Businesses big and small, are always looking to grow. Acquiring new customers and expanding to new markets have been the norm when it comes to growing the bottom line for most companies. But did you know that customer retention — a business metric that has recently caught on, can help you grow faster, without sweating on customer acquisition?
In a study, it was concluded that a 5% improvement in customer retention directly attributed to about a 75% increase in profits.
Curious to know what customer retention is, and why it’s so impactful? Let’s dive deeper.
What is Customer Churn and Customer Retention?
When a customer stops buying as per their purchasing patterns or cancels a subscription to your product — they’re considered churned. This means you’ve lost them as a customer, and they’ve stopped contributing to your business’s revenue. While they could get back to you in the future — in the short term, they’re dropping out of your list of customers, and won’t contribute to your product sales or renewals.
Churn as a metric is calculated as the number of customers OR revenue that churns from your current number of customers or revenue.
Hence, Churn rate = (Churned customers / Total customers) * 100
Retention is the exact opposite of churn, where you calculate how many of your customers you’ve retained over a period of time. Higher retention would contribute to a higher customer lifetime value (LTV), enabling you to make most of your acquisition efforts.
Also, acquiring new customers is 5 times more expensive than retaining existing ones. Hence, good customer retention is key in building profitable, growing businesses that don’t have to keep adding customers aggressively to stay afloat.
Retention is calculated by subtracting new customers or revenue added from the number of customers at the end of a cycle and dividing it by the number of customers at the beginning of the cycle.
Retention rate = [(Customers at the end of a cycle — New customers)/Customers at the beginning] * 100
Now that we’ve learned how impactful retention could be for your business, let’s explore the factors that could negatively impact your customer retention
10 Little Things that impact your retention
1. Bad User Experience and Interfaces
When your customers are trying to solve a problem with your product, how you deliver product value will greatly influence their life span with you. A bad user experience is almost the equivalent of a bad product and hence defeats the purpose behind the purchase from the customers’ standpoint.
The disruptive flow of events (slow loading times, errors, etc), bad placements of elements within the interface, and too many interruptions for upselling, all add up to a bad experience. Interfaces on a product should be optimized to retain customers — to make sure it is, you should test the usability of your product and observe how customers use it with the help of a UX testing tool. This will help them get to a solution, engagingly and effortlessly.
Neal Taparia, who runs the word game platform Unscrambled Words, had directly seen the impact of improving user experience. “We used to run an aggressive ad experience on our site. When we removed intrusive ads, we found that users would return more and that retention improved our overall revenue.”
2. Frictional, Non-intuitive Onboarding
When customers sign up to use your product — they’ll be focused on getting it to work, as soon as possible. But when they’re met with tedious and complex onboarding software processes, the product wouldn’t seem intuitive, which could be a deal breaker at times. This especially holds true for software product companies.
The key to retention post—sign-ups is to deliver the product’s core value proposition as early as possible. Your customer should know what they need to do (and why) so their problems or goals are taken care of, as part of their onboarding. If that doesn’t happen, some of your customers are likely to find your product ineffective and add to support overhead, or churn.
3. Support Experience
Based on how complex the product is and how often support help is needed, your customer’s overall experience with customer support can also impact retention. Hassles in getting support responses, or getting inadequate solutions can severely hit their experience, and lead to lesser upsells, LTVs, and higher churn.
Quick, effortless support can delight customers and help them solve their problems efficiently. Hence, customer support should be optimized for both quick turnarounds in communication times and resolutions to enable your customers to have a trouble-free experience. To ensure quick and effortless customer support, workforce management is essential. This includes creating efficient schedules that utilize resources effectively to avoid keeping customers waiting. Therefore, it is important to focus on optimizing customer support to enable a trouble-free experience.
In addition to email and live chat support, consider adding a phone number that lets your customers call you directly. (You can set this up with one of many phone services for businesses.) Oftentimes, even a small retention increase will pay for this investment in your support experience.
4. Intentionally difficult cancellations
Some products cleverly hide their cancellation or unsubscribe flows in order to reduce customer churn. But by making it difficult for customers to get out of a subscription you’re making yourself look less trustworthy and ethical as a business.
Many companies end up getting shamed on Twitter and LinkedIn for such practices after their customers found out about it. Your customers will mention it in online reviews, which will also impact your customer acquisition efforts. Existing customers will also find ways to cancel their purchases or subscriptions earlier, just so that isn’t a hassle later on.
Make sure your customers have the freedom to easily and quickly cancel their subscriptions, so they can trust you for longer, or get back to you later, knowing it’d be easy to cancel.
5. Buggy, Non—functional features
Your customers will often make purchase decisions based on what you’ve mentioned on paper. When some of your features tend to fail frequently or remain non-functional, it invalidates their purchase, giving them a reason to leave. It also will add to your sales and support overhead, impacting both team productivity and the bottom line.
To avoid this from happening, ensure that your product’s features are extensively tested, and you always have engineers on support threads to help resolve bugs as customers report them. A longer bug fix cycle will mean a steep drop in product engagement and usage, which further increases the likelihood of churn. Aim for the lower number of bugs reported every month or quarter, and the time needed to fix them. This will help you incrementally improve both support and product experience.
6. Lack of Outcomes
Based on how you’ve positioned and marketed your product, your customers will expect certain outcomes from your product’s usage. Now outcomes are not the same as functions and features. Functions and features enable generating outcomes to a certain extent but don’t control it.
Depending on what problem your product solves, outcomes could be subjectively controlled by other factors outside of your control. But customers wouldn’t understand this — many buy from you considering your product would bring them the outcomes they desire.
When that is proven to be untrue, they’re unlikely to stay or spend more on your product. Manage your customer’s expectations and be clear in communicating your product’s core value, so customers aren’t misled to believe your product delivers more than it actually can.
7. Excessive Discounting
When you excessively use discounts as the bait to attract and acquire more customers — they’re likely to churn out when discounts drop. Regular discounts are considered almost the actual price of the product, and your customers will take it for granted.
The customers you attract using discounted rates will sometimes be low-intent and usually sign up to barely try your product for an extended period, after which they’re likely to churn. They’ll also have a lower LTV, contribute towards lower margins, and can’t usually be upsold.
This is why it’s important to be careful with your discounting. Just for the sake of short-term sales boosts, you should acquire low-intent customers, who in the long term would not contribute much to your growth.
8. Unfair Price hikes
When you raise the prices of your products, it’s usually off-putting for a segment of your customers. Depending on how you’ve set up your pricing, there might be some customers who wouldn’t have budgeted for the price increase and might churn out.
So when implementing price hikes, consider such customers, and provide alternatives for them so you could avoid their churn. You could also survey your users before you finalize a price hike to know how much your customers would be comfortable paying. This helps customers realize you’re doing it with them in mind, and you set a price that customers are more comfortable paying.
9. Low Product Engagement
When customers sign up for your product and stop using it — it’s a signal that they aren’t finding it useful. As they slowly stop using the product, they won’t be able to justify the purchase anymore, which increases the likelihood of churn.
In such conditions, find out the reasons behind the lack of engagement and fill those gaps by updating your product’s feature set and interface to improve usage. These could include buggy features, slow or lagging interface and response times, product usage tied to seasonal businesses, etc. It’s a good idea to run your software or app through a performance testing tool to make sure it runs smoothly.
Not meeting customer expectations due to bigger promises by means of marketing positioning and messaging, which doesn’t match up with the product, could also be a factor. Go through your product development strategy once again to make sure your product is the right fit for the market and adjust your marketing strategy.
10. Lack of Scalability
As your product enables your customers to solve their initial problems, they’ll often grow out of them and need bigger and better solutions. If your product doesn’t scale with your customer’s needs, they’re probably going to churn and search for an alternative.
On the other hand, products that do scale with their customers’ needs contribute to higher LTVs and upsells, apart from helping reduce customer churn. So know your customers really well, and ensure you’re solving for them at every level, offering flexibility and scale as they grow.
Be efficient, quick and valuable
B2B buyers, like Pro Business Plans, often invest in customer retention tools and services to make things easier or help with growing and supplementing their businesses. As a product or a service that caters to that audience, optimize in delivering the most value you possibly can — so your customers can achieve their goals and make the most of your product.
Being quick and efficient in your sales and support will further enhance your customer experience, helping you reinforce and strengthen your product’s value — which eventually results in happier, more profitable customer relationships.
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