How to reduce customer churn

Every business faces it. But how best to tackle it? Customer churn – the loss of (often previously well-engaged) customers – needs to be understood before it can be addressed.

Here are our top tips on how to reduce customer churn:

Do your research to identify key areas for improvement

Research is key for identifying wider issues that may be at play. If your product offering doesn’t hit the mark or your pricing is off-key no amount of sophisticated marketing techniques will keep customers spending with you. Involve both new and existing customers in your questioning, active, inactive and (most importantly) lapsed customers. That way you’ll gain greater insight into not only why you’re losing them but what it is you should do about it.

Test & Learn

Testing is equally as important to understanding customer churn. Are you targeting the right products and offers at the right customer groups? Are your communications optimally-timed in the customer’s relationship with you? A new customer, for instance, may spend highly on their first purchase and not be in the market for a subsequent spend just four weeks later when you next make contact. Testing strategies should be developed out of a robust customer segmentation model as purchase behaviour will vary (often quite dramatically) from customer to customer.

Review the customer journey

Every contact you make with the customer should reflect where he/she is in their relationship with your business:

1. On-Boarding – Invest in a rigorously-tested welcome strategy to engage new customers with you from the outset so they go on to display the loyal behaviour that you’re looking for.
2. Retention – Know your customers and segment them through regular profiling so your communications are well-targeted and on point. Irrelevant and excessive messaging is just as likely to switch customers off than no contact at all.
3. Dormancy Prevention – Efforts to prevent customers leaving you will always be more successful (and less costly) than any win-back strategies. Put a plan in place on a periodic basis to review those customers at risk of lapsing before they stop spending with you altogether.
4. Reactivation – Assess realistically how long you’ve got to re-engage lapsed customers. If an active customer typically spends with you every month then you’re probably only looking at a 3-month window of opportunity. Again, this will, of course depend on each customer’s previous purchasing behaviour and your reactivation approach needs to be adapted accordingly. Save your best offer until last as the longer the customer has been inactive the more enticing the incentive to spend will need to be.
5. Last Chance Saloon – A final call to action might be relevant if there are costs involved in customers re-joining your business should you remove them from your database completely.
6. Purge – Although database-cleansing goes against the grain of all the effort put into acquiring those customers in the first place, if you don’t purge your base of long-term inactives at regular intervals it will affect your campaign success rates and the impact of ongoing CRM strategies.

Right place, right time

The importance of regular, timely and relevant communication (tailored to specific customer audiences) cannot be overlooked. Offers are not always necessary (or appropriate) and can lead to offer fatigue or discount-only shoppers. Newsworthy updates or reminders of the ongoing benefits of shopping with you can serve to keep your business front of mind and front of wallet.

Measure & learn from your findings

When it comes to measuring customer churn you will need to consider your average customer lifetime. Use what you know about your existing customers to define this. The lifetime of customers within some businesses – a childrenswear retailer for instance – will have a ‘natural end’. Once known you can map this lifetime range to your lapsed customer base to assess how many would have naturally lapsed and how many could potentially have been re-engaged.

A valuable indicator of how effective your strategies to minimise customer churn have been is your ‘Leaky Bucket Ratio’ – a metric showing the number of customers “lost” in a given period relative to the number of new customers acquired. Apply this methodology before embarking on any activity and then again a reasonable amount of time into the program so you have a benchmark for future success.