Retaining customers is one of the main goals of any company. And there's a reason for that. Philip Kotler, the well-known marketing guru, has warned that acquiring a new customer costs 5 to 7 times more than retaining a current one. That's why knowing how to predict churn is so important.
If you can anticipate losing a customer, then you can develop strategies to prevent it from happening. Furthermore, for companies whose main revenue comes from service subscriptions, this foresight is essential for setting precise goals for acquiring new customers.
Next, you'll find some tips on how to predict churn!
But first, what is churn?
Also known as "customer churn," churn occurs when a customer, user, subscriber, or any type of existing client stops doing business with or ends their relationship with a company.
This can be translated as 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 attrition.
It is important for the lasting and sustainable growth of businesses to understand what caused previously loyal customers and users to abandon ship and find a new supplier instead of your business.
How to predict churn?
Calculating the probability of a customer "churning" is a very important step in business strategy. It helps to understand the causes and also to look for more effective ways to retain customers.
Furthermore, it is essential for companies to determine their goals for acquiring new customers and adjusting 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 surveys
- 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 is 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 a thorough analysis of the responses received.
Watch our webinar on the 4 main customer experience metrics and which one to use at each stage of the journey.
2. Find your detractors and liabilities
Depending on the score given to question number 1, consumers are classified into three distinct categories:
- Promoters = respondents giving a score of 9 or 10
- Passive = respondents with a score of 7 or 8
- Detractors = respondents who gave a score of 0 to 6
From the perspective of the NPS methodology, any customer who scores between 0 and 8 shows some degree of dissatisfaction with the product or service and, therefore, may switch or look for another alternative. To predict churn, you need to know who these customers are.
You should carefully analyze all the reasons listed by consumers for not giving a 9 or 10 rating. See if it's possible to 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, and in this way, you will be able to determine a pattern of behavior for each group.
Therefore, when a customer answers question 1, you will automatically be able to predict, more or less, how long it will be before they stop doing business with you.
Change the future churn
Now that you know how to predict churn, you need to develop strategies to avoid it. Unfortunately, your new predictive ability has a small limitation:
You can 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 should develop ways to get to know each of them better.
The tip is: develop specific questionnaires for each groupin order to thoroughly assess the reasons for their dissatisfaction.
There are several reasons why a customer might stop doing business with a company. However, we can say that some of the most common are:
Lack of involvement
Often, customers become dissatisfied with a product or service simply because they are unaware of all its features or do not use it as much as they could.
By conducting some research, you canidentify how much and how your product or service is being used. This allows you to correlate engagement results with the rating given regarding the likelihood of recommendation, and also with churn rate.
So, you can create a "danger zone" line, which is basically when engagement falls below a certain point. That way, when a customer approaches this line, you can act proactively, seeking to understand the reasons and correct the problem at its source.
Poor product suitability
We've all bought something we didn't need or didn't really want. Sometimes it was due to a lack of knowledge about the product's features, other times it was because of the salesperson's skill.
In any case, it is not in the company's best interest to offer a solution that is not suitable for the customer, simply to meet a sales target for a given month. Such behavior could harm its brand.
Therefore, it's important that your marketing and sales teams are attracting potential customers who can truly benefit from your product.
Furthermore, it still takes time and money to close the sale and support a poorly matched client. That money and time are better spent on acquiring a client you can actually help.
To correct this problem, there must be consistent communication between the after-sales, sales, and marketing teams.
When patterns begin to emerge indicating that the customers being reached are not the company's target audience, it is important for the leadership of each team to diagnose the problem.
User experience
In addition to offering the right customer the right solution, it's essential to ensure an excellent user experience.
Companies that provide SaaS (Software as a Service) solutions, in particular, need to offer an intuitive and user-friendly interface so that users can have the best possible experience.
Once again, it's important to conduct research to understand if users of the products or services are satisfied with the usability of the solution offered. This way, it's possible to make corrections to ensure customer satisfaction.