Too often, running a business can feel like a leaky container; Despite all the customers you pour in the top, that's always a certain amount that keep running out the bottom.
This problem is known as customer churn, and it can make it very difficult to grow your business effectively.
In most cases, customer churn is tied closely to customer satisfaction. So, if your customers are unhappy with the experience they’re having with your brand, your churn rate is likely to increase.
But by making the effort to understand the causes of customer churn, you're on track to achieve lasting growth - and happier customers.
In this post, we’re going to define customer churn and the ways that your business can combat it effectively at your ecommerce store.
Customer churn is when a proportion of your customers decide to stop supporting your brand. This could mean a lot of different things, depending on your business.
For example, customer churn could be when customers choose not to renew their subscription or stop purchasing items from your online store. Because retailers have to find a way to replace this lost business, customer churn presents a long-term problem for many brands, especially if they have a niche audience or similar offerings to a competitor.
The simplest way to calculate customer churn is to choose a specific time period to measure and to divide the number of customers you’ve lost by the total number over that period.
Let’s say that you’re a subscription box company, and you want to calculate your churn rate for one subscription cycle (a month). This requires you to divide the number of subscribers you lost over that month with the number you had at the beginning.
So, if you started the month with 500 subscribers and lost 30 by the end of the month, your churn rate would be 6%.
Finding out your churn rate will likely prompt you to ask: What is a ‘good’ or low customer churn rate?
What qualifies as a high churn rate will vary hugely across industries and business models. Many retailers can survive and even thrive with high customer churn, so long as their acquisition keeps up. While this would be unsustainable for others.
Ultimately, businesses have to accept that net-zero customer churn is impossible to achieve, nor is it necessarily a bad thing. Customers will always find reasons or incentives to shop with other retailers - and one of those retailers could be you.
When you're trying to grow your business, the goal appears simple: Get more customers.
But this is easier said than done. In fact, it's getting harder.
As the ecommerce marketplace grows more competitive, customer acquisition costs go up because brands need to spend more on digital ads and marketing to stay visible. If you’re unable to retain customers after that initial investment, your bottom line is going to suffer.
There's a much more sustainable strategy out there for online sellers: Keeping the customers you already have.
Customer retention costs businesses around five times less than acquisition. Why? Because retention involves already converted customers. They know your brand and your value proposition, which makes it easier to bring them back into your sales funnel - rather than starting from scratch every time.
Reducing customer churn allows you to focus on maximizing your most stable source of revenue - your repeat customers - rather than getting stuck in a cycle of mounting acquisition costs.
The longer you can maintain these relationships, the more profitable they become. Because once a customer has made multiple purchases, the chance of them returning to your store increases significantly.
After just one purchase, there’s only a 27% chance of a customer purchasing from you again. But after the third purchase, this rises to 54%.
So, even if you lower your customer churn by only a few percentage points, this still translates to massive gains for your business.
If you're struggling to hold onto customers, this is a sign that all is not well with your customer service strategy. While a variety of factors contribute to customer churn, there are few bigger causes than a poor customer experience.
Because in modern retail, few things matter more than good service - especially when it's never been easier for customers to jump ship to one of your competitors. According to Forbes, three-quarters of customers have stopped supporting a brand due to bad service.
Poor customer service can take many forms, from inaccurate product descriptions to difficulty contacting customer service reps. So, what exactly does ‘good’ customer care look like in ecommerce?
If you want customers to support you in an oversaturated marketplace, you have to make it worth their while.
Because the truth is that you don't have to look far to find someone willing to undercut you. As it becomes more difficult to compete based on product catalogs alone, you need to find other ways to entice customers to stay loyal.
For example, you could offer a paid membership program where customers get access to perks such as free shipping, samples, or exclusive discounts. When customers make this upfront investment, they're more likely to make frequent purchases to maximize it as much as possible.
Alternatively, you could implement a loyalty program where customers earn points to redeem on future purchases. Initiatives like this help to lower customer churn by giving consumers extra incentives to stick with your brand.
Effective communication is everything in ecommerce. When consumers can’t talk to you face-to-face, they expect to be able to connect with your customer care team seamlessly. Not only is this a basic requirement for good customer service; it's the only way that you’re going to hear about problems that customers are experiencing.
If customers cannot raise concerns or queries effectively, they're going to drop out of your sales funnel in huge numbers.
For example, if a customer is experiencing a delayed order, they’ll want to contact a representative as quickly as possible due to delivery anxiety. Adding a live chat function to your website allows you to register problems quickly and forward them to the necessary team for a speedy resolution.
Late delivery it's a major faux pas in ecommerce. But if you're able to address this problem effectively, you might end up gaining a customer for life.
There’s little point in tracking your customer churn rate if aren’t finding out why it’s happening. If customers are consistently not making repeat purchases or are ending subscriptions after only a few cycles, this is a sign that something is pushing them away from your brand.
It might be hard to hear, but you must make the effort to reach out to customers about their experience. You can do this by adding a comment or multi-choice section for ending subscriptions or sending customers a feedback form via email once they’ve made a purchase.
Because if you can build a better picture of why customer churn is happening, you can come up with strategies to combat it.
Customer churn is a disappointing but unavoidable part of being a retailer, especially online where competing options abound. But by making the effort to investigate the causes of customer churn and track its progression, this puts you in a much better position to reduce attrition rates and build a stable base of repeat customers. Because happy customers mean a much happier business!