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The Three Leading Causes of Customer Churn

The Three Leading Causes of Customer Churn

Churn. It’s that awful, nasty, revenue-crushing word that every SaaS company has to deal with at some point in their customer lifecycle. Some companies experience a massive churn rate and have to fight for every customer. Others have cracked the code and find their churn rate so low, they rarely have to think about it. There is also a third group of businesses that will continue to grow in spite of a high customer churn because of the impressive revenue generated by existing clients.

Understanding the reasons behind customer churn and working around them when adjusting your approach will make the difference. So, let’s start off by looking into the leading causes for an increased turnover and go through some actionable tips to follow if you want to stay on the safe side.

Customer Success and Churn

Great customer success is perhaps the single greatest defense you have against high churn. Some of the areas where the churn rate is affected most significantly are during the Onboarding, Product Adoption, Customer Retention, and Product Expansion stages. All of these key areas are within the domain of Customer Success and by emphasizing outstanding service, you have the potential to dramatically reduce customer churn.

Indeed, within these four stages lies a full 53% of all causes of customer churn. Put a different way, by mastering these four key stages you can reduce customer churn by more than half!

But what about the other 47%? The other causes of customer churn lie in different stages of your customer’s relationship with you. To combat these areas, you need to influence the Customer Attraction, Engagement, Trial, and Conversion stages of your customer relationship. While these stages do not fall directly into the realm of Customer Success — after all, these stages deal with creating a customer not managing an existing one — you can still influence them through managing Customer Success efficiently.

This means that by developing a strong Customer Success team, you directly impact 53% of all causes of churn— and positively influence the other 47%!

The Three Leading Causes of Churn

Statistics show that 53% of all causes of customer churn are due to three leading causes. To have the greatest impact on customers and to keep your churn rate low, it’s essential to tackle these “Big Three”. Are you losing customers due to poor performance in one of these key areas?

Leading Causes of Customer Churn
53% of all causes of customer churn are due to these 3 leading causes

1. Poor Onboarding – results in 23% of average customer churn

In their struggle to attract new customers and juice up revenue, many brands end up losing sight of the existing audience, while the moment to care for them is actually starting with the onboarding stage. This is when customers are excited to learn more about your offering and put effort into it to make it work towards their goal. 

At this stage, your customer really engages with your Customer Success team, is reassured they made the right choice, and it’s here where you can make the greatest positive impact. Poor onboarding results in 23% of the average customer churn. 

Avoid early frustrations by learning more about customer requirements, predicting their needs and guiding their way towards the expected outcome from your product.  Make them feel welcomed from the very start and show them how your offering can add value to their business. If you set the right pace, opt for straightforward communication and are proactive in your attempts to convert simple features into business benefits, it will definitely add up to your long-term customer base. 

But what if you have attracted the wrong audience from the start? Some clients may subscribe to your product without fully understanding your solution or simply because an incentive triggered them. The moment they realize your product is not a fit they will simply leave for a competitor affecting your churn rate. 

That is why it’s crucial to understand who your ideal customer is, and which of them, regardless of efforts, will bring nothing but a temporary increase in the monthly revenue. Having these delimitations and keeping profitability in mind, you can decide if the customers that are about to churn are worth saving or were worth acquiring in the first place. 

Understanding expectations and delivering accordingly, or suggesting a different alternative if your product is not a fit rather than opting for a short-term deal, would help improve your customer churn rates. To avoid disappointments from an early stage, make sure to have a clear and aligned message across all your promotional channels, be honest about your products’ capabilities and share realistic timelines regarding new features. Offering a free trial period would facilitate the choice as well.

Takeaway: If you don’t support your customers in their first steps of interaction with a product they are not accustomed to, the chances for them to run into a bottleneck and fail to see the value of your product is extremely high. Educate your audience from the early stages of the customer experience and nurture their interest along the way to increase your retention rates.

Here are a few essential tips for an effective onboarding process:

  • Define your onboarding process and make it mandatory
  • Simplify tasks with walkthrough guides
  • Create engaging how-to videos and build a comprehensive knowledge base
  • Offer product demos
  • Wrap software lessons within industry best practices
  • Personalize the onboarding to avoid spamming newcomers with irrelevant information
  • Be transparent in your communication and don’t overpromise
  • Monitor user-health based on their behavior to facilitate product adoption
  • Test onboarding approaches and measure their impact

2. Weak Relationship Building – accounts for 16% of average customer churn

Building long-lasting relationships with your customers is a process that starts at the early stages of the customer lifecycle throughout and generates the loyalty you are granted with in the long run. Loyalty is an undeniable differentiator between you and your competition. 

There are no flawless products that will ensure lack of bugs over the time, there are plenty of occasions when your competitors will try to lure your clients on their side with better deals. You can of course try to stand out with competitive advantages like more features or buy them off with incentives; however, you will be always facing the challenge to lose this customer. Instead of counting on short-term measures, try to build an audience that will be loyal based on their perception of your brand rather than interchangeable additions.

Throughout all your interactions with a customer, it’s essential to nurture a healthy and sustainable relationship that goes far beyond the initial sale. Weak relationship building accounts for 16% of the average customer churn. The key is to make them feel listened to and cared for, as well as understand they’re working with a proactive and professional team that always strives to provide the best customer experience.

A recent CX study showed a direct relation between customer experience and loyalty, most clients being more likely to trust, repurchase, forgive and recommend a brand if an excellent customer experience is ensured. 

Impact of customer experience on loyalty
Impact of customer experience on loyalty, source: Qualtrics

At the core of an amazing customer experience lies data. The history of a brand’s interaction with the audience can shed light on their engagement with the product over time, highlight issues they faced along the way, and offer bits of information that if properly ordered will shape a story. And here’s where the Customer Success team should take the floor and act.

By monitoring behavior, you can easily determine which are the customers at risk to churn and approach them first. Whether they have been idle for some time, had complaints which were not paid attention to or poorly adopted your tool, find these reasons to touch base with your customers before it is too late. The natural causes of churn, such as expired credit cards, payment problems, loss of contact points/key users, can also be tackled more efficiently if the in-app analytics are properly exploited by the Customer Success team.

Don’t count on clients telling you about their difficulties, because often they won’t. Only one out of 26 unhappy customers will actually voice his dissatisfaction, the rest will simply churn. So, it’s up to you to be one step ahead and predict their actions, analyze customer satisfaction and make feedback an indispensable part of your product roadmap

Takeaway: Fostering brand advocates that will hold on to your product, refer other customers by spreading word-of-month and thus help your business grow is easier said than done. It’s an endeavor that takes time, a lot of effort and consistency from your side.

Nonetheless, here’s a few tips that will help you out in this direction:

  • Collect customer feedback regularly (via quarterly business reviews, customer surveys)
  • Be proactive: monitor customer health and contact them when it drops
  • Send personalized communications according to customer behavior and interests
  • Inform about new features and useful content to make the value of your service visible
  • Build relationships with power users, key contacts and executive staff
  • Integrate support and marketing tools for a complete overview of the customer experience
  • Adopt automated dunning solutions to combat involuntary churn
  • Create a customer-centric culture

3. Poor Customer Service – accounts for 14% of average customer churn

The Customer Support team is that bridge between your product and expected outcomes, playing a crucial role in shaping the end-to-end customer experience. In an ideal picture, they, together with the Customer Success team, are the relationship-builders, skillful communicators and good listeners, the ones who can convert any customer issue into answers and solutions. 

This is especially relevant nowadays, as customer expectations increased considerably due to the extensive choice and accessibility of information. With lower switching barriers, each ignored complaint, the lack of speed and proactivity, your attitude or poor expertise will cost you a client out of the door who will not hesitate to share his dissatisfaction with others. 

According to a Microsoft’s study, 96% of global respondents consider that customer service has an important role in their choice of loyalty to a brand and 56% of them have ended their relationship with a business due to a poor customer service experience. 

Bearing in mind the costs of acquiring a new customer, you might want to think twice before crossing that danger line of neglecting your audience. Poor customer service accounts for 14% of the average customer churn. What’s more, 52% of B2B customers will avoid a brand for two years after one bad customer support experience. Having your customer satisfaction at all times on the top of your mind and at the core of your actions will single you out from the pack. 

Takeaway: In a similar vein, be sure that when a customer has an issue, a resolution is never far away. Here are the top customer service hacks for preventing high churn:

  • Make self-service easy: for every service request you receive, four other customers are seeking self-service
  • Put your employees first: happy employees treat customers better
  • Offer omnichannel support
  • Don’t use generic automated replies
  • Close the feedback loop in a timely manner
  • Track response times and satisfaction ratings over time and use that data to improve
  • Monitor app usage to see precisely where and how a customer ran into trouble
  • Focus on common pain points to prioritize features/fixes

Your Secret Weapon: a Culture of Customer Success

While the above strategies are very practical, it’s important that you don’t stray from the ultimate goal – discourage churn before it ever becomes a problem. 

Customer satisfaction surveys and in-app data might be a good place to start with. By monitoring customer health, you can easily dissect the causes of customer churn, understand your overall performance and improve it in order to provide a best customer experience. Invest time and effort in a long-term relationship with your audience by overdelivering at each touchpoint and keeping an ear out for their insights.

Your secret weapon is creating a culture of Customer Success in your organization while keeping your customers at the heart of your efforts. Make sure that everyone (from Sales to Engineering to Marketing to Customer Success) understands that their job (ultimately) is to make the customer feel like a million bucks.

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