Have you had a customer stop using your product and switch to a competitor? If you’re a business, it’s likely you’ve experienced this. Put simply, when a business loses its customers, it’s called customer attrition. The rate at which your customers leave your business is called customer attrition rate.
In this article, we explain what customer attrition and customer attrition rate mean, how you can calculate customer attrition, and give you clear step-by-step instructions on how you can reduce customer attrition rate.
What is Customer Attrition?
The term Attrition refers to the number of people who move out of a larger group or gradually start dwindling in numbers. Attrition is a common term used by HR to describe Employee Turnover within the workplace. The concept, when extended to marketing, can be used to refer to customer attrition. In simple terms, Customer Attrition is when a business loses its customers. It is known by many names like Customer Churn and Customer turnover, but it all means the same thing -A customer who breaks all ties with the organization.
Depending on the nature of your business, the result might be:
- Canceling a subscription
- Closure of an account
- A sudden loss of transactions( Commonly observed in retail stores and e-commerce )
- Terminating a long term Service Agreement
Businesses infer that a customer has churned when they have not interacted with or purchased their services/products after a period of time. While customer attrition is a painful reality to face, it is important to understand that most customers will not remain with your business indefinitely.
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Customer Attrition can never be zero. Customer attrition can either be voluntary and Involuntary. Voluntary attrition is when they choose another company’s services over yours. Involuntary attrition is usually attributed to factors such as relocation that might have forced them to switch to another service.
As you may have guessed, Customer Attrition is the complement of Customer Retention. It’s the exact opposite of a company’s ability to retain customers. The lower it is, the better for the business. In short, Customer Attrition is an important metric that needs to be tracked; it serves as an indicator of business health. Reducing customer attrition is the way to go.
Research suggests that acquiring a new customer is seven times more expensive than retaining one. Acquiring a new customer may feel good, but it takes a lot of time and effort. In this context, customer attrition is extremely crucial, and preventing it should be a primary goal of any business.
How to Calculate Customer Attrition Rate with a Simple Formula
Calculating Customer Attrition Rate regularly helps keep track of the changes within the firm’s customer base and helps in making strategic decisions. Satisfying your existing customers is more affordable than acquiring new ones. If you notice early on that customers are leaving, you can identify the issues and rectify them instead of worrying about customer acquisition.
The Customer Attrition Rate is usually measured for a defined period by dividing the number of customers lost at the end of the period by the number of customers at the start of the period.
Customer Attrition Rate Formula = Number of customers lost at the end of the period (Churn) / Number of customers at the start of the period
Now let’s crunch some numbers to put things into perspective!
For example, a business has 1000 customers at the start of a month and by the end of the month, the number has dwindled to 900.
Number of customers that are lost at the end of the period (Churn) = 1000-900= 100
Number of customers at the beginning of the period=1000
Customer Attrition Rate= 100/1000 = 0.1= 10%
So this business had a Customer attrition rate of 10% by the end of the month.
Try applying this formula and calculate your customer attrition rate.
If you got a high value of customer attrition rate, it might reflect the following fundamental problems:
- High prices
- Poor customer experiences
- Bad Onboarding
- Confusion on new features and updates
Getting to the root cause of high customer attrition and analyzing the major reasons behind it can help you take measures to tackle these issues. It is only possible through a detailed customer attrition analysis. So the next step after determining your customer attrition rate would be to carry out a customer attrition analysis with your team.
Customer Attrition Analysis: What You Need to Know
To build a successful business, one way would be to channel your efforts into reducing client attrition. Reducing client attrition by even 5% can increase your profits by at least 25%. So it makes sense that the next smartest move would be to delve into why your clients left and carry out strategies for retention.
Customer Attrition analysis does just that. It’s always wise to regularly perform this analysis, but more so if you notice that your customer attrition rate is beyond the normal range or if you have implemented vital changes to your product.
Top 4 Reasons Businesses Experience Higher Customer Attrition Rates
The reasons why your customers leave can be boiled down to these top 4 factors:
1. Pricing and Cost
One of the common reasons cited by customers is high pricing. If a customer feels that a product/service is not worth the price they pay for it, they may choose an alternative that they feel is more cost-effective. It’s crucial to establish, especially during the customer onboarding stage, the value that your product offers for the price it is set at.
They should be convinced that the price they pay is justified and that they can obtain the full value of your services
2. User Experience
If your product has glitches, bugs, or just doesn’t meet its claims, customers will likely be disappointed. Was it easy for your customers to use your product? A perfect way to find that out would be through customer feedback surveys, like SurveySparrrow’s Customer Effort Score, which would rate your product’s ease of use on a scale of 1 to 5.
The same goes for User Experience and Design. If the overall experience with the product is average, they will be less likely to use it daily. As applications become more user-friendly, clients will always have higher expectations. It’s not enough to simply satisfy your customers; you should wow them with your product.
3. Poor Customer Service
Many consider Customer Service as an additional expense, one that can be done away with. Instead of viewing it as an additional expense, Customer Service should be viewed as the investment that can take your business to the next level. Not just any Customer Service would do. Bad customer service has been reported as the main reason businesses lose clients- As a matter of fact, 68% leave due to a poor customer service experience.
Customers need to feel valued and supported throughout their interaction with your brand. Want to step up your game? Pinpoint issues with your customer service experience by sending customer surveys like NPS immediately after your brand interaction. SurveySparrow’s Net Promoter Scores measure customer feedback with just one question- How likely is it that you would recommend us to your friend or coworker? If this score is low, enquire about it with those customers who rated low.
4. You attracted the wrong customers
Finding the right product-market-fit, i.e., identifying a target market, and meeting their needs with the right product, can mean the difference between success and mediocrity for a business. These are your perfect customers, and you know how they feel about your product/service.
But what if you have attracted the wrong customers? The ones who are unsure whether your product meets their needs or not. The moment they find out that your product wasn’t a good fit for them, they would jump ship. This effort to acquire these customers could have been better utilized in acquiring those with the right product-market-fit.
One way to overcome this kind of churn would be to truly understand your customer needs and rewrite the marketing copy to reflect your product/service problems.
How to Reduce Customer Attrition Rate: 4 Simple Ways in 2021
Some levels of Customer Attrition Rate are unavoidable, and several reasons are beyond our control. But if you have a large number of customers leaving daily and your client attrition rates are well above industry standards then it’s time for you to do customer attrition analysis and dig into why they are leaving.
1. Why are your customers leaving?
Find out why they are leaving. Ask them through email or direct them to a survey. You could use suitable customer service email templates while communicating with them.
There’s a different template for each scenario. Send out an email to all the customers who’ve canceled. You are sorry to see them leave, and attaching a Customer Exit Survey like Surveysparrow’s would reveal why they halted using your products/services.
2. Actively engage your customers.
Showing the benefits of your services, latest news updates, and announcements ensures that you always stay on top of their minds. The best way to reach out to your customer base regularly so that you are a part of their daily lives is through Content Marketing on various social media channels and email marketing.
You can ensure that they are always up to date and informed by offering free webinars, tutorials, and demo videos. The customer onboarding stage is the most crucial, and educating them early on about your services can reduce initial customer attrition.
If your offerings include a product, give them a step-by-step guide on using it. Effective onboarding can help reduce unnecessary client attrition.
3. Analyze your customers and segment them
Identify at-risk customers, the ones who are on the verge of leaving. It seems these are the ones who are most likely to leave. Finding these customers is easy- they might have expressed their dissatisfaction with your products openly, or you may be aware of actions that churned customers in the past have taken.
The at-risk customers might be repeating those same actions. After identifying them, take proactive steps to assuage their problems and reduce customer attrition. Offering incentives like discounts, special deals, and bundling of services at a lower price are effective strategies for retaining those at-risk customers.
While analyzing your customers, it’s also beneficial to note your most valuable customers and go that extra mile to retain them since they are your biggest revenue sources.
4. Stand out with the Best customer service.
One of the main reasons for customer attrition is poor customer service. Poor Customer service usually involves staff who are unprofessional, rude, and provides extremely slow services.
Customer Service is the one area where businesses can stand out from their competitors. It is the icing on the cake and can mean the difference between success and failure. So paying heed to complaints and following up on customer requests is the need of the hour.
Understanding customer attrition and its reasons are one thing, but acting on them to reduce customer attrition is of prior importance. Knowing the exact number of customers you are losing and determining their average lifetime value will help you determine the percentage of business lost.
Businesses can not afford to lose their existing clients since acquiring new ones takes a lot of effort and is cost-intensive. But every cloud has a silver lining. All you need to do is show your customers why they should stay with you. A great customer experience will ensure they stick around. Take up a proactive approach to reduce customer attrition and measure customer attrition rates regularly to keep your business healthy!