Today, customer attrition is a concern for most businesses at one point or another. Understanding it and implementing the right strategies to reduce customer attrition is key for future growth.
Every year, companies lose an average of 10% of their customers. Harvard Business Review
While the number of customers fluctuates in all business sectors, companies offering long-term services with subscription payments, such as SaaS software publishers or telecom operators, are the most affected.
But, how to calculate customer attrition? How should it be interpreted? And how to reduce customer churn?
Discover all of our tips and recommended tools on customer attrition to improve your marketing strategy!
What is customer attrition?
Customer attrition, also known as customer churn, is the loss of customers or clients.
To measure customer attrition, it is recommended to use a customer attrition rate which is a marketing indicator used to get the percentage of customers or subscribers that have stopped using your product or service over a given period.
Measuring customer churn rates is a fundamental step in analyzing your company's ability to retain customers. And, it will give you information about the general health of your business and the match between market expectations and the features of your product or service.
Voluntary and involuntary customer attrition
When calculating your customer churn rate, it is important to distinguish customers who leave you by choice and those who leave by force.
Customer attrition is voluntary when the customer decides to stop purchasing your product or service. This may be because he no longer has a need for it or he decided to purchase it from a competitor.
Customer attrition can also be involuntary. This is when customers leave due to factors beyond your control (e.g., they go out of business).
Why should you measure customer attrition?
To understand why customers leave
Measuring customer attrition is useful for companies that offer products or services in the form of a subscription (with recurring payment) such as telecom providers or SaaS publishers.
Customer retention is a key issue for them because they are faced with the highest attrition rates among all industries.
Today, the leading causes of customer attrition are:
1. Poor onboarding
During an onboarding, customers interact with your team and this is where you can make the first positive impact.
They pay for your product or service because they want it to solve a problem for them. If you take too long to show results, they might look for a better alternative.
2. Weak relationship building
It is important to maintain a healthy relationship with your customers. The key is to show them that you are listening to their needs and that you are constantly providing bespoke solutions to solve their problems.
If you do not take care of your customers, someone else will.
3. Poor customer service
To prevent this from becoming a deal-breaker, and driving your customers away from your service, you need to offer fast, responsive customer support.
To define a strategy
Relying on a Key Performance Indicator is helpful, but not sufficient. If you collect data, it is mainly to monitor its evolution. Evaluating your company's attrition rate will allow you to identify the reasons why customers switch to the competition and prevent churn.
It is by measuring that you learn... and take the lead!
Moreover, by identifying your customer attrition rate, you will be able to detect possible weaknesses and find correct actions to implement to improve your solution.
To focus on customer retention
The customer attrition rate also indicates the extent to which the volatility of your customer base affects your sales.
Since the cost of acquiring a new customer is higher than the cost of retaining one, it may be more worthwhile to focus on customer retention to secure your revenue in the long term.
Therefore, the loyalty program for b2b customers should be an asset that you take advantage of since he is likely to purchase more and recommend your brand to others.
How do you calculate a customer attrition rate?
Customer attrition rate formula
First, quantify the following information:
the number of customers lost during a given period
the number of customers at the beginning of the given time period.
Then, divide the number of customers lost by the total number of clients over a given period and then multiply by 100 to get a percentage:
custumers lost during period/customers at the beginning of said period
Here is an example:
To calculate turnover rates for a company that had 650 customers at the beginning of the month and 600 customers at the end of the month, the attrition rate formula would be:
Number of customers lost: 650 – 600 = 50 customers
Number of customers at the beginning of the period: 650
Attrition rate formula: 50/650 = .0769 or 7.7%
Gathering this data can be more complex when you are selling a product or service that does not involve repeat purchases or subscriptions. Indeed, it is easier to obtain the number of people that have terminated a contract than it is to identify those who repeat purchases.
Calculating NPS is also a good method to know your customer satisfaction.
What is a good customer attrition rate
It is generally recommended to not have an attrition rate of more than 10%. However, this number depends on your product or service and your industry, and it can be much higher for some companies, without being a potential danger.
How can you prevent customer attrition in 4 steps?
Adopting or reinforcing a customer-centric approach may be one of the best techniques to promote customer retention. Therefore, you should focus on improving customer experience to increase customer satisfaction and loyalty.
Here are 4 steps to reduce customer attrition:
Step 1: segment your customer base
To analyze your customer attrition more accurately, segment your customer base, and identify the most profitable customers. You will then be able to take actions adapted to different groups of customers that have similar expectations or characteristics (budget, habits, channels used...), to increase their satisfaction.
Customer Relationship Management (CRM) software is the perfect tool to do this with. It allows you to segment your customer base, develop marketing or persona profiles, and follow the entire customer life cycle, from prospect to loyal customer.
Step 2: collect consumer data
There are several types of relevant data that you can collect, this includes:
- customer sales engagement
- psychography (opinions, interests, etc.)
- interactions with the brand in a given environment and on the communication channels used (chatbots, social media, hotline, etc.)
- This data can be analyzed to have a better understanding of the expectations and purchasing behaviors of your targets.
Likewise, it is possible to directly ask for their opinion, with surveys and questionnaires.
Step 3: improve your response time
Customers are very sensitive to the quality of their interactions with a brand. Improving your response time limits the number of unsatisfied customers that could spread negative impressions about you to others.
Step 4: personalize the customer journey
Reinforcing customer relations requires personalized features and messages. To do this, you can create workflows adapted to your targets by following each step of the conversion funnel.
With a CRM or marketing automation solution, you can set up different automated scenarios, focusing on each of the key moments of the customer's purchasing journey to ensure you send the right message to the right target at the right time.
Finally, track your metrics to study the impact of your marketing actions and observe the evolution of the attrition rate over time. This will allow you to gain insights to improve your marketing campaigns for customer acquisition, retention, and loyalty.
Now that we have provided you with all of the right tools to reduce your customer attrition, what will be your first step towards customer retention?