Last editedOct 20222 min read
Even the best businesses lose customers, but the ability to manage customer churn (otherwise known as customer turnover, defection or attrition) sets apart successful SMEs from failed startups. A thorough grasp of customer churn means that your business will see immediate improvements in revenue and customer satisfaction.
However, if you let your eyes off the ball and allow your customer churn rate to increase, you could soon start haemorrhaging customers and profits. This is why we focus on the top causes of customer churn and how your business can avoid them.
What is customer churn and what causes it?
Customer churn simply refers to customers that stop being customers. They either stop buying your products or using your services; it is one of the most important factors impacting company growth. If your customer churn rate is high, your company isn’t growing: it’s either losing custom or stagnating.
The opposite of customer churn is customer retention, and this is what the majority of businesses should aim for. But what makes some businesses drop customers and other businesses retain and attract new customers?
Top 5 causes of customer churn
Of course, different sectors are going to naturally have different churn rates. A car dealership, for example, is always going to have a higher churn rate than a local corner shop. The best way to retain custom is to meet and exceed the expectations of your target market. To avoid customer churn, always consider the following pressure points.
Offering the best price possible is always a balancing act for businesses, particularly those in highly competitive industries. Online shopping now makes it easier for customers to track down the best deals. Not knowing what the competition charges and offering less for more always leads to customer churn.
2. Customer service
A good customer service team always helps mitigate the impact of any problems. Ensure that you can be contacted through multiple channels and that those channels are in contact with one another too. Act on customer feedback when it comes to client-facing roles. Providing consistent customer service prevents customers from moving on, and also attracts new customers.
3. Target audience
Target the right people to ensure you have the best chance of building a loyal customer base. Think not only about how many customers you’re attracting but whether they are the right fit for your brand identity. If a customer doesn’t feel like they ‘belong’ with your brand, they soon find solace elsewhere.
4. Poor offering
Mistakes can and do happen, but if the same issues regularly appear to you and your customers, this leads to lost custom. Listen to your customer service team and act on any negative feedback.
The final potential churn catalyst is the most difficult to truly calculate and work with: what your competitors are offering. Competition is healthy and leads to innovation, but it can also lead to stagnation. Remain vigilant and aware of your competitors, but remember you’re an individual entity too.
6. Payment options
Consider the payment options and channels you’re offering your customers. Credit cards, for example, might be convenient but they have expiry dates, whereas Direct Debit payments will always be a more reliable and consistent payment method. By introducing customers to Direct Debit, you gain direct control of when to collect a payment and can be secure in the knowledge that your payments won’t fail for simple reasons like card loss or expiry. Across 65,000 businesses, GoCardless sees an average of just 2.9% of payments failing on the first attempt - that’s a 97.3% payment success rate.
We can help
GoCardless is a global payments solution that helps you automate payment collection, cutting down on the amount of financial admin your team needs to deal with. Find out how GoCardless can help you with one-off or recurring payments.
Meanwhile, to get a better understanding of the role churn plays in your payments process, we developed the 8 Payment Dimensions framework which breaks down each stage of the payments process to help you optimise your payment strategy.