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Customer Churn: The most reliable indicator of how well you are managing your existing customer relationships

Just like any good physician, as a business owner there are signs and symptoms you should monitor continuously to help you diagnose any potential issues within your business.  

The most reliable indicator you can monitor to tell you how well you are managing your existing customer relationships is your customer churn rate (also known as customer attrition).  Your customer churn rate is the percentage of customers that you are losing over a specified period of time.  

Existing customers are just as big of an opportunity for your business as attracting new customers.  In fact, it is a well-known truth in the marketing world that you spend WAY more money trying to bring a new customer into your business than you do keeping a customer and according to recent studies you have less than a 20% chance of selling to a new prospective customer, while your chance of selling to an existing customer is greater than 60%.

If you aren’t paying attention to the opportunities within your existing customer base, than you certainly need to be. Start by calculating your customer churn rate. 

Before calculating your customer churn rate, you'll want to be sure to address the two factors I outlined in this week’s Monday Marketing Minute (if you missed the video - it can be found here)

  1. Identify at what point you consider a customer ‘churned’ or ‘gone’. For those of you with a subscription or membership based business, this may be easier to identify than if you have a service based industry.
 Here are some examples of when you may consider your a customer   ‘churned’: 
      • when a customer doesn’t renew a contract
      • when a customer chooses to shop at a competitor's
      • when a customer closes an account
    For those of you in service based industries, you’ll need to set your own parameters. Example: if I own a hair salon, I may decide that my customer is ‘churned’ when they haven’t set foot in my salon for any service in 3 months. Ideally, I would have data to prove that once a customer doesn’t come in for 3 months, than theres a 90% chance they don’t return.   
    **Caution: Make sure that you are using the same terms every time that you calculate this number and make sure that you have the systems or processes in place to track it.
    2. Determine the timeframe or period that you want to calculate your churn rate for. Does it make sense to calculate it every quarter or every month. Every month may be a bit excessive depending on your industry.


    So now that you've set your parameters - what exactly can your churn rate tell you about what’s going on in your business?

    • How effective your marketing efforts are in attracting the right customers.  Let's stick with our hair salon example.  If you ran an ad or promotion for the month of September to target women who needed hair coloring services and you decided to place this promotion on Groupon, offering a heavy discount ($40 for hair coloring services, when typically you charge $120). The promotion is wildly successful - you get 100 new customers who take advantage of the Groupon rate - but then you realize in November (8 weeks out, typically women will return for hair coloring services in 6 weeks..we are giving them an additional 2 weeks), that only 5 of these women come back to your salon for a repeat service. We may be able to link the promotion with attracting the wrong customer. 
    Maybe it was a customer that just wanted to purchase your product or service for a deep discount, knowing that they would cancel their membership the next month or never return for a repeat purchase.  If this is the case, than I would recommend that you dive deeper and decide if the juice is worth the squeeze.  Do you really want to be spending time and money attracting a customer you know is just going to walk out the door the next month? You would be better off targeting the RIGHT customers, because afterall you are looking to build a group of loyal customers...because remember it's easier and more cost effective to get them back into your store!
    • If your new customer "onboarding" or experience is lacking. Imagine you're a new customer to your own business - is there a 'process' that they go through? Do you give them a Welcome Packet to let them know about all the services you offer and how to schedule future visits? Do you send them an email after their first purchase to not only thank them for the purchase but to let them know about any 'guarantees'? Is there a special Facebook Closed Group or Community for your customers that you want them to know about so that they can become an engaged customer?  If you have a high churn rate, it may be due to the fact that your new customers aren't feeling the love
    •  If you aren't keeping up with your competitors. For some consumers, depending on the industry, it can be a pretty daunting decision to change service carriers. Let's use healthcare as an example.  If I have established care at a practice and have seen the same specialist for two years - it's going to take a pretty significant event to cause me to leave.  But let's say that you notice that your churn rate has significantly increased over the past year - you may want to take a look at your competitors. I may start to realize that it has become drastically easier to schedule appointments online with my competitors due to a new app or software they are using.  If my practice is lagging behind and I still require appointments to be scheduled over the phone and all of the paperwork (all 4 pages) to be filled out in our waiting room, while my competitors allow patients to do it online and from the comfort of their home prior to the visit. Well then, this may be playing into my increased churn rate. 

    While monitoring your customer churn rate is an effective way to keep your finger on the pulse of your company, it always requires a deeper look.  Remember that it is an indicator.  My recommendation is that you do a little research and look at industry averages, don't be afraid to ask your professional industry groups, or look to industry leaders to see what their customer churn rate percentages look like.  

     Until next week!



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