Customer retention is one of the main goals of every company. And there's a reason for that. Philip Kotler , the renowned marketing guru, once warned that acquiring a new customer costs 5 to 7 times more than retaining an existing one. That's why knowing how to predict churn is so important.
If you can foresee the loss of a customer, you can develop strategies to prevent it from happening. Furthermore, for companies whose main revenue comes from subscription services, this forecast is essential for developing accurate goals for acquiring new customers.
Below, you will find some tips on how to predict churn !
But first, what is churn?
Also known as “ customer churn ,” churn occurs when an existing customer, user, subscriber, or any type of client stops doing business or ends their relationship with a company .
This can translate into canceling a service subscription, closing some type of account, not renewing a contract, and even when a customer decides to buy products from another store.
Churn is a reality that affects all businesses at some point . Not even the largest or most successful companies are spared from customer defection.
It is important for long-term and sustainable business growth to understand what caused previously loyal customers and users to jump ship and find a new supplier instead of your business.
How to predict churn?
Calculating the probability of a customer churning is a crucial step in business strategy. It helps you understand the causes and identify more effective ways to retain customers .
Furthermore, it is essential for companies to determine their goals for attracting new customers and adapting costs to the new scenario.
Discover some tips on how to predict churn !
1. Ask your customers two simple questions
The questions are very specific and have been tested and refined over 12 years and millions of searches.:
- On a scale of 0 to 10, how likely are you to recommend our company to someone else?
- What is the most important reason for your grade?
This is the basis of what's called NPS (Net Promoter Score) research . Created in 2003, NPS has become the standard by which companies measure their performance in the eyes of their customers.
In this process, it is essential to use a questionnaire platform that allows for the generation of reports and an accurate analysis of the responses received.
Watch our webinar on the 4 key customer experience metrics and which ones to use at each stage of the journey.
2. Find your detractors and passives
Depending on the score given in question number 1, consumers are classified into three distinct categories:
- Promoters = respondents giving a score of 9 or 10
- Passives = respondents with a score of 7 or 8
- Detractors = respondents who gave a score from 0 to 6
NPS methodology perspective , any customer who scores between 0 and 8 shows some degree of dissatisfaction with the product or service and, therefore, may switch or seek another alternative. To predict churn, you need to know who these customers are.
You should carefully analyze all the reasons consumers listed for not giving you a 9 or 10. See if you can identify commonalities, or even a pattern for a particular group of customers.
This procedure is essential for developing strategies to avoid churn.
3. Analyze customer behavior
Once you've segmented your customers into promoters, passives, and detractors, you need to track each group to identify the percentage that actually left the company.
This monitoring should be done over time, so you can determine a pattern of behavior for each group.
So, when a customer answers question 1, you will automatically be able to predict, more or less, how long it will take for them to stop doing business with you.
Change future churn
Now that you know how to predict churn, you need to develop strategies to prevent it. Unfortunately, your new predictive ability has a small limitation:
You might estimate, for example, that up to 50% of your detractors will leave within 90 days. However, you don't know which customers will make up that 50%. Therefore, you must develop ways to better understand each of them.
The tip is: develop specific questionnaires for each group , in order to thoroughly evaluate the reasons for their dissatisfaction.
There are several reasons why a customer stops doing business with a company. However, some of the most common are:
Lack of involvement
Often, customers are dissatisfied with a product or service simply because they don't know all of its features or don't use it as much as they could.
By conducting some research, you can identify how much and how your product or service is being used . This way, you can correlate engagement results with the recommendation rating and churn rate.
So, you can create a "danger zone" line, which is essentially when engagement falls below a certain point. This way, when a customer approaches this line, you can act proactively, seeking to understand the reasons and fix the problem at its source .
Poor product suitability
We've all bought something we didn't really need or want. Sometimes because we didn't understand the product's features, other times because of the salesperson's skill.
In any case, it's not in the company's best interest to offer a solution that isn't suitable for the customer , just to meet a given month's sales target. Such behavior could harm the brand.
Therefore, it's important that your marketing and sales teams are attracting potential customers who can truly benefit from your product .
Plus, it still takes time and money to close the sale and support a misfit customer. That money and time are better spent on bringing in a customer you can actually help.
To fix this problem, there must be consistent communication between the after-sales, sales, and marketing teams.
When patterns begin to emerge that indicate the customers being reached are not the company's target audience, it's important for each team's leadership to diagnose the problem.
User experience
In addition to offering the right customer the right solution, you need to ensure a great user experience .
SaaS (Software as a Service) solutions companies in particular need to provide an intuitive and pleasant interface so that users can have the best possible experience.
Once again, it's important to conduct research to understand whether users of your products or services are satisfied with the usability of the solution offered. This way, you can make adjustments to ensure customer satisfaction .
