What is a business without its customers? It’s a question that needs no answer; and, with that in mind, the importance of customer churn - simply put, the rate at which a business loses customers – cannot be overstated. However, it’s arguably even more important for subscription businesses.
Typically, most subscription businesses only start making money after nine to twelve months. We’re playing the long game, here: we need customers to stick around rather than fleeing at the first sign of an alternative offer. So how do we correctly identify, analyse, and reduce customer churn?
What is Customer Churn?
For subscription businesses, customer churn is a metric used to measure the rate at which customers cancel their subscriptions. To calculate your churn rate, you simply define a length of time (say a month). Next, you divide the number of customers who have cancelled (to calculate this figure, subtract the number of customers you have at the end of the month from the number of customers you had at the beginning) by the number of customers you had at the start of the period. That’s your churn rate.
Analyzing Customer Churn
It might be tempting to aim for a churn rate of 0, but this is pretty unrealistic. According to recent research a useful benchmark for the subscription industry is a churn rate of 6.73%. However, it was also noted that B2C companies typically experience more churn than B2B (8.11% for B2C compared to only 6.22% on average for B2B).
Before implementing a strategy or the best way to reduce customer churn, it’s a good idea to also perform some analysis. Routine checks of several key metrics will also help you to ensure churn rates don’t increase and that you’re aware of any performance missteps. Important metrics to analyse include: missed payments (churn can occur if a card is declined, and this could be for a number of reasons such as a lost or frozen bank card – this is known as ‘involuntary churn’); decrease in engagement (time spent on the product has decreased, or perhaps a customer hasn’t logged in for an extended period); increase in downgrades (customers changing their plan or perhaps even switching to a free version).
Simple Ways to Reduce Customer Churn: Our Top Tips
Create a knowledge base
If you don’t have a resource centre or knowledge hub for your product/service, you could be missing out. Research conducted by Forrester has shown that customers prefer knowledge bases over all other support channels.
Knowledge hubs are useful for several reasons, all of which can help to keep customers engaged (and reduce customer churn):
They answer key queries and FAQs.
They provide useful ‘how-to’ information, in case a customer is struggling with a new product or update.
They are useful marketing tools: not only do they help to prevent any misconception about your brand, knowledge bases can make the value of your offering crystal clear – meaning that a customer is less likely to jump ship.
Encourage feedback and bug reporting
Quite simply, if you don’t know what the problems are – or what your customers need – how can you ever hope to retain your customers? Thankfully, the solution is pretty straightforward: you need to ask for feedback!
In addition, you need to make it as easy as possible for customers to let you know of any issues with your platform or service, and to offer other suggestions for improvement. If you’re a Billsby user, we’re here to lend a hand: for example, in every email you send out, we include a slot for your own content (which would be a great place to add a feedback link).
We also highly recommend capturing relevant info from customers who already have one foot out of the door. Avoid lengthy exit surveys, though. Instead, use a free-form builder like Typeform to create a simple, two-step questionnaire with two questions: ‘why are you leaving?’ followed by ‘is there anything else you can tell us that would help us improve our service?’. The first question should be a multiple choice (we advocate three options: ‘I don’t use it anymore’; ‘it was too expensive’; and ‘I switched to a competitor’), but the second question should be a free-form field that allows your ex-customer to provide honest feedback about why they’re leaving and what you could do to enhance your offering.
Take the time to really read these comments and see if there are any patterns – is there a common strand that ties cancelling customers together? If you think there’s an obvious fix or a way to win them back, you could even use this feedback as a jumping-off point to open a dialogue and persuade them to give your company another chance.
Speed up customer service
A seemingly obvious tip and the best way to reduce churn rate, but a crucial one: when a customer makes contact, how quick are your response times?
Every time a customer gets in touch – even if it’s to complain – it should be seen as an opportunity: an opportunity to strengthen your connection with that customer, and to gather intel about where you could improve your offering. However, if you’re slow to respond, your phone lines are always busy, or your social media accounts are not monitored or active, you may find that your customer goes elsewhere.
Aim to respond to every communication in 24 hours or less – and take time over your responses, especially if it includes negative feedback. If you’re feeling unsure about where to start, our blog, ‘How to Turn Negative Feedback into a Business Win’, contains lots of helpful tips on this topic. Check it out!
Know your customers
Really getting to know your customers: where they’re typically from, how they found you, what their preferences are, how much they typically spend with you, and so on, is a vital component of business growth. But when it comes to reducing churn rate, customer retention, knowing who your high-value customers are is really crucial.
There are a few different CRM mechanisms that can help you build and analyse customer profiles - like Billsby’s specially-developed Value Score tool (which we’re pretty proud of). With Value Score, you’ll have access to 360-degree value scoring, which is influenced by many different elements: everything from who pays on time to how they interact with your platform.
So, when you know who your ‘best’ customers are, how do you keep them onboard? You need to make them feel special and important; and much of this comes from designing very specific interventions. Our retention tools will help you provide differentiated journeys to high-value customers who are thinking about cancelling: meaning that you can offer them better, more relevant discounts and other incentives that are tailored to them, whilst communicating the value of your product at every opportunity.
Churn is connected to every element of your business – which means it’s vital to be proactive. Billsby’s range of sophisticated analytical tools (included as standard with any Billsby account) help you stay on top of trends and target those customers who might be looking to leave with bespoke offers and proactive support prompts. This means customers who are on the fence will be tempted to stay (and, as a result, your retention rate will increase). For more information about how Billsby can help you reduce customer churn or prevent customer churn, check out our free e-book, ’20 Ways to Reduce Churn and Retain More Customers’, or experience the magic of Billsby for yourself by signing up for a free trial today!