Customer Churn: Top Strategies to Reduce and Prevent

What is customer churn? 

Customer churn is when customers discontinue their relationship with a company or brand. It is a critical metric for businesses across industries as it directly impacts revenue and profitability.  

Typically measured as the percentage of customers who terminate their relationship with a company within a specific time period, customer churn manifests in the form of subscription cancellation, service discontinuation or customers no longer making purchases from a company.  

By understanding the factors driving customer churn and implementing effective strategies, you can minimize attrition and maximize customer lifetime value.

Why is it important for businesses to control customer churn? 

Like it or not, expecting your customers to remain loyal to your brand forever is unrealistic. With diminishing product differentiation and growing competition, businesses have slowly moved into an era where retaining customers longer than their peers is now a competitive advantage. Besides, here are several reasons why minimizing customer churn is essential:  

Revenue stability: High churn rates can lead to revenue instability, as you must continually invest resources in acquiring new customers to offset losses. Reducing customer churn and improving long-term profitability can maintain a more stable revenue stream. 

Cost savings: You might have heard that acquiring new customers typically requires more resources and investment than retaining existing ones. High customer churn rates not only result in lost revenue but also increase marketing and sales costs associated with acquiring replacement customers. By focusing on retention efforts, you can lower customer acquisition costs and improve overall efficiency. 
 
Customer lifetime value and net promoter score: High churn rates result in shorter customer lifespans and lower customer lifetime value (CLV), as customers who leave before reaching their full potential value represent lost revenue opportunities. By reducing customer churn, you can maximize CLV and increase the return on investment from each customer relationship.  
 
Dissatisfied customers who leave are more likely to share their negative experiences with others, potentially damaging your brand reputation management efforts and ultimately affecting your net promoter score (NPS). This crucial customer service metric represents your potential for referrals.  

Growth and scalability: High churn rates can stall business growth and challenge scalability. Consistent customer loss requires more resource allocation to accelerate customer acquisition, which can divert focus and investment from scaling operations and improving efficiencies. 

Types of customer churn

To formulate customer retention strategies, you must understand the different types of customer churn first.   

• Voluntary churn: Voluntary churn occurs when customers actively decide to stop using your products or services. This can stem from dissatisfaction with your brand, discovering a superior alternative or shifting customer needs or financial circumstances. For example, a customer might cancel a subscription to a streaming service in favor of a competitor offering a more attractive content library.  
   

• Involuntary churn: In contrast, involuntary churn occurs when the cessation of service is not initiated by your customer but is due to external factors such as credit card expiration, failed payment processes or technical issues preventing service renewal. Imagine a customer who loses access to your software service because their payment method has expired. That's involuntary churn.  
   

• Delinquent churn: Delinquent churn occurs when customers cease their relationship with a company due to non-payment or default on payments. This is common in telecommunications, subscription services and financial services, where recurring payments are required for continued access to products or services.    
   

• Chronic churn: Chronic churn refers to a pattern of recurring churn among a subset of customers. These customers may repeatedly churn and return to the company, creating a cycle of attrition and reacquisition. Chronic churn can indicate underlying issues such as product dissatisfaction, poor customer service or inconsistent experiences.   
   

• Predictable churn: Predictable churn follows a predictable pattern or trend based on historical data and consumer insights. Imagine a subscription streaming service with an official broadcasting right of an annual sports event. During broadcasting, the streaming service experiences a continuous influx of new subscribers who don't renew their subscriptions after the event.   

Every type of customer churn presents its own set of challenges. They require distinct approaches for resolution. Now, let’s understand a few more causes of customer churn. 

7 common causes of customer churn

When customers unexpectedly leave your business, it's essential to identify the underlying reasons. Here are seven common causes of customer churn: 

1. Poor customer service: Providing excellent customer service is crucial in any business. In B2B businesses like SaaS, service level agreements (SLAs) are often relied upon. If the business fails to meet the SLAs, customers may become dissatisfied and leave. Similarly, in B2C sectors like e-commerce and retail, a single negative experience can cause customers to switch to a competitor.

2. Lack of ongoing value: Customers may leave if they no longer perceive your product or service as valuable. This occurs when a product fails to evolve with customer needs or market advancements. For example, a fitness app that doesn't regularly update its workout content may lose subscribers to more dynamic competitors. 

3. Price sensitivity: Price-sensitive customers are challenging to retain. If customers find a more affordable alternative, they may leave before you have a chance to address the issue. Ensure your offerings are competitively priced, with quality as the critical differentiator. 

4. Product or service quality issues: Deficiencies such as limited functionality, frequent downtime or operational complexities can lead to customer churn. Customers leaving due to quality issues are unlikely to return, emphasizing the importance of maintaining high-quality standards. 

5. Failure to keep up with market trends: Businesses that fail to adapt to market trends risk losing customers. For instance, Blockbuster's inability to embrace online streaming led to its downfall as customers migrated to services like Netflix. Staying abreast of market developments is crucial for retaining customers.  

6. Ineffective communication: Poor or infrequent communication can lead to customer dissatisfaction and customer churn. Establishing proactive communication, whether for minor updates or service disruptions, is essential for maintaining customer satisfaction and loyalty. Read how to leverage AI for customer communication.  

7. Inadequate customer onboarding processes: Complex or unpersonalized onboarding processes can increase early-stage churn. Effective onboarding helps customers feel valued and supported, building customer loyalty. For example, a complicated investment platform lacking clear guidelines may overwhelm new users, prompting them to seek simpler alternatives. 

Now that you understand customer churn, its causes and its implications, here is how to calculate it. 

How to calculate customer churn rate — 3 Approaches 

The customer churn rate is always measured in percentage. Here are the formulas to calculate different metrics associated with churn rate. 

• Basic churn rate 

Suppose your company starts the quarter with 500 customers and loses 50 by the end of the quarter. Using the formula: Churn Rate = (50/500) × 100 = 10% While the calculation looks fairly simple, it's crucial to recognize the distinction between various metrics as they convey different implications for your business.  

For instance, let's consider two companies: Company A loses two customers who pay $20 each per month, whereas Company B loses only one customer who pays $120 monthly. While Company A's customer churn rate might appear higher, Company B's revenue churn rate is actually higher due to the more significant revenue loss from a single customer departure. 

• Gross revenue churn rate 

To calculate the gross revenue churn rate, you need to assess the total revenue lost from churned customers relative to the total revenue at the beginning of the period. Here's the formula: 

Follow these steps to calculate the gross revenue churn rate: 

Step 1: Determine the period: Decide on the period for which you want to calculate the gross revenue churn rate. Depending on your reporting needs, this could be monthly, quarterly or annually.  

Step 2: Identify churned customers: Determine customer churn during the specified period and calculate the total revenue lost from them. This includes recurring revenue, such as subscription fees and one-time purchases made by churned customers during the period.  

Step 3: Calculate total revenue at the beginning: Determine the total revenue generated by all customers at the beginning of the specified period. This includes both recurring and one-time revenue. 

Step 4: Plug values into the formula: Substitute the values obtained from steps 2 and 3 into the gross revenue churn rate formula.     

• Net churn rate 

The net churn rate is a metric used to measure the overall change in the customer base over a specific period, typically monthly or annually. It considers both customer churn and customer acquisition during that period, providing a comprehensive view of the net change in the customer count. 

A positive net churn rate indicates a net loss of customers during the period, while a negative net churn rate indicates a net gain.  

 Here are some rough benchmark numbers across industries: 

Also, do consider the following factors and assumptions when calculating your customer churn rate: 

• Segmentation consideration: Customer segmentation based on relevant criteria such as demographics, behavior or product usage can provide valuable insights into which customer cohorts are most at risk of churn. 
   

• Accounting for new customers: Consider how to account for new customers in churn calculations. New customers may have different churn behaviors than existing customers and excluding them from calculations can skew churn rate metrics. 
   

• Treatment of reacquired customers: Decide how to treat customers who leave and then return later. Depending on your business model and goals, you may exclude reacquired customers from churn calculations or track them separately. 

Having understood the customer churn rate, let's now consider some mitigation strategies. 

How to reduce customer churn: 9 actionable pro tips 

These tips apply to any business, regardless of its nature. When implemented with a deep understanding of the customer base and careful planning, the following strategies can decrease customer churn.  

Tip #1 Implement customer feedback loops 

Collecting and analyzing customer feedback regularly can help you understand their needs, pain points and concerns, which can enhance customer satisfaction and loyalty. By prioritizing customer feedback and using tools like customer surveys, you can ensure continuous improvement while aligning with customer expectations.  

Do you know: Modern omnichannel customer survey software can help you keep track of customer feedback across 30+ digital and social channels, including voice. Additionally, with the power of automation, you can even convert survey questions into conversations that a chatbot can execute. This allows the chatbot to ask relevant questions and gather feedback from your customers automatically.  
 

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Tip #2 Deliver personalized customer experience 

One effective way to improve customer experience is to analyze customer interactions and leverage contact center CRM systems. This approach can provide valuable insights into customer preferences and behavior, which both agents and AI-powered chatbots can utilize to personalize interactions and make customers feel valued. As a result, customers are more likely to perceive you as a customer-centric brand and are less likely to seek alternatives. 

 Tip #3 Prioritize first contact resolution 

To reduce customer churn, you must ensure your support team can resolve customer issues as soon as they contact you. Train your contact center agents in practical problem-solving and give them access to the necessary tools and knowledge base to handle inquiries efficiently during calls and live chat.   

First contact resolution shows your commitment to enhancing customer experience, significantly increasing the likelihood of customer retention and positive brand perception. 

How Sprinklr AI+ helps: 

First-contact resolution heavily depends on how well your agents understand customer queries and how fast and accurately they respond. With a growing emphasis on customer empathy, Sprinklr AI+ ensures that your agents stay invested in conversations rather than wasting time finding solutions. Here’s how:  

Sprinklr AI+ equips your agents with generative AI-powered nudges to help them resolve customer queries faster. It auto-extracts relevant insights from similar past cases and solutions from knowledge base articles and recommends agents with probable solutions and the next-best action. As a result, the agent workload decreases and first-contact resolution increases by 50%. 

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Tip #4 Enhance communication channels 

By leveraging customer service channels where your customers frequently engage, such as WhatsApp or social media, you can seamlessly announce product updates, promotions and relevant news and track customer engagement. This approach ensures that your communications are non-intrusive, respecting your customers' preferences while creating a sense of accessibility to support. With your brand just a tap away, customers feel empowered to seek assistance effortlessly, fostering a positive relationship and reducing customer churn. 

Tip #5 Analyze customer sentiment 

Analysis of customer sentiment lets you gain insights into how customers feel about your products, services and overall brand. By monitoring sentiment through various channels such as social media, surveys and customer feedback, you can identify areas for improvement, address concerns promptly and proactively mitigate potential issues that could lead to customer churn.   
 

Tip #6 Implement customer success programs 

Developing customer success programs focuses on helping customers achieve their goals and maximize the value of their purchase. Providing educational resources, tutorials and training sessions empowers customers and drives product and service adoption and usage. Assigning dedicated customer success managers builds relationships, addresses concerns and advocates for customer needs within the organization, fostering a culture of customer success.  

Tip #7 Optimize pricing and packaging 

In today's cut-throat market, regular pricing analysis is the key to staying in sync with customer expectations and offering them the best value. Furthermore, experimenting with different pricing models, discounts and promotions can help you lure and retain price-sensitive customers.  

Another approach that many successful businesses adopt is bundling products and services into value-added packages that cater to different customer preferences and usage patterns. Such an approach can significantly enhance the perceived value of your offerings and reduce customer churn by increasing satisfaction and loyalty. By staying agile and adapting your pricing strategy to meet changing market demands, you can stay ahead of the competition and scale your business. 

Tip #8 Focus on customer onboarding and engagement 

Effective customer onboarding and ongoing engagement are pivotal in mitigating potential churn. By streamlining the onboarding process and providing continuous guidance and support, customers quickly realize the value of their purchase, accelerating their journey to maximum benefit.  

Moreover, fostering a sense of community and belonging through user forums, online communities and networking events strengthens relationships and encourages sustained engagement, reducing customer churn. 

Tip #9 Incentivize customer loyalty 

Create a customer loyalty program to reduce customer churn by rewarding long-term engagement and commitment. By offering loyalty points, referral incentives and rewards for repeat purchases or actions, you can enhance customer satisfaction and encourage continuous interaction. Such programs also turn regular customers into brand advocates, promoting organic growth and reducing the likelihood of customer loss.  
 
Learn More: 7 proven ways to reduce customer churn rate 

Losing a customer means losing a potential source of revenue and possibly damaging your brand's reputation. Therefore, you must prioritize strategies to combat customer churn or face dire consequences.   

Focusing on customer success, implementing effective retention strategies and leveraging innovative technology can reduce churn and build long-lasting customer relationships.    

This is where Sprinklr's Unified CXM platform can help. It offers the tools to provide exceptional customer experiences at every touchpoint, enabling you to deliver personalized conversations and proactive support that exceed customer expectations.    

Sign up for a personalized platform demo today before making any long-term commitment.

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