No matter how good your business model is, eventually, you start losing customers. Seeing a customer churn is always painful to watch. Luckily, there is a way to keep existing customers, and if you follow some strategies, you can get away with a low attrition rate.
In this article, we will explain to you what customer attrition is, how to calculate it, what causes customer attrition, and the types and ways to decrease it.
What is Customer Attrition?
Customer attrition happens when you lose your customers. Eventually, all consumers churn, regardless of whether they are loyal to your business or brand-new customers. It’s a common event, especially for SaaS companies that have an inconsistent customer base.
Mobile carriers and Internet providers are typical examples of businesses with a high customer attrition rate, since many customers seek better conditions after their plans expire.
What is the Customer Attrition Rate?
The customer attrition rate is the number of people who stopped being your customers over a certain time frame divided by the total amount of customers at the beginning of the period.
The truth is that some customers love to try different service providers and stores so that they can classify as one-time customers. Others do business with you for a certain period of time—it can be weeks, months, and even years. But sooner or later, they all tend to churn.
For example, if your company has started the year with 100,000 paying customers but ended it with 90,000, you have a 10% customer attrition rate.
What Causes Attrition?
All customers eventually churn. But while some customers order just once, there are other, more valuable clients that you will regret losing—people whose customer lifetime value (CLV) is too high to neglect.
Here are some of the primary reasons why clients leave your business.
The price of a product or service can be a major factor in customer attrition. If a service is too expensive for customers, it may be difficult for the brand to keep clients for long periods of time, let alone attract new ones. This is especially true if pricing is perceived as being unfair.
Lack of brand loyalty
Another thing that increases the churn rate is the lack of brand loyalty. Clients are more committed to your company if you can provide them with a unique value proposition and experience they cannot find anywhere. Failing to achieve that will result in poorer commitment and a higher attrition rate.
Bad customer service
You can’t run a successful organization without a good customer care team. Customer satisfaction is crucial if you would like to retain customers. In fact, according to Khoros, 83% of customers find customer service as the single most vital factor in making a buying decision.
Customers put their trust in brands that keep their promises and see an increasing value of their “investment.” If you are an ecommerce store, then the expectations are that you will always have enough stock and follow the best practices.
In case you’re a SaaS company, consumers will expect regular updates and software improvements. If they don’t find them, they’ll jump to your competition and won’t look back.
Why Should You Pay Attention to Your Attrition Rate?
Paying attention to your attrition rate is one of the most important aspects of keeping good business health. The attrition rate is like an early (or not so early) disease symptom—if not cured on time, it will cause irreparable damage.
When you start noticing a negative trend, which is the higher attrition rate, you should begin to check all departments and look at your business operations. Beneath the apparent reasons might be underlying something that has the potential to destroy the business.
For example, if your marketing team doesn’t capitalize on new leads, it indirectly will affect the customer attrition rate. It’s not something you could think about initially, but the lower number of new customers could mean each lost customer has more impact on the final score.
What are the Different Types of Attrition?
In general, customer attrition can be of two types – active and passive. While they all lead to the same result, they have some crucial differences.
Active attrition refers to all customers who cancel their subscriptions with a company. This can be a huge trouble for businesses that rely on subscription-based models. Mobile carriers, streaming services, and SaaS companies are linked to active attrition. Consumers worry about the ever-rising costs and the lack of quality or choice in the available services.
Passive attrition occurs when a customer loses interest in a business, and enterprises lose customers through this form of attrition all the time. Like any other company, on-demand service providers, ecommerce stores, and retailers can have customers who simply stop using their services.
How to Calculate Your Attrition Rate?
To calculate the customer attrition rate, you need to divide the people using your products/services at the start of a period by the number of customers at the end of the period.
We have already given an example, but let’s see one more. Your company has 500,000 paying customers in Q3, and it ends Q4 with 480,000. That’s 4% attrition rate.
Remember that customer attrition includes all factors combined – like customer acquisition and customer churn. Let’s get back to the example – if you have lost 20,000 customers in the last quarter of the year, does it necessarily mean that 20,000 users have stopped paying? Not exactly.
You might have 100,000 churned customers but if your sales and marketing teams could acquire 80,000 new paying subscribers, we will reach the number of 20K, which is our 4%.
7 Ways to Decrease Your eCommerce’s Customer Attrition Rate
Just because you are facing a high attrition rate at some point doesn’t mean you are doomed. In fact, there are many strategies to tackle it. Let’s see some of them.
1. Exceptional customer service
Retention strategies constitute a significant aspect of customer loyalty. No matter how great your business is, if customers have issues, they won’t be satisfied, and they’ll churn. To prevent such things from happening, try to deliver the best customer service possible.
Offering email support is not enough these days. Having live chat support and phone support can significantly benefit your business health. Chatbots are another great alternative if you want to have 24/7 support without breaking the bank.
2. Analyze the reasons why customers churn
Businesses must understand the reasons their customers are churning. An objective strategy should determine why a customer is leaving, and then pinpoint strategies to address those issues.
Using data from exit surveys, companies can determine where these problems lie, allowing team members to build a good strategy for customer retention. Nevertheless, you should not stress too much over that. Just ask your leaving customers some questions and aim for honest answers. You could only win from that.
3. Engage more with your customers
No matter how well you manage your customer relationships, some customers will continue to stop doing business with you.
There is no way to eliminate the phenomenon of customer churn. However, if you proactively communicate with your customers, that will help you to reduce churn quickly and effectively.
Using real-time messaging features allows companies to engage with customers consistently. Sometimes, you can achieve that without requiring much human intervention. It is crucial for businesses that expect customers to have concerns about their orders within minutes of purchasing them.
4. Improve your products
When you’re trying to attract and retain customers, the quality of your product will be paramount. To maintain a high standard of quality, your company must work extensively with the development team and ensure that the product meets or exceeds customer needs. Your business should include a unique value proposition in every customer relationship.
But you cannot tailor your strategies randomly. Customer segmentation is crucial in defining what each customer group requires. This way, you can create more specific products to deliver even better experiences.
5. Ask for customer feedback
Feedback is the make-or-break factor of any company. By asking for feedback and analyzing it, you can make the necessary changes that will significantly enhance customer experience and decrease customer attrition.
Regular feedback will contribute to better analysis and conveys a special message to customers – that you care for them, and you are eager to improve your products or services even further.
6. Offer rewards
You don’t have to be the “Uncle Scrooge” of the market. Instead of lowering costs or advertising on Facebook heavily, focus on providing value that your customers can’t get anywhere else. You could offer incentives such as loyalty rewards programs or discounts to encourage purchases and decrease customer churn.
The most optimal way to stand out from the crowd is to provide something better, something your clients cannot get anywhere else. With Monetha’s plugin for ecommerce, you can reward your customers for buying at your shop!
7. Attract better customers
If your brand is acquiring customers who are not the best fit for the company, you will soon find that those customers do not stay for long. It’s always important to attract buyers who are attracted to your company and the experience it can provide. They will give your business everything you want and need.
By bringing more suitable for your business customers on board, you will have fewer churning customers. It’s simple—people become loyal when they find value in your brand. Value they cannot find anywhere else.
As we’ve said before, it’s impossible to eliminate customer attrition entirely. But you can use the customer attrition rate to define and consider the factors that might be contributing to it.
Once you find the underlying reasons, you can take measures to reduce customer attrition and improve customer retention by bringing more loyal customers.
If you encounter a sudden loss of paying customers, then we are talking about customer attrition. However, customer attrition happens if the number of customers using your products or services declines.
To improve it, you can provide a better experience for your customers so that you retain them for longer. Another thing to do is to improve your customer acquisition rate. The more customers you bring aboard, the more negligible impact leaving clients will have.
No, customer attrition and customer churn are two different metrics. Customer attrition calculates the number of total customers lost over a certain period.
Customer churn considers only the number of customers who have stopped doing business with you.