be really exciting to have new customers ready to use your product, but if they find it difficult or confusing to use, they’ll likely lose interest fast. A study from Localytics found that the average mobile app retention rate was 20% after 90 days. One of the top reasons is the poor onboarding process.

 

This is why good onboarding is needed to retain customers. A helpful onboarding process to get customers familiar with your features, functionality, and process sets the tone for a great relationship with them, especially if you use a product trial model that SaaS companies use.

 

Ideally, you want to create a seamless customer experience right from the start. Customers that feel supported and empowered by your business are likely to experience less friction during the onboarding process. The best-case scenario is that they don’t leave.

 

2. Ask for customer feedback frequently

Did you know that 96% of unhappy customers don’t complain, and 91% of those choosing to leave have very slim chances of returning? This means that a company can lose customers fast when they are not invested in having regular communication with customers.

 

Creating a customer feedback loop enables you to be constantly aware of your customers’ complaints and quickly deliver on them. This can be done by setting up a survey or feedback form through your email list or social media platforms asking customers about their challenges. The Groove team was able to reduce their churn by 71% by asking their customers why they were leaving.

 

If you have a live chat feature on your website, you can leverage the data from customer conversations to gain insights into what FAQs and common roadblocks they encounter when using your product.

 

3. Understand the reason for churn

Customers churn for various reasons, and it’s your job to find out why. You may miss out on valuable data if you let churned customers leave without getting feedback from them.

 

The truth is that churn is a common occurrence in every business, but it’s what you do about it that determines how much more customers you’re able to retain. The goal is to analyze data from happy and churned customers and predict behavioral patterns observed on both satisfied and dissatisfied customers.

 

Focus on important questions such as: how long does it take for customers to churn? What are the frustrations that led them to stop using your product or service? At what point do customers frequently churn? Do they churn at the first 15, 30, or 60 days? Find out how and when churn happens for your ideal customer.

 

Having analyzed these data, you can use the insights gained to build strategies to engage with customers and fix the relationship before they churn.

 

When it comes to analyzing churn, the obvious thing is to focus on customer segments that are most likely to cancel. However, Sunil Gupta, the Edward W. Carter Professor of Business Administration at Harvard Business School, suggests that this customer retention method should be applied to keep the goal of profitability in mind.

 

He explains further:

If I offer an incentive to customers most likely to churn, they may not leave the company, but will it be profitable for me? The traditional method is focused on reducing churn, but we contend the goal should be maximizing profits, rather than only reducing churn.

 

4. Remain competitive

The industry is changing so rapidly that being competitive is an option no business should ignore. A side effect of a change in market conditions is usually changing demands of customers.

 

Customers will not hesitate to switch to a competitor if their needs are not met. Companies that stay competitive make it a priority to keep ahead of trends, the latest technology, and product upgrades.

 

While being competitive is necessary, the needs of your customers must also be prioritized. That means any added upgrade or new functionality should be in line with your product’s value and customer needs.

 

5. Define your best customers

Every B2B business has a list of its best customer moments when you feel your product or service was just made for them. Define your best customers and do everything you need to retain them. In this way, you can retain the best customers and acquire new customers who have similar use cases.

 

As you can see, valuable and profitable customers need to be taken care of because they generate the most significant revenue. A suitable approach you can apply is to segment your customers into groups of profitability, state of churn, and the chances that they will respond to your re-engagement offer (email or phone call).

 

6. Educate the customer

Using a new product can be overwhelming to customers. You don’t give your customers a tool and expect them to figure their way around its technicalities. Some personalized support will ease their transition to using your product.

 

A solid knowledge base with video tutorials, blog posts, and workshop training are necessary to keep your customers more informed. As a result, they’ll be able to use your product at maximum profit.

 

7. Increase the average customer spend

Churn, when it happens, can result in lost revenue. So how is lost revenue replaced? You need an increase in customer revenue to replace churned revenue.

 

One way to do this is to offer an upsell in every customer purchase. Before you begin to initiate an upselling offer, you must do it the right way. Timing matters in this case because you want to present your offer when your customers are most likely to accept it.

 

The best time is when a customer is about to complete a purchase. For example, App sumo offers an upsell in their 1k monthly program at the footer of their email confirmation to increase average customer spend. When it comes to upselling, remember that your upsell offer must be valuable to your customer, not just you.

 

8. Offer incentives

Another customer retention strategy is to offer incentives such as promo, discounts, or coupon codes to your existing customers. This act of kindness can go a long way in solidifying your relationship with customers.

 

As expected, timing is everything when it comes to offering incentives. You’d need to evaluate what stage customers are in their lifecycle. Do they have an upcoming renewal? Are the customers’ needs met? How likely is it that they will churn? Providing answers to these questions set the path to delivering the right incentive that can make customers stay.

 

A word of caution. As good as incentives are, you need to ensure they are not given at a cost to your business. That means you should direct your incentives towards customers that will bring your business substantial revenue.

 

9. Offer customers self-service

Customer self-service is a proactive customer retention strategy that ensures customers are happy, cared for, and supported when faced with unanswered questions.

 

Businesses can set up support teams in the form of chatbots. With 69% of customers choosing chatbots, it can be a valuable add-on to your website.

 

Alternatively, establishing a help center also goes a long way in providing customers with needed support. A compilation of frequently asked customer questions will prevent customers from becoming frustrated and calling your customer support team.

 

10. Attend to customer problems – fast.

There are times when customers would need support beyond what an FAQ can offer. In this case, they’d have to contact the support team to address the issues that could trigger them to stop using your product or service. The best solution would be to go the extra mile to see that the customers’ needs are met. For example, if a customer reports that a particular feature isn’t performing well, your support team can schedule a call and show how its features work.

 

Granted, this strategy would require time and effort, but it does ensure that you don’t lose a valuable customer. Besides, a satisfied customer would be happy to spread the word of excellent customer service done by your business.

 

 

Bottom line

No matter how modified a customer retention strategy is, churn is inevitable in every business. However, this doesn’t mean that there’s no solution to keep ahead of it. Churn can be managed with the proper customer retention analysis.

 

Focus on using customer data to build strategies that will proactively reduce churn. Though each type has its pros and cons, studies have shown that 95% of customers prefer companies that communicate proactively with them.

 

With the correct data and tools, businesses can gain valuable insights that will help identify customers that are at risk of churning and create ways to stop it. One thing never changes- If you can positively impact your customers’ lives, churn will ultimately be significantly reduced.

Categories: Marketing

Patrick Anidi

The article was written by Patrick Anidi and edited by Nilangan Ray.