3 warning signs of customer churn and how to prevent it

3 warning signs of customer churn and how to prevent it

What is customer churn?

“Customer churn” is a term used to describe what happens when someone stops being your customer. This is a huge issue for businesses as it costs at least 5x more to acquire a new customer than it does to keep an existing one. 
 

Churn can occur in different ways:
 

A) A customer stops buying your product or service after their first purchase.
 

B) A regular customer switches to a competitor.
 

In the case of A, the customer is not technically “churning” - but rather not returning. However, “churning” can still be used to describe both scenarios. 

How to calculate churn rate

To calculate your current churn rate, simply divide your number of churned customers by your total number of customers. For example, if you have one million customers and 100,000 of them leave in one year, then your churn rate is 10%.
 

Churn rate formula
Formula for customer churn rate

What causes a customer to churn?

There are many different reasons a customer may decide to stop purchasing from you. Let’s take a look at some of the most common reasons for churn…
 

  1. The customer finds a cheaper price elsewhere
    If you're charging too much for your product/service, then customers will leave your business in search of better value for money elsewhere. This is a complex issue to solve. There are many nuances that go into pricing strategies, especially if you have to rely on third parties to sell your product. 
     
  2. Your customer support needs improving
    Sometimes customer churn comes down to something as simple as one bad experience. We don’t live in a perfect world, and no product or service is flawless. That’s why you need a strong customer support service to assist customers when things go wrong. Also, make sure to review and improve your customer journey. Find out how to use data to create a memorable customer journey experience here.
     
  3. Your customer doesn’t see the value in your product, service, or brand
    Prices aren’t the only thing that drives consumers to purchase. In fact, 86% of consumers are willing to pay more for a better experience. So, what do you offer your customers beyond competitively priced products? Find out the differences between customers that are loyal to your product vs loyal to your brand here
     

The above customer churn factors are just some of the reasons a customer might leave. The bad news is that these factors will slow down your business growth. The good news is that we have identified warning signs that you can look out for that will help you identify when a customer is about to churn—and what you can do to prevent it….

 

What are the warning signs that a customer is about to churn? 
How to predict customer churn

It’s important to note that different customers will have different reasons for churning, so certain strategies will work better than others depending on the individual. This is why smart segmentation and personalisation strategies are key. If you want to learn more about smart segmentation, listen to our dedicated podcast episode below:

The growing importance of segmentation strategy

The growing importance of segmentation strategy
Listen here 


How to predict and identify customer churn: 3 early warning signs 

  1. They use your product or service less frequently than before
    Uncover which customers are spending less and less money with you. Sharp declines in the rate or value of transactions suggest they have found a better alternative.

     
  2. They are not interacting with your brand anymore
    Customer engagement is important for retaining existing customers as well as attracting new ones through repeat purchases, referrals, and word-of-mouth marketing. If a customer stops engaging with your brand in any way — whether that’s stopping from commenting on social media posts or no longer opening email newsletters — this could indicate they’re planning to leave soon. 

     
  3. They have expressed dissatisfaction with your product or service
    This could be because a customer had a bad experience, or maybe they just don't feel like they're getting the value they want out of what you offer. Whatever the reason, if your customers are telling you that they aren't happy with what you're offering them anymore, they are probably already thinking about moving on. 
     

How to prevent churn - strategies for customer retention

Once you have identified these warning signs, it’s time to take action - and fast! But how do you avoid customer churn? Here are some suggestions about what you can do to retain your customers:
 

  • Reach out to the customer for feedback
    You won’t know what went wrong unless you ask! Keep an eye on customer satisfaction scores - they'll tell you if there's something wrong with the way customers perceive their experience with you or your company, so you can make changes before it's too late. 

     
  • Offer rewards and incentives to show your appreciation
    If competitive pricing and a good product aren’t enough to keep your customer from switching, think about how you can add more value to their experience. Many brands are successfully using loyalty programs and rewards to give customers more reasons to stay. 

     
  • Use data and insights to know your customers inside out
    Insightful data underpins all strategies for customer retention. Ultimately, the best way to prevent churn is by knowing your customers better than they know themselves. You need to understand what their wants and needs are. This level of data will also help you tailor your messaging and reward incentives to each individual. 

PERSONALISATION IS THE KEY TO LOYALTY

Find out more


Why customer loyalty is important - customer retention and loyalty programs

We see so many businesses that are focused on growing profits and attracting new customers. But they often overlook the importance of customer retention and satisfaction. It's very difficult to recover a customer that has already churned. Once they leave, it takes a lot of time and effort to convince them to come back.
 

This is why so many brands are choosing to create bespoke rewards programs in 2022. Loyalty programs are a powerful customer retention tool. Why? They collect detailed customer data and help brands understand their customer’s values. These values can then be translated into personalised rewards. 
 

At White Label Loyalty, we help brands keep customer retention rates high with machine learning. It can be difficult to uncover what exactly is working across a loyalty solution. That’s why our AI module was built to find the factors that drive results. By finding hidden gems in your data, you can pinpoint actionable insights and create customer churn prevention strategies. 
 

Hear from Amar, our Principle Software Engineer who build the algorithm behind our AI module…
 

AI module capabilities

Find out more about our AI module

HERE

Conclusion

We hope this article has helped you understand the meaning of customer churn and what you can do to prevent it.  If you can follow these strategies for customer retention and loyalty you will be on your way to growing your business whilst retaining your most important customers. If you would like to find out whether a loyalty solution is right for your business, get in touch with us.

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Helen Walker

Helen Walker

Creative & Content Marketing Executive

Helen is our Creative & Content Marketing Executive. She shares valuable information about the Future of Loyalty and will keep you up to date on the latest industry insights...

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Customer Retention
Loyalty Marketing
AI
Customer Satisfaction