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Churn May Be the Real Reason Behind Anemic Growth

Service-based providers put a strong emphasis on acquiring new customers for growth. However, churn rate is often overlooked and ultimately is the factor that causes businesses to take one step forward and two steps back. Churn is the rate at which customers discontinue doing business with companies. There are serious costs to not addressing the issue of churn rate that ultimately hurt a business in the long term.

How High Churn Rates Hurt Businesses

For service-based businesses, acquiring customers is an expensive endeavor. It usually takes a few payment cycles to cover costs. Not putting a priority in decreasing high churn rates, results in only a small profit or just breaking even on acquisition costs. This results in anemic growth or zero growth for a business. As a result, subscription-based businesses need to tackle churn rate as aggressively as customer acquisition.

Business owners also need to consider many costs while their business is at a standstill. Among these, customer onboarding, everyday business costs, and employee payments. These costs eat into profit margins and are only sustained by retaining customers long term for consistent revenue. In fact, failing to keep customers can ultimately be the downfall of a service or subscription-based businesses.

Everything starts by looking at the numbers. The key metrics to focus on is ensuring the number of customers acquired exceeds the number of customers that have left. The financials are important too. Businesses need to figure out how many payment cycles are required to break even for all the associated costs of acquiring and onboarding the customer.

How to Address Churn Rate

The first step to decreasing churn rate is to focus on it at a strategic level. Start by putting as much emphasis on retaining customers as acquisition. Figure out the reasons customers have signed and make sure to deliver on promises. It may be possible there is not enough value delivered in comparison to what customers originally wanted.

The second step is figuring out why customers are leaving. Talk to customers that have left and start collecting data about why. Problems like customer support, quality of service, lack of communication, and technical issues can all play a role in churn rate and will need to be addressed. It may even be surprising to find the customers being targeted are the wrong customers for your business.

The third step is to ensure maximized profit from new customers. Rather than waiting too long to ask for another sale, set up marketing campaigns designed to upsell a new customer. These strategies help mitigate customer acquisition costs and give room to keep a business growing while focusing on decreasing the churn rate.

Technology Reduces Churn Rate

Technology is a huge asset for reducing churn rate. Communicate directly and engage customers from the point of purchase with via a marketing automation platform. Deliver quality content, announce updates and reach out to customers without expending excessive resources.

Technology combined with strong communication makes the difference for service-based businesses like marketing agencies. Customers want to be educated about the service provided and ensure promises are delivered. Automation supports real-time reporting. Customers see the progress being made instantly and in real-time.

Using a CRM platform provides additional data to what customers really want. Track the type of content being consumed, when customers reach out, what customers respond to, and purchases made. This data is used to optimize marketing, monitor automation campaigns to better serve customers and increase your lifetime customer value.

In conclusion, addressing churn rate is vital to accelerating the growth of a business. It grows revenue, increases profitability and reduces customer acquisition costs.

About the Author:

Eric Murphy
Eric Murphy is the Digital Marketing Manager at ActiveDEMAND. He is responsible for driving the marketing strategy for the ActiveDEMAND integrated marketing platform. He has a strong background in online marketing, communications and working closely with sales teams. For many years Eric was an evangelist and marketer for the industrial communications community through guest articles, maintaining industry blogs and speaking at conferences and other events.