Customer attrition refers to the loss of customers who stop supporting your business. Although this simple customer attrition definition is easy to achieve, addressing the problem is rather more complex. As a side note, you may wonder about customer attrition vs churn. In essence, they have the same meaning.
In this article, we will share our experience with methods that reduce customer attrition rates and offer actionable approaches to recovering lost customers. When you tackle challenges like this, your first step is to benchmark where you are now. Let’s begin by explaining how you can calculate your customer attrition rate.
A Simple Customer Attrition Rate Formula and Alternatives
The formula requires you to begin by measuring your customer base over a given period and then comparing it to a similar period by expressing customers lost as a percentage of your total number of customers. This is easy for businesses with monthly subscription services.
Others may have to begin by calculating the average period between repeat purchases. For example, if your customers buy from you every three months on average, you should compare three-monthly figures. If your products tend to be most popular at a specific time of year, you may want to compare annual figures.
Instead of looking at the number of customers, you can look at revenue or you can calculate your current customer lifetime value. However, whatever means of measurement you use, you should be aware that there may be several reasons for your findings. We will explore these shortly.
Customer Attrition Modelling
There are ways to build a mathematical model that allows you to predict churn. Trying to do so manually, while possible, is a gargantuan task, but specialised software may be able to help. Although this approach to monitoring and predicting churn may not suit everyone, it bears mentioning since you can test various scenarios using your model. To build it, you will still need a lot of historical data. As such, it is best suited to subscription services.
Why Customers Stop Buying: Reasons for Customer Attrition
Your customer attrition analysis will not be complete without discovering why customers stop supporting your business. These may not be obvious, and it may be worth canvassing customers to discover why they are no longer interested in your products or are spending less with your business.
Reasons for customer attrition include:
- Your product is no longer relevant to former customers: They no longer match your target market.
- Customers are no longer satisfied with your product or service: Dissatisfied or unhappy customers choose to avoid doing business with you.
- Poor customer experiences: Your customers may feel that your business does not offer enough support, or have had problems with billing or delivery.
- Poor value perceptions: Customers may have found a cheaper alternative or one they perceive to be better.
- Price increases: Significant price increases may cause customers to seek alternatives or stop using your product.
- Involuntary churn: Customers may wish to support you, but they are unable to do so. For instance, they may be struggling with their preferred method of payment.
- Economic factors: Customers can no longer afford your product. This could be because of personal circumstances or economic downturns.
As you can see, uncovering the reasons why your customers stop buying may influence your business strategy. You may decide to redesign products, create new products, adjust your pricing strategy, or change work systems.
Of course, you may be able to win some of the departing clients back into the fold, but it is also perfectly normal to have a few customers who are simply no longer right for your products. If you are losing customers faster than you gain them, this may signal a need for a closer focus on marketing.
Finally, there may be cause for concern, indicating a need to take steps to safeguard revenue and profitability, recover customers to maintain business growth, or increase customer satisfaction so that customer retention improves.
What is the Top Reason for Customer Attrition?
The most important reasons for customer attrition vary from business to business. As a result, research is generally carried out on specific types of industry. For example, the reasons you may choose to abandon your mobile phone provider may differ from the reasons you cancel a software service.
However, no matter whose information you read, you are sure to notice poor customer service at or near the top of the attrition list. For years, studies have reported that customer service and satisfaction are at an “all-time low.” The last year has shown that we “ain’t seen nothing yet,” as scores plummet ever-lower.
The Forrester Report measuring US customer experience deterioration notes that “underwhelming digital experiences using chatbots” are partly to blame. Pulling no punches, the report’s authors say that few businesses are “customer-obsessed.” They define this as basing all business activities around customer wants and needs.
Since customers are what make a business work, it makes sense that customer obsession may be key to reducing customer attrition. This brings us back to the final section of this article: our tips for reducing attrition and bringing old customers back.
How to Win Your Customers Back: A Practical Guide
All businesses must accept that as time passes, customers can cease to be a good fit for their products. All the same, this should be a relatively small percentage of people. Why are the rest abandoning ship? With online services, asking customers to complete a short exit survey may well uncover reasons for leaving.
Other businesses may have to look further to examine possible reasons for customer attrition, like competitor or substitute offers, changing trends, the economic climate, and so on. Knowing why people leave should help you devise strategies to get them back. However, we can offer some general advice.
Be Proactive About Customer Retention
Prevent negative experiences by making sure your customers are always able to get good service. Contact customers after purchase to find out whether they are satisfied. Monitor your competitors and offer customers superior solutions or better prices. Monitor and measure workflows so that efficiency is always on point.
Recover lost customers through win-back campaigns
This could take the form of a standard marketing campaign, or you might shoot through some emails, but one of our most successful win-back campaigns involved in-person calling. Virgin Wines tasked us with calling customers who had last purchased between two and six years ago.
Using this strategy, most people should achieve a conversion rate of around 10 percent, but our team achieved a 25 to 35 percent conversion rate. With the right team to work on the project, you may be able to emulate this.
Personalised Experiences
We aren’t just talking about automated messages and offers, although these might help. Gaining a perspective on people’s tastes and needs is best done in person, and you can adjust as you go.
This is one of the strategies we employed in the case study mentioned above. If Mrs Jones prefers Sauvignon Blanc, there is no point in talking to her about Burgundy unless she expresses interest in it. If you can throw in an incentive or two, you may well have a winning recipe.
Continuous Improvement
In business, one can never rest on one’s laurels. There is always something that can be done better, and your customers can provide valuable intelligence that you can use to keep on improving their experiences. Find ways to offer clients what they want, where and when they want it, and keep getting better at it.
Business Process Outsourcing (BPO) and Customer Retention
Many businesses struggle to undertake all the tasks required for effective customer retention. Too often, the focus is on new client acquisition. While this is important, managing customer life cycles so that you can achieve a higher customer lifetime value will benefit business growth and may require less investment.
At RSVP, we help businesses improve sales and support experiences and offer customer lifecycle management services. From client acquisition to lapse prevention, cancellation saves, and reactivation of old customers, we help you understand your customers better while strengthening their bonds with your business.
Our team members are masters in the art of communication, and our service is fully scalable. With RSVP, you can build better customer experiences and boost your bottom line at the same time. Talk to us about your customer attrition woes. We may just have the ideal solutions you are looking for.