Churn — what is it?
Customer churn rate, also simply known as churn, refers to the percentage of your customers that leave your service over a given period. The churn rate is also linked to another rate known as the retention rate: the percentage of customers who continue to purchase a given product from any given brand in a specific time frame. The two values are inversely proportional: the higher the retention rate, the lower the churn rate and vice versa. If customer loyalty rises, the number of customers who switch to other brands’ competitors is bound to decrease.
Customer churn is a vital concept in determining the efficiency and effectiveness of a business: how good are your services? Do you lose more customers than you gain? The higher the churn rate, the more customers your company is losing.
The most commonly applied churn rate formula is the number of churned customers divided by the total number of customers. The number of churned customers over here refers to how many people have left your service in a given timeframe out of how many total people you had during that period.
Generally speaking, it’s quite normal for companies and businesses to gain and lose customers over a period of time. However, you may notice an abnormal outflow of customers lately, which raises serious alarms. There can be many reasons why churn occurs or why the customer churn rate increases.
What causes customer churn in the telecom industry?
According to a recent Accenture poll, approximately 77% of telecom customers are more likely to experience churn compared to three years ago. Why is that?
At the heart of rising churn rates, it is safe to say that the culprit is bad customer experiences. Ninety per cent of customers read online reviews before even visiting a business, and 88% of customers trust online reviews as much as personal recommendations. Thanks to the power of social media, customers can easily express their negative and unpleasant interactions with any company, which tends to spread like wildfire. An unsatisfied customer has many channels that were not available in the past to portray their discontent about telecom services.
If your customer experience is unsatisfactory and relatable enough to many of your existing users, it motivates the wider community to try new devices and products and switch brands.
Another main cause of the increasing churn rate in the telecom industry is the consistent innovation in technology and emerging competitors. Nowadays, you have an abundance of brands, all vying for the customer’s attention. If tech companies are unable to offer something fresh and new for the customer, they can easily be replaced in the user’s mind by more contemporary and modern businesses that have a more creative variety of products. A lack of innovation definitely increases the chances of experiencing alarming levels of churn.
Why is churn rate so important in the telecom industry?
High churn levels remaining unchecked can prove to be a huge dent in your revenue base. Given that the churn rate is analyzed and correctly studied, you can create a predictive analysis that makes it possible to understand why your customers switch and which customers are more likely to switch and intervene and stop this from happening in advance.
Furthermore, calculating the churn rate helps give companies a realistic analysis of how satisfactory and effective the customer experience is and can be used as a metric for evaluating your marketing strategies. ‘Butterfly’ customers, while reaping high potential profitability, have a low projected loyalty. ‘True Friends’ customers have both high potential profitability and projected loyalty.
Churn rates help you reevaluate your marketing strategy. Try turning butterfly customers into true friends customers, and this way you can reduce the number of customers who are more likely to abandon the brand. After implementing the revised marketing strategy, you can check the before and after to see if the initiative was effective or not and whether the churn rate has reduced.
Four strategies for reducing churn
Although bringing the churn rate down to zero is impossible, there are a few things you can still do to make sure that it doesn’t spiral out of control resulting in a loss of profit.
1. Learn more about your customers
Use your internal data effectively. To get your customers to remain loyal to your brand, learn how to effectively create value for them in order to capture it from them. As mentioned previously, segmenting your customers into most profitable categories (true friends) and least profitable categories (strangers) is crucial. Invest in software that can track how customer relationships evolve and detect where each customer is in their journey with your brand.
Technologies such as machine learning provide invaluable support for collecting data in crucial phases. CRM platforms can use machine learning to manage information about customers more efficiently, making the whole process convenient for your customers and company as well.
2. Proactive customer care
High-quality customer care and service are two crucial elements of any business. And not just any plain old customer care. To help increase retention rates and reduce churn rates, businesses and companies require proactive customer care. Be willing to intervene and help customers with problems around the clock. Leaving problems unsolved only creates inconveniences and unsatisfactory experiences.
Assuming that every customer of yours is tech-savvy is a huge mistake. And therefore, if any issues arise, the steps taken should be efficient and require a few simple actions from the customer. Lastly, the whole system should be proactive enough to anticipate errors before they arise and resolve them before the customer is aware.
3. Innovation leads to higher levels of retention
The types of services you offer play a huge role in determining the churn rate. The technological race is merciless, and if you can’t keep up with the times, chances are that you’ll lose most of your customers to other innovative brands. Therefore, products and services must be renewed according to market trends and user demands. Take the example of Wifi routers. Gone are the days of wifi extenders, boosters and secondary routers. Many companies offer Mesh Wifi services now, which are a huge upgrade from your ordinary Wifi setup and more popular amongst customers.
4. Adding services to subscriptions and contracts and improving quality
Collaborating with other service partners to offer value-added services can significantly reduce the churn rate and increase retention. Research has shown that consumers would be interested in adding services to their existing subscriptions and contracts. Services like video streaming content, music streaming content, smart home devices, entertainment devices and gaming content are a few examples of what you could add to customer subscriptions in order to improve their experience. However, most of these added services will require packet technology to function adequately. Therefore, an enhancement of the overall quality of services is also crucial in getting customers to stay with a company.
Other customer retention tactics that help control the churn rate include:
- promoting special deals with reduced rates.
- building personalized plans for different customers.