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Churn Rate Optimization: How to Reduce Customer Loss

February 03, 2016
Aaron Polmeer

By Today’s Industry Insider

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CRO (conversion rate optimization) is a hot topic. And rightly so. Transforming visitors into buyers all starts with a single click. Any method that can increase your site’s conversion rate is worth its weight in digital gold.

In this article, however, I want to dive deep into a lesser-known but profoundly more crucial CRO. This CRO is essential to long-term profitable success and oddly enough, you want to minimize it as much as possible.

This CRO is Churn Rate Optimization.

Customer churn rate — also known as “customer attrition, customer turnover, or customer defection” — is the amount of customers or subscribers who stopped using your product or service within a particular period of time.

The vast majority of both marketing budgets and marketing blogs are devoted to attracting new customers, instead of retaining the ones you already have. Ironically, the simple truth is this: churn rate optimization — reducing the number of customers who abandon your product or service — is far more essential to your profitability and long-term success than conversion rate optimization.

Why?

Consider the facts:

  1. Acquiring a new customer costs 6-7 times more than retaining and selling to an existing one (Bain & Company).
  2. 72% of customers who had a memorable product purchase took action to communicate about it positively to others (Harris Interactive).
  3. The probability of selling to an existing customer is 60-70%, while the probability of selling to a new prospect is just 5-20% (Market Metrics).
  4. On average, loyal customers are worth up to 10 times more than their first purchase (White House Office of Consumer Affairs).

Obviously, the incentives to reduce customer churn are high. But so are the challenges. Lowering your customer churn rate means understanding what makes customers leave and then putting steps in place from the moment they become a customer to ensure their experience keeps them coming back.

To do that, here’s a simple five-step plan to discover your churn rate and stop your business from losing out.

1. Measuring

Naturally, before you fix your customer churn, you have to figure out what your churn rate is. Here’s a very simple formula for calculating customer churn rate:

While stating your customer churn as a percentage is the most commonly discussed method, it isn’t always the best for SaaS businesses. This formula automatically assumes that all customers are equal and worth the same.

With a freemium business model, you can see how this could be skewed, especially if you’re losing free customers but gaining paid ones, or the other way around.

For businesses that need a more detailed approach, customer churn can be stated in any of the following ways:

  • Number of customers lost
  • Percentage of customers lost
  • Value of monthly recurring revenue (MRR) lost
  • Percentage of MRR lost

The value these different numbers have to your business will depend on the type of products you sell. For example, if you sell subscription packages at different price ranges, the lost MRR figure will tell you more about your status than the bare number of customers lost.

No matter which formula you use, it is important …read more

Source:: Kiss Metrics Blog

      

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