What is Customer Churn? Definition & How to Reduce It

There are many things that a business will want to avoid when conducting their affairs, but if there is one situation that is not ideal in any situation, it is customer churn. Essentially, this is simply when customers stop doing business with a company altogether. The customer ceases to give an organization any more of their money and a business loses out on potential profits.

This is a critical metric for many businesses because retaining customers that are already present is a far less expensive alternative than to convince new customers to do business. Earning the business of an aspiring customer entails utilizing precious resources. This is why retaining customers who already do business with an organization has proven to be more important than ever.

Not only does this condition hurt a business financially, but the growth of a company can go in a downward trend, thus potentially causing irreparable damage to a company's reputation.

Depending on the organization's expectations, there are different metrics that are used to determine churn rate. For example, certain businesses calculate this rate simply by the number of customers that have been lost while others determine this rate via the ratio of customers lost related to the company's total customer count.

What Causes Customer Churn?

If a customer ceases to do business with a company or a service, there is likely some fault on the side of the business in question. This phenomenon is a multi-faceted issue, but the most common factor in high churn rates is poor customer service. Many customers who decide to abandon a business typically do so because of a negative, isolated experience.

During a time where customers expect to receive great customer service and not feel as though the cause of their displeasure is on them, any company that breaks this mold opens up the possibility of losing their business. Therefore, in a lot of cases, when customers do not feel as though their needs or requests have been adequately answered, they will simply move on to a competitor.

There are also a variety of organizational issues that contribute to customers leading. This can be a lack of consistent customer success, a lack of value, or simply a lack of a desire to stay loyal to one brand. Sometimes, there are extraneous factors that are beyond a business' control, but more often than not, churn rates can be directly altered by how a business conducts itself.

How To Reduce Customer Attrition

As you can see, customer attrition is something businesses should want to avoid at all costs, and there are a variety of practices that can be implemented to retain as many customers as possible.

The first, and most obvious solution, is to improve customer service. If a client has a complaint, it should be solved promptly and to the best of your ability. You should never make the customer feel as though it is their fault (even though it may be the case) and do what is in the business' power to rectify the situation. All it takes is one bad experience to turn one away.

Being able to anticipate the customer's needs is also important. What the purpose of any successful business? To address a need for a customer. If a business cannot anticipate a customer's need, this will create a divide. A feeling of dissatisfaction festers within the customer, and that will predispose to them leaving.

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