What’s the biggest issue your company needs to address right now? 99% of the time we ask this preliminary question to our Clients at Casbeg, we basically get the same answer.
More revenue growth.
Ok, everybody needs that if they want to grow their business. And it’s our job to help them get to that point. What companies often forget however, is breaking records in new sales is just a start – you have to keep those customers if you care about growing revenue.
If your clients are buying multiple times, are billed monthly and/ or can leave at a short notice or even anytime, this article is especially for you. Here I will list the most common reasons for customer churn. If any of those sound familiar, you should focus on addressing underlying issues.
What does churn even mean?
Once your client decides to leave, they churn. Churn rate is a percentage of customers base that leave in a specific period of time (monthly, quarterly, annually, etc.), but it’s also twofold. Churn rate can be calculated in percentage of clients that leave (most companies calculate it only in this way), so if 5 out of 100 clients leave in a given month, your monthly churn rate is 5%, but you should also calculate your revenue churn – if that 5 out of 100 clients represent 20% of your monthly revenue, your churn will be much higher if those larger accounts leave you.
While some churn will most probably always be present regardless of the quality of your service or product (Netflix keeps their churn at as low as 7-9%, which is super low for a B2C subscription service, but that still means that their viewers unsubscribe), you should always fight to keep it at minimum by improving your service and focus on renewals. Recurring revenue is the only way to achieve business stability and predictability.
So what does customer churn mean for business and so desired revenue growth? For each lost customer you have to make two sales if you want to grow by one new customer, and if you want to make up for lost revenue, the effort stakes might be even higher, depending on your pricing.
And that’s not all. Every time you lose a customer, it sends a negative signal to the whole team (did we do something wrong? Is our service not good enough?), which may affect the morale. Moreover, if your churn is particularly high, maybe you are actually doing something wrong and that prevents your customers from referring you to others. No advocacy is death to any business.
Let’s take a look at what you might be doing wrong.
Overpromising and underdelivering
When fresh leads start pouring in it’s hard to resist new revenue. It might be because your sales team doesn’t have a proper lead qualification process implemented or perhaps their motivational system focuses on the wrong things. From what we can tell by consulting our clients, that is indeed sometimes the case but, worse yet, companies very often don’t know how to define their target group or USP very well and they sell their services to whoever is willing to pay.
The most common rationalization they’re trying to make is by “money is money” argument. Guess what? If you keep selling your services to everyone willing to buy, your customers will churn and you will sabotage your long term business’s growth. And in the short term, it will damage your company’s brand and your personal reputation. It’s a vicious circle really, because those customers will also blame your sales team for promising something else.
“Yeah, it’s my fault, not the salesperson’s. I should have kept my expectations closer to reality”
Said no client, ever
So bad market fit is always blamed on the salesperson. If you let your customers believe they will get something else than what you can actually deliver (ever ordered something online? 😉 ), you’re basically asking them to badmouth you all over their network and never buy from you again. Make sure your marketing team attracts good quality leads and your sales team focuses on those deals that can actually be beneficial for clients as well.
This is a big short term cost. We’ve calculated how much more we’d make in our 1st year if we had sold to everyone that wanted to buy our services even if we hadn’t believed that we could help them. Our revenue would have been 18.51% bigger. We expect this number to would have been even greater for our second year.
Poor customer success management
Hopefully it will come as no surprise, but let’s make it clear – bad customer service is bad for you. It’s not only about being all nice and friendly, of course; your customer service or support team need to know how to properly address any issue to make sure the problem at hand is being handled well and they need to do it fast. If your customer was troubled or displeased to begin with, ignored support requests will only make things worse – keep track of your support metrics and set benchmarks if you don’t want to see angry masses leave you. For years now, statistics have been proving us that dissatisfying encounters are most likely the reason for customer churn.
Nowadays, however, you also have poor customer service if you don’t proactively check in on your customers to make sure their expectations are met. You don’t have to send them flowers or chocolates to make them feel taken care of, trust me. They will appreciate it more if you take an interest in their success and show you haven’t forgotten about them the moment you signed the contract.
There’s a specific reason and expectations the contract was signed for in the first place, so make sure you discuss success criteria once the cooperation kicks off and monitor your client’s progress – pay some extra attention to the onboarding phase to lay a smooth path for them to get value from your service. If their goals aren’t met, it’s your responsibility to give them tips, best practices and examples of how to make the most of partnering up with you. Let’s face it, if you think dedicating your resources to customer success is an unnecessary cost, it will eventually cost you your customers.
“I just don’t see any results”. “There’s no value”. “I expected better outcome”. Assuming there was no mistake in sales and your client should have benefited from your services and yet here they are, adding to your customer churn rate, the ‘no ROI’ explanation hits you between the eyes. You already know from the previous paragraph that you should set up success criteria, but you should also monitor what exactly is necessary to have your clients see return on their investment and how much time is most probably necessary to make it happen to avoid disappointment.
Make sure your customers are aware of the assumed timeline and that there’s nothing critical missing. More importantly though, make you sure you communicate the results and their potential in a clear way on a regular basis. Paradoxically, smaller businesses talk a lot about ROI without actually measuring it. Sending generic reports or presenting live data on a complicated dashboard won’t do the trick, as by “ROI” clients can also mean their desired outcome, so be prepared – know what it is and how to measure and improve or increase it.
It’s not you, it’s me
Despite your best interest and endeavours, sometimes you will hear this famous phrase. Typical “it’s not you, it’s me” business reasons for cancelling the contract are mergers, acquisitions and financial issues. Once you hear one of these reasons it’s really hard to question it, let alone figure out how to prevent it in the future, things sometimes just happen. Most of the time, companies just deal with it and never dig deeper.
There is, however, a question that you can ask yourself (or them!) to check if it’s really NOT YOU. Why didn’t they bring you along with them under the merger/ acquisition? Why didn’t they fight to keep you? How come you’re not on top of their payments list? Why weren’t you included in their budgeting again? Is it possible that the answer to one of these can be found in the above paragraphs?
So, how can you know why YOUR customers are leaving? First, identify the problem using data and perform a churn analysis and cohort analysis – don’t assume it’s (just) one or the other reason. Check you analytics, metrics, send customer surveys (check my previous post on how to know whether your customers would recommend you with NPS surveys), collect first-hand insight by interviewing your clients at their exit. What does the data tell you? Second, get your team ready. Share what you’ve learned, improve your processes and don’t let your revenue be taken away by mistakes that could’ve been avoided.