All businesses lose customers.
The only difference is how they handle this issue. Some companies prefer to focus on acquiring new clients to replace the lost customers, while others attempt to understand what caused the customers to leave.
Both strategies are valid options for most businesses, but it’s worth noting that acquiring a new client is no easy feat. It’s estimated that businesses spent the majority of their resources trying to find new leads and prospects.
Keeping existing customers happy isn’t easy either, but it requires far less resources, according to GetElastic. Moreover, existing customers have the potential to significantly grow a business’ revenue.
In the business world, the problem of lost customers is called customer churn or attrition. This is the number or percentage of customers lost in a specific time period.
Customer churn rate is calculate by dividing the total number of customers with the number of customers lost in the defined time period. It’s usually represented in percentages, but it can be expressed using the total number of lost clients, the lost revenue or the lost percentage of total revenue.
What causes customer churn?
Every customer makes a decision about leaving a business on their own. The reasons can be personal and unique to each specific customer, but they still fall into one of the following categories.
Price
The main reason why people leave businesses is the price. Customers will leave a business if they can find a more cost-effective solution that deals with their problem. This is why it’s essential that each business develops a clear onboarding system and demonstrates the value of their product or service.
Product fit
Customers often leave for another business because the product/service that was advertised and sold to them does not solve their problems. If the sales team is only focused on meeting their monthly quota, this issue is more likely to appear.
Salespeople that regularly hit their quotas may not be the best team members. As they overly concentrate on meeting personal goals, they often forget to check for the product fit or viability.
It’s not uncommon for salespeople with the highest numbers to experience the highest rates of refunds and returns. When customers find that they weren’t sold the product/service they need, they quickly ask for refunds.
This hurts the business in multiple ways – it wastes everyone’s time and it produce unreliable and inaccurate data that can’t be used to develop strategies or optimize processes.
User experience
User experience or UX is the beginning of all successful products and the end of all poor services.
If your customers regularly experience issues with your product/service, or if they have trouble using it to its maximum potential, they will be far more likely to stop using it.
The best way to test whether you have problems with user experience is to poll your users and ask for feedback. Most users will experience an issue or two during their use of your product/service, regardless of how well it is designed.
This will give you the necessary information to improve your user experience.
Why is customer churn important?
Customer churn is important because it shows how good (or bad!) the companies are at keeping their existing customers. However, its the financial aspect of customer churn that causes the most headaches for business owners.
In the US alone, it’s estimated that companies lose $83 billion per year due to customer churn.
Furthermore, the existing customers are the main revenue source of all businesses – up to 65% of all revenue is generated by existing customers. In fact, research shows that a modest reduction of 5% in customer churn can almost double a company’s revenue, with the exact number ranging from 25% to 95% of increased revenue.
On top of all that, Gartner estimates that 80% of a company’s future revenue will come from 20% of existing customers.
Now, it’s clear that customer churn is the worst enemy of a successful business. Every company needs to actively work to fight churn and keep its customers happy. However, that is often easier said than done.
Without a specialized business solution in the form of a CRM, it’s nearly impossible to effectively combat the plague of customer churn.
With that in mind, we will now explain how CRMs can help businesses reduce their customer churn rates and increase their revenues with minimal investments in a CRM system.
How can CRMs reduce customer churn?
Customer relationship management (CRM) software solutions help businesses by providing them with precise data and detailed information about their customers.
Companies can rely on this data to develop business strategies, create promotional offers and execute marketing activities. Aside from improving the company’s business operations, CRMs can effectively be used to reduce customer churn.
In the following paragraphs, we will detail how successful businesses use CRM systems to optimize their businesses and generate higher revenues and profits.
CRMs help identify the best customers
One of the main benefits of having a CRM system in the company lies in its vast database of customer information. This information helps businesses identify their best customers, i.e. the people who spend the most on the company’s products and services.
For most companies, the best customers represent a fairly small pool of consumers who actively use and even promote the companies’ products or services.
However, although they comprise a modest percentage of the overall customer base, they generate the highest profits. This means that they have the largest impact on the profits.
If a company loses a large customer, they may need to acquire multiple new clients to replace their revenue. Further, this means that the company needs to pay special attention and invest more resources in keeping the large customers satisfied.
A company that invests the same amount of resources in keeping every customer is not performing its operations in the optimal way.
CRMs help offer appropriate incentives
Based on their information stored in a CRM, you can easily assess the value of each customer in your company and provide them with appropriate incentives.
By offering special offers and promotions, you can encourage customers to spend more, which will help increase your total revenue.
CRMs help businesses interact with their customers
As mentioned earlier, CRMs represent large databases with vital business information. Companies can use this information, such as the customer’s email address, purchase or communication history, to create personalized interactions with each specific client.
This way, the customers are incentivized to spend on products, get to know them and use them more regularly. If you notice that a client purchased your online service, but never bothered to log in and test it, you can send a friendly email reminder with the best features that your service offers.
Similarly, when you find that a long-time customer has left your business, you can reach out to them with a personal message asking him to explain his decision and help you improve your service.
While simple interactions like this may seem inconsequential in the grand scheme of things, they can actually save thousands of dollars in revenue that would otherwise be lost.
In addition to that, CRMs can help you organize the communication history with your customers. If you notice that your representatives haven’t talked to a customer in a while, you can contact them and ask for their feedback.
A recent study found that the majority of customers leave a business because they don’t feel valued at their current company. Personal messages can greatly reduce this risk and keep your customers more involved in the business proceedings.
CRMs can define a usage map
Most first-time customers will have limited information about your product or service. In other words, they will not be fully aware of its capabilities and features.
This means that they likely need help finding all the great features that you offer. If they are unaware of all the benefits that your service can bring, they will be unable to use it in the optimal way. Further, they are far more likely to stop using the service, regardless of whether they already paid a long-term subscription.
Poor usage often equals poor results, and poor results make customers unhappy and unwilling to spend.
By using a CRM system to define a usage map for new customers, you can avoid this issue. You can offer general guidelines on how to efficiently use your service to consistently produce good results for your customers.
A customer that learns all the benefits of your product will start using it on a regular basis and may even actively promote it to their colleagues or acquaintances.
CRMs help analyze the churn rate
As we mentioned at the start of this article, customer churn is an inevitable part of every business. However, each company has the power to reduce its effects.
A CRM system allows companies to analyze their customers, by assessing all of the data collected in the database and finding common characteristics of churned customers.
When you store all data in an appropriate system and you carefully evaluate all the information, you can locate key churn predictors.
For example, if your customers exit your business within a week of purchase, your onboarding process is probably not good enough. Are your customers churning during specific times of the year or seasons? Your product or service may not be as adaptable to all conditions as you think.
Additionally, the CRM database can help you find the key signs of customer satisfaction. This way, you can act preventively to strengthen or repair weak business relationships before the customers churn.
Stop customer churn today
If you want to stop customer churn and lower it down to an acceptable level, we recommend that you try out Simply CRM. If you contact us today, you can schedule a free trial to test the system.