Dear customer: how may I annoy you today?
When small business profits or margins are low, what do business owners and managers typically do?
- Get more customers?
- Get customers to buy more often?
- Get customers to buy more with each purchase?
- Get customers to pay more (raise prices)?
While these four techniques help increase what comes into your business (income) decreasing what goes out is just as helpful. Specifically, customers. In this article, learn the connection between customer churn (the opposite of customer retention) and increasing small business revenue… and what you as owners and managers can do about it.
What is customer churn?
Assuming your business has the potential for many transactions with a single customer, churn is the number of clients who choose to stop buying from you instead of continuing to buy. Churn rate is the % of these customers compared to everyone who buys.
For example: Alice’s Accounting currently has 40 clients. Ten out of every 40 clients discontinue their contracts in a year, so Alice’s churn rate is 25%.
Unnecessary churn causes leaky profits
As you know, it costs less to keep a customer than it does to find a new one. Churn rate matters because it is one of the easiest ways your business can make the most out of its investment (getting the customer).
- Alice’s Accounting clients typically have year-long contracts worth $2000 each
- If Alice loses a client, it costs her $800 in downtime, recruiting time and money to replace them
- To increase client satisfaction, it would cost her $50/client/year in automated gifts, outreach, surveys, analysis and response
1. If Alice simply ignored client satisfaction / churn rate, then did nothing to replace lost clients:
Year 2: 30 clients = $60K revenue
Year 3: 23 clients = $46K revenue
Year 4: 17 clients = $34K revenue
… Alice would soon go out of business
2. If Alice ignored client satisfaction / churn rate and simply paid to replace every lost client:
Year 2: 40 clients (30 old, 10 new) = $72,000 revenue
Year 3: 40 clients (30 old, 10 new) = $72,000 revenue
Year 4: 40 clients (30 old, 10 new) = $72,000 revenue
… Alice wouldn’t reach her revenue potential and would spend more time at the office doing unpaid work (marketing and new client onboarding)
3. If Alice reduced her her churn rate to 10% by investing in keeping current clients happier:
Year 2: 40 clients (36 old and happy clients, 4 new) = $75,000 revenue
Year 3: 40 clients (36 old and happy clients, 4 new) = $75,000 revenue
Year 4: 40 clients (36 old and happy clients, 4 new) = $75,000 revenue
… Alice would have stronger customer relationships, would spend less time at the office and would make $3000 more each year.
How to: decrease churn and increase the bottom-line
If your business can’t get more customers (you’re at your limit), or customers don’t need to buy more or more frequently from you, addressing churn rate is one of the few tools at your fingertips to still increase what’s in your bank account.
“How did I annoy you today?”. While it seems contrary, think about how you frustrate your customers and why you cause them to leave. Better yet, ask them. Figuring-out what causes clients to leave can illuminate missed opportunities and reduce your churn.
Once you have this information, identify “high-risk” qualities… customer behaviours that indicate they are likely to drop-out. If these are customers you want to keep, define tactics to nip those behaviours “in the bud” and change their perception of you. For example:
- Call: ask and listen to what they need (and deliver it)
- Teach: how to make best use of your services (videos, blog articles, FAQ, automated email campaigns)
- Reward: compensate the client and boost your value-add. Focus on: upgrades, discounts, add-ons, more contact.
Stuck on time? MOGL can help
See the importance of addressing churn rate? Too busy to address it? MOGL can help with:
- Customer experience mapping: sometimes we are blind to our own weakest links. Process mapping makes the invisible visible and helps identify areas for improvement. Use MOGL to map how customers experience you and identify ways to make the experience better, faster or cheaper (whatever your customers say they need).
- Customer outreach: designing and executing one-time or ongoing outreach efforts, including surveys, emails, automated communications videos to find out or in response to what customers need
- Change execution: implementing the changes your customers say they want
- Customer onboarding: choreographing the first 72 of a new customer’s experience to really “wow” them with your company and set expectations correctly – right from the start
For small business owners and managers, making every minute and dollar of effort count is so important… to our bank accounts and work-life balance. Asking how you annoy customers then flipping that information to get clear on delighting them, is a critical component to minimizing churn rate – and squeezing the juice out of all that you invest into your small business.