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Customer attrition is the term used to describe the loss of paying customers from a business. Customer attrition is also called customer churn and is often considered a natural part of business evolution.
A customer could stop using your service for one or more reasons, whether it’s a one-time customer or a loyal customer. The big question is this: Did the customer stop voluntarily or involuntarily?
The answer to this question is precisely why businesses pay close attention to their customer attrition rate.
What is the customer attrition rate?
The customer attrition rate measures the rate at which customers stop patronizing a business entity over a given time. The customer attrition rate is also called the churn rate and is calculated in percentages. A company must ensure that its number of new subscribers is higher than its attrition rate, or else the business will lose revenues and profit. A higher attrition rate will eventually lead to the failure of a business.
How do you measure customer attrition?
There are several ways to measure attrition, and the process differs depending on the type of business. Typically, customer attrition is calculated with the formula:
Attrition Rate (%) = (Number of churned customers ÷ total number of customers) 100
Any new customers gained over the period being considered is added to the total number of customers. The percentage of this calculation becomes the attrition rate.
Baremetrics integrates directly with your payment gateways, so information about your customers is automatically piped into the Baremetrics dashboards. This is the first step in saying goodbye to declined payments.
What tools can you use to measure customer attrition?
There will always be customers who leave, no matter how much you try to stop them. For this reason, most businesses focus on acquiring new customers while making significant investments to understand the different causes of customer attrition.
Here are a few of the tools used to measure customer attrition.
1. IBM SPSS Modeler
This tool is available as a stand-alone service and as part of the IBM studio offer. IBM SPSS Modeler uses artificial intelligence to predict customer churn. The tool provides an interactive environment to quickly build machine learning pipelines without the need to write code.
It supports many data sources and typically uses the customer churn dataset to build, test, and evaluate machine learning models that predict if a customer will stop their subscription. The tool also provides useful insights as to how businesses can address the issues leading to customer attrition and strategies to reduce churn rates.
2. Alteryx
This tool is a business intelligence platform that can be used to predict customer churn. The platform has an interactive results grid that visually lets users zoom into the health and distribution datasets.
The tool is a convergence of data science, analytics, and process automation. With such technology, unseen outliers are now a thing of the past, and, coupled with its powerful automation engine, companies can deploy strategic solutions to prevent customer attrition.
3. Trifacta
Trifacta is useful for cleaning and unifying messy and complex customer behavior datasets for easy access and analysis. With Trifacta, companies can focus on the quantitative analysis of the numbers of clicks, purchases, sign-ups, etc.
By analyzing customer behaviors, companies know precisely who they’re targeting, and, with that knowledge, they ultimately learn what resources and tactics are required to retain these ideal customers.
Biggest challenges
1. Keeping track of all of your customers
With these top customer attrition tools, it’s challenging to understand the behavior of every one of your customers. Information is gathered about many customers, and such information raises more questions. Customers slip through the cracks because of a lack of more profound insight into the information gathered. The solution is to track your customers throughout their journey with your business.
2. Knowing if they’ve contracted or churned
Another difficult aspect of understanding customer attrition using some popular tools available is the inability to know if the customer has been downgraded or has churned completely. There are different reasons for customer attrition, and most of these tools do not provide insight into those nuances.
There are many ways to win back customers that have disengaged.
3. Use Baremetrics to monitor customer attrition rate
On your Baremetrics dashboard, you can learn why customers canceled; you can also correlate lost revenue with cancellation reasons. In addition, Baremetrics can capture fresh insights regarding the reason for cancellation. With the insights you’ll gather on your dashboard, you’ll understand which missing features are driving your customers away and whether your retention efforts are working.
Customer attrition vs. Customer churn vs. Revenue churn
Customer attrition, also known as customer churn, is the loss of a customer by a business. The rate at which a SaaS business loses customers is an important indicator of its health. Revenue churn, on the other hand, is a measure of the lost revenue by a business. Two revenue churn measurements are often crucial to SaaS businesses: revenue churn from lost or canceled subscriptions and revenue churn from downgrades.
You should sign up for the Baremetrics free trial and start monitoring your subscription revenue accurately and efficiently.
Causes of customer attrition
When considering ways to increase customer retention, keep in mind that customers don’t just randomly decide to cancel their subscriptions. There’s usually a reason behind cancellation; some of these reasons you can understand and fix, others you can’t.
Here are some common reasons customers cancel their subscriptions.
1. Lack of quick responsive support
A common reason customers stop using a service is a lack of quick and proactive support from service providers. When customers experience setbacks while using a product, they usually contact the support team to make their complaints.
Some companies proactively have automated emails that let customers know that their complaints have been received and will be attended to soon. If the customer’s complaint isn’t addressed within a reasonable timeframe, it leaves the customer in the dark. With no feedback, the customer will most likely prefer to cancel their subscription.
2. Bugs in the product
Even after you’ve tested your product over and over again, customers may still find bugs while they are using the software. Customers rely on your product for their businesses and general success. When customers experience glitches in your software, they may lose revenue, and, if it happens continuously, it may lead them to lose interest in the product.
3. Wrong target customer base
When you attract customers who are not a perfect fit for your business, they may discontinue their use of your product. Customers who find success while using your product are more likely to stick around.
4. Poor user experience
Great features will attract customers to your product. However, if the product’s user experience is not impeccable, customers will find it hard to stay. Customer expectations based on user experience are high.
These high expectations are why you see many companies losing customers because their competitor’s product has better usability. When enduring a product with a poor user experience, it’s only a matter of time until the customer finds an alternative.
5. Interaction failure
Your customer adopts your product because there’s a problem they want to solve. Maybe your product offers more features than an alternative product in the same space, and that’s why your customer decided to get your product.
With such expectations in mind, if your product does not quickly help your customer achieve outcomes, the customer’s morale will be dampened, and, if the customer experiences a failure in their interaction with your brand, they are very likely to discontinue use.
How to prevent customer attrition
1. Have a clear target audience
A clear target persona is crucial to increasing customer retention. When you have an intimate understanding of your customer, you’ll ensure that every part of your brand reflects the problem you are solving.
2. Give your customer proactive support
A reliable support center for your business is a worthy investment. Set a clear expectation (e.g., when feedback will be available) for customers who reach out to your support team. Prioritize real-time support (i.e., live chat windows) if you can afford it.
3. Test and improve your user experience
The rewards for having beta testers always checking your product far outweigh the costs. When you release a new product update, collaborate with beta testers who will work with your team to discover ways to improve your user experience.
4. Make it easy for customers to report bugs
When customers experience a glitch, how easy is it to report the glitch to you? Some brands make it possible for customers to report glitches through emails and pop-up notifications.
5. Ensure that your onboarding process is results oriented
The onboarding process of many businesses does not emphasize smooth transitioning. Transitioning is essential from the moment a customer signs up to the point where they can solve their problem using your product. Understand your product’s selling point and design your onboarding process to get your customers there quickly.
Preventing churn is super important to any company. Most companies even have someone solely dedicated to churn reduction. The reason for churn usually stems from the product, but there are other subtle reasons, including involuntary churn. Keep in mind that the reasons above are just a start.
To learn more and stay ahead of your customer churn, you should sign up for the Baremetrics free trial and start monitoring your attrition rate accurately and efficiently.
