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The Complete Guide to Churn Analysis and Why It's Important for Your Business

November 1, 2022

Sales Training

The Complete Guide to Churn Analysis and Why It's Important for Your Business

Do you want to learn everything about churn analysis and why it is so important for your business? Then this is the blog post for you! We'll give you all the information you need to know.

churn, chrun analyse, sales, b2b, artificial intelligence, machine learning, ai guided selling, data, crm sales, crm dashboard

Most businesses need to be made aware of the significance of churn analysis. Customers may leave your business due to issues, and evaluating the cause of their losing interest in your business is one of the most challenging tasks any company faces.

Churn is the rate at which a company loses customers over time. Every company should concentrate on determining the causes of this loss. The analysis promises to reveal insights about your customer loss and can also assist businesses in improving their services by utilising relevant churn data.

Understanding who is churning, when they are churning, and why they are ditching your product allows you to make changes that will attract your intended audience and lower churn before it becomes uncontrollable.

But precisely, what is customer churn? Why is it so crucial for continued business growth and success? How is customer churn calculated? And how can the findings of your churn analysis assist you in improving your business?

Introduction: What is churn analysis, and what can it tell you about your business?

Churn Analysis is the process of exploring churn using data. This analysis frequently entails investigating the churn rate, i.e. the percentage of customers who discontinue utilising a company's product or service within a specified time frame.

Using churn analysis, companies can increase customer retention by preventing current customers from leaving and preventing potential customers from becoming competitors' new customers. It can also assist businesses in understanding why they are losing customers and making changes to their business.

Churn analysis enables you to identify customer journey pain points and opens avenues to improve your products, services, and communication.

  1. Discover the company’s product's flaws (and potencies): Churn analysis frequently displays patterns that indicate common reasons customers stop using your product or service, e.g. price sensitivity or poor product adoption. It also shows how customers interact with your product throughout its lifecycle. You can use these insights to improve the products the customers don't like while maximising what they want.
  2. Discover opportunities for improved communication.: Improving the customer experience requires constantly understanding the customer's expectations and meeting their needs. Churn analysis reveals customer behaviour trends at every touchpoint. Personalised engagement via the communication channels preferred by your customers is one way to make them feel valued and appreciated.
  3. Predict future churn and thus reduce them: Churn analysis entails analysing historical customer data to predict the churn rate. This analysis is used to understand customers at each stage of the lifecycle and who is sticking with your product. You can take a proactive approach and prioritise improving retention when you notice the red flags of churn.

Computing for Churn Rate

*How to Interpret Churn Rate Data and Find Patterns*

To calculate the churn rate, you need to determine the period you will work with, such as monthly, annually, or quarterly. You will also need to know how many customers you had at the start of that period and how many you lost. Then using the Churn Rate Formula, (assign the following:)

churn rate formula
  1. Total Customers at the Beginning of the Period.
  2. The customers lost.
  3. Multiply the result by 100.
A lost customer is determined by how many customers churned by the end of the period and by Subtracting the number of lost customers from the total number of customers you had before the churn.

Calculating churn rate may appear to be a tedious task, but it is critical to track it to understand what is going wrong on a customer service level. Calculate your customer churn rate over a year or a month, improve your customer service systems, and invest in your customer service representatives to see your churn rate drop exponentially.

What are the Causes of Customer Churn?

According to an article by Zonka, here are 5 Leading Causes of Customer Churn:

(a). Poor Onboarding

When customers do not find your products valuable, this is one cause of customer churn. If your customers aren't finding your products, services, or helpful software, it could be because they can't see or understand the features. This is primarily due to poor onboarding, in which you fail to properly guide your new customers on how to use your products and services.

Leading Causes of Customer Churn, source: Zonka

According to a Harvard Business Review study, focusing on onboarding can have a significant positive impact on revenue, client renewals, and client referrals over the life of the contract.

Key Solutions to this Problem:

  • Learn everything you can about your customers and simplify their onboarding process.
  • Guides can help you simplify your product setup process and educate your customers.
  • Create engaging how-to videos and an informative knowledge base to ensure they understand the product's features completely.

(b). Poor Customer Relations

Maintaining healthy relationships with your customers should be a continuous process. You must adopt a proactive approach and listen to your customers' voices to make them feel valued. 

Key Solutions to this Problem:

  • All critical Customer Experience metrics should be measured.
  • Conduct surveys regularly.
  • Send out newsletters to increase engagement.
  • Send an invitation to your product launch, event, or party.

(c). Inadequate Customer Service

Customers who receive poor customer service may leave your company. If you provide excellent products and services but do not prioritise customer service, it will cost you a lot of money in the long run. To avoid these problems, you must provide prompt and responsive customer service.

Key Solutions to this Problem:

  • Make your workers happy. Happy employees will provide excellent customer service.
  • Make self-sufficiency simple.
  • vKeep track of response times and satisfaction ratings by incorporating AI Conversational Chatbots into your website.
  • Make use of data to improve your products or services.

(d). Difficult User Interface

A product often has all the core functionalities but fails to meet your customers' needs.

A great Customer Experience encompasses a wide range of activities, from the customer's voice to mapping the customer's journey and user experience. When developing any application, remember that great design for user experience is the foundation of every application.

Key Solutions to this Problem:

  • Improve product quality by incorporating UX design principles to increase customer retention.
  • Analyse competitor products to learn more about best practices.
  • Simply the UI process and resolve consumer accessibility issues.

(e). Customer Complaint Ignorance

Do you know what irritates your customers the most? Failure to respond and proper handling of their complaints.

Complaints are critical in identifying flaws in your products and services. Consider your customers' problems to be a reality check for your company. If they have issues and you do not address them promptly, you may pass up an opportunity to strengthen your relationship with them.

Key Solutions to this Problem:

  • Problems should be escalated to the appropriate teams.
  • Respond and resolve issues as soon as possible.
  • Improve processes, products, and services by using feedback.

Churn Analysis in Practice at Nordstrom concerning New York Times Article "What Do You Value Most?"

To succeed in retaining customers who would otherwise abandon your business, Retention experts and marketers should be able to:

  1. Using Churn Analysis, you can predict which customers will leave.
  2. Understand the Marketing actions that will have the most significant impact on customer retention for each customer.

Churn prediction modelling techniques attempt to comprehend the actual customer behaviours and characteristics that indicate the risk of Customer Churn. You must use a highly accurate method to have a high success rate with your targeted, proactive Retention efforts.

According to New York Times, following a disappointing quarter in 2021, Nordstrom launched an expanded loyalty program. The updated Nordstrom loyalty program, dubbed Nordstrom Rewards, allows all customers points with or without a Nordstrom credit card. The program appears to be based solely on points for purchases, but all customers are now welcome without a credit card.

According to the company’s Co-President and Director, Blake Nordstrom, Nordstrom loyalty members spend four times as much as other shoppers each year, and their spending "contributes roughly 40% of sales."

Conclusion: Powerful Analytics Tool that Supports Churn Analysis

Churn analysis, when done thoroughly, is the only way to understand why users leave. As a result, you can reduce customer attrition and increase your future performance and growth.

Some tools that support churn analysis include Userpilot, Kapture AI, Upzelo etc.

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