UWR 011 – Churn: what is it and why is it important

In today’s episode, I am speaking about churn. This episode is the audio from a Facebook live that I previously did, but the content is incredibly useful, so I wanted to share it with you here on the podcast. So, let’s dive in.

I wanted to talk about churn and what churn is, why it’s important and what you need to be thinking about when it comes to churn.

First off, customer churn, also known as attrition, customer turnover is a really incredibly important number to understand in your business, if you are doing anything that is run on a monthly basis, whether that’s a membership, whether that’s just monthly coaching, a group programme, whatever that might be, it’s really important to understand what churn is because churn is the annual percentage rate at which customers or clients stop subscribing, being members, whatever it is that they are.

So like I said, churn is also customer attrition. It’s customer turnover. It is the annual percentage rate at which customers stop basically being customers for those people that come to you on a monthly basis for whatever it is that you’re offering.

And churn is incredibly important because it directly affects your service’s profitability, so it’s really common to assume that the profitability of the surveys is directly in relation to the growth of the customer base, but the thing is with churn it basically shows you how much the customer base is potentially shrinking versus growing.

If you are just focusing on growing the customer base, growing the customer base, growing the customer base and you’re not focusing on churn, what you need to make sure is that for every new customer that you get on board, you’re not losing somebody off the backend. Okay? If you keep losing customers, if your churn rate is quite high, you keep needing to get more and more and more and more new ones.

You need to keep acquiring them faster and faster and more and more and that costs money. It costs way, way more to get a new customer on board or new client on board than it does to keep your existing ones, so if all you’re doing is focusing on the growth, the client numbers, the customer number growth and you’re not looking at churn, then actually you’re probably spending way more then you need to be on acquiring customers and growing your revenues, growing your business.

If you focus on churn and focus on making sure that the ones that you have are not going anywhere, that they are sticky, is another word that people like to use. If you focus on that, actually you need to spend way less on terms of marketing and getting new people in, because you don’t need to keep replacing ones that you’ve lost.

Not only that, if you focus on decreasing churn, usually a big, big part of focusing on decreasing churn on increasing the value and the experience that you give to the customer or client, making sure they have an awesome experience. They’re going to speak wonderfully about you when they are out and about thereby naturally, organically by word of mouth, ideally and hopefully increasing the number of people that come into your business as well. So it’s a double whammy win/win there, if you start focusing on churn in your business.

The question that people often ask me when I come to look at their businesses is, “Is my churn rate okay? Is it a good rate?” And what we would say is that 5 to 7% annual churn is a good rate. That roughly translates to roundabout 0.42 to .58% monthly, if you’re looking at a monthly churn rate.

So what that means is that companies with an acceptable churn rate only lose about one out of every 200 customers a month. Or you can translate to us monetarily. So one pound out of every 200 pounds a month, of course you can 10X that up, 100X that up and multiply that out to look at what you might expect for your monthly churn rate.

So if you’re hitting those targets, you’re hitting that amount and you have a really solid platform in which you are growing your calling and customer base. If you are not hitting those, I highly, highly, highly recommend that you start focusing on churn, because you will see a massive impact on all areas of your business. You’ll see an increase in referrals and you’ll see a decrease in ad spend to your audiences in order to get them to come on board because you just won’t need to spend that much to retain the level of revenue that you want.

The next question of course, leads to how can you then decrease churn? Okay, so one of the big things is leaning in to your best customers, making them feel loved, making sure that they feel wanted so that they stay, so that they’re sticky.

The second is being proactive with your communication. One massive reason why people leave programmes, people leave services, is because communication is poor. I hear it all the time. So many times when clients move over to me, they cite the communication from their previous accountant as being a big, big reason why they move over. Communication is so incredibly important and people often overlook and they assume that their clients and customers know stuff that they just don’t. I see it as well with my clients. I’m inside a lot of my clients’ Facebook groups and programme Facebook groups, and a lot of the time I see questions around like when is this happening? How is this happening? Don’t ever assume your customer client knows stuff. Remind them, tell them what’s happening, where and why and how. Increase that communication.

he third thing that you can do to help decrease that churn rate is having a defined roadmap for new customers, so a really clear onboarding process that helps your new customers and clients understand the expectations, understand what they are going to experience and when and how. That can massively help because in the beginning when someone new comes on board they can, particularly if you are taking them into your membership or something like that, they can feel incredibly overwhelmed with the volume of information so if you have a defined roadmap for them, that can massively, massively increase the amount that they stay.

Number four, asking for feedback often. Making sure that you survey and ask your people how they’re getting on, what do they need more help with, making them feel loved in that way and understood and giving you feedback so that you can tailor your solution better to them to make them more likely to stay as well.

Of course, when churn does happen, try to analyse why that happens. Some people do things like exit interviews for people that leave their memberships or there programmes. Tat can be really a really good thing to have to get to understand why people are actually leaving.

Identifying your at risk customers. That can also be a really big one. So what is it that causes customers to leave and therefore, which group of your customers are currently at risk? Where is that sitting and what can you do in order to change that? You can also use trigger-based emails in your automation sequences, so that if clients are doing something or not doing something, it may be a red flag to you that they are more likely to leave. They’re more likely to move on. So if you have a membership, if they’ve not logged in for a little while, that could be a big red flag for you that actually they’re not getting on with what they need to do and therefore they’re more than likely to cancel.

Like I said before, improving customer service is another way to decrease churn and this is the biggie really, and actually a lot of these points that I have covered kind of are covered in improving customer service as well, but making sure that your customer really feels loved, feels cared for, feels understood and knows that you have their best interest at heart.

Another one, reminding your customers or clients of the value that you have available to them, making sure that they’re making use of the full value that you are able to provide to them.

And the last one, thanking your customers or clients. Making them feel valued, making them feel wanted can be a great way to decrease churn as well.

I hope this episode has been useful in understanding churn. Thank you so much for listening. Until next time, let us find the clarity in your numbers, increase your wealth and get more money in your pocket.

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 Hello! 

I'm Annette Ferguson

Owner of Annette & Co. - Chartered Accountants & Certified Profit First Professionals. Helping online service-based entrepreneurs find clarity in their numbers, increase wealth and have more money in their pockets.

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