I went to a conference a couple of weeks ago at which Sharon Rowlands, the new CEO of ReachLocal, mentioned that the average churn in the digital marketing industry is 50-90%.
Why Customer Churn Matters
Every great business throughout history has had a profitable product or service and very good customer retention. You simply cannot build a long-term successful business and suffer massive churn. The cost to get and keep customers is a substantial expense for every growing business. The increased profitability that comes from retaining customers at a higher rate enables businesses to reinvest in more marketing to grow faster.
Our company is a low-priced subscription-based service that relies on keeping customers for a long time to keep our business model working. Said another way, one of our largest expenses is the cost to find and set-up a new customer so we need to retain customers for a long time or we will be out of business. Happily, our customer losses are a small fraction of the industry average.
“I don’t lose customers”
Every business loses customers. If you run a subscription-based business its easy to measure those losses. However, if you run a local service business (home services, auto, professional services, etc.), measuring losses is much harder because its not obvious if you lost a customer or if they just haven’t been back yet.
Measuring customer losses starts with a customer database. Most likely, this database is in your financial system today (e.g. Quickbooks, etc.). Regardless of where it is captured, the first step to building a business is to analyze the name of customer and the date they spent money with you. Dumping this data into a spreadsheet enables you to answer the question: what percentage of my customers do I not get back again.
Pro Tip: If you have a Customer Lobby account, we will be releasing a new feature in about 60 days for all of our users to help analyze this data for you. Simply enable our Direct Connect feature and we will do the work for you.
Why you Lose & Keep
Once you know who you lose, its time to figure out why. There are many reasons why you keep a customer but only 3 main reasons why customers don’t come back:
- Don’t need your product/service ever again;
- Make or buy or do it themselves; or
- Buy product/service from another business.
Answering the “why” question is all about listening to the customers who are happy (why did we keep you) and the customers you lose (why did we lose you). Customer reviews are a great way to do this plus they become one of your top-performing marketing assets as a business.
Before you can begin analyzing the results of listening to your customers, you need to ask yourself what value you deliver to your customers. Make an exhaustive list. Next line up your customers perceptions of your business that you got from listening to them next to your perceptions of what value you deliver. Typically, there are gaps where you believe you are delivering value to your customer that they don’t perceive.
What to Do
First, pick your spots. Use the exercise outlined above to help you better understand your actual market (item #1 above), as well as your competitive position in your local market (items #2 and #3).
Once you have identified the gaps using the method above, the least costly and most immediately impactful thing you can do is to educate. Educate your staff who can educate your customers in order to close the gap between value delivered and value perceived.
Only after education programs to close that gap are in place should a business look at the next step which is to evaluate changing your product or service in response to competition. More often than not, the direction that most makes sense in responding to competition is to specialize – get better at serving a smaller group.