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If your business isn’t growing you’re shrinking
There’s no such thing as holding steady in business. Every business will lose customers regardless of how good your service or product is - it’s simply unavoidable. Lost customers, or churn, is natural and part of doing business. So plan for it, monitor it, and try to correct the issues that lead to it when possible.
But what is a normal churn rate?
The rate at which a business loses clients depends on the industry and the reasons for the loss. On average, most business will lose between 10-25% of their customers yearly. But the typical churn rate for your business will vary, for example…
- American credit card companies typically have customer churn rates of around 20%
- European cellular carriers experience churn of between 20-38%
- Certain American telcos, such as Verizon, have reported very low churn rates – like 0.84% in Q2 2012
- Software-as-a-Service (SaaS) companies usually report client churn rates of between 5-7%
- Many retail banks have churn rates of between 20-25%
- In 2003, the churn rate of daily newspaper subscriptions in the U.S. was 58%
What’s tolerable for one industry or business might be disastrous for yours - so keep an eye on your customer turnover. Or better yet, stay out in front of it, and make customer retention strategies part of your operations.
But if it’s natural why should you care?
The cost of losing a customer can be far greater than the total sales from that one client. Replacing a customer is dramatically more expensive than retaining an existing customer. Similarly, acquiring new customers carries a very high cost too.
What’s also important is why the customer departed. In today’s world, if the customer leaves because of a bad experience or bad service or a defective product their dissatisfaction can be amplified online tenfold. Today, social media give disgruntled customers a much larger audience (regardless if their grievance is justified or not). Bad reviews and social rants against your company can have an impact far beyond the one customer and their friends/followers.
By reducing your churn rate 5% you can increase profits by 25-125%
Since 80% of your revenue is derived from 20% of your customers - and because the cost of new customer acquisition is so high - by simply retaining your existing customers longer, you can achieve higher profits. A reduction in monthly customer turnover of only 5% can translate into a 25-125% increase in profits, according to Authors Emmet C. Murphy and Mark A. Murphy as stated in their book, Leading on the Edge of Chaos. Stopping losses isn’t always possible
Sometimes curtailing customer loss isn’t possible. It depends on the reason for their exit. Obviously, if your customer goes out of business or moves, their business wasn’t lost for any correctable reason. Customer attrition can also occur after acquisitions or changes in management where the possibility of retaining the customer is lessened by prior existing relationships supplanting your own.
Treading water isn’t a long-term strategy
Surviving isn’t a solution for very long. So keep an eye on your customer churn rate and work to minimize it. Address issues that may lead to lost customers, even if the cause is embarrassing or painful to confront. It’s well worth keeping your churn low or you’ll find yourself eventually drowning.
Jul 08, 2016
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