Last modified: July 26, 2018
This was originally publishes in Multichannel Merchant.
Customer churn is the loss of customers or subscribers, and the enemy of ecommerce merchants. As online subscription-based services filter into every major industry from snowboards and luxury cars to baby diapers, managing churn rates can spell the difference between success and failure. Churn eats away at revenue and forces companies to work harder to find new customers and maintain existing ones.
Online merchants need to understand both involuntary and voluntary customer churn in order to combat them. Involuntary churn happens when a customer loses a subscription unintentionally due to an unreported address change, expired credit card or the like. Typically, unsuccessful payment processing is the key driver of involuntary churn. Voluntary churn is the customer’s choice.
From the get-go, managing voluntary customer churn requires corporate leadership and vision from the top. Executives must recruit dedicated people who can calculate the voluntary churn rate you can tolerate while still being able to grow.
Yet tools that manage voluntary churn can only be put in place after a clear assessment of what drives it in the first place.
Define Customer Happiness
The first step is to determine the real motivator for customers to buy your products and services. It’s not about functionality or features but the true benefit they pay for.
Knowing this leads directly to what makes customers happy. If you offer smart appliances or groceries delivered on a regular basis, then time is what you’re really selling.
Once you know what benefits your company truly offers, you can begin measuring customer happiness. How often do customers receive what they’re actually paying for? Does your company meet and exceed expectations or fall short? Maintaining happy customers helps drive down churn for two reasons:
- They generally won’t choose to leave your service
- They refer new customers, a free and efficient way to generate new leads
The next step is figuring out how to deliver incremental value on an ongoing basis. Once consumers stop deriving value from a product or service, they are likely to churn out of the subscriber base. Companies must have a plan for showing new value over time and should consider:
- Will we unlock or add new features or functionality over time?
- Will we build up a member community around their product or service?
- Will we partner with adjacent brands to add new product or service capabilities?
Identify Your Resources
Now that you’ve determined why customers pay you, it’s time to ensure they get what they paid for. To do this, marshal your resources and deploy them. For starters, consider your technology and people resources.
Technology can help you measure a wide variety of inputs and outputs. Choose the analytics solution that best fit your company and master them. The right analytics will help you determine the following:
- What customers are doing with your product
- When they do it
- How much they spend
- Why they discontinue a service or stop buying a product
In terms of people you need to devote manpower to not only analyze data sets but also to communicate with customers. Communication on both sides (between customer and team, between team and leadership) has to be smooth and targeted. The clearer it is the better, not only to keep your customer feeling attended to but also to inform company-wide decision-making and the allocation of resources.
With the technology and people in place, you can proactively go after reducing voluntary churn. For example, if your software tools tell you LinkedIn provides better customer lifetime value than Facebook, you can respond both internally (resource allocation) and externally (tweaking messaging to maximize performances on both platforms).
Build Scalable Systems
It’s easy to devote one person or one team using a suite of programs to measure and respond to voluntary churn. But if you’ve done your homework and your strategies begin to work, those teams need to be able to scale with the scope of churn. For example, a 15% voluntary churn rate looks much different to a $10 million company ($1.5 million) than to a $100 million company ($15 million).
There are several ways to structure your team to meet and prevent voluntary churn, but the key is to understand that the effort must be company-wide. Sales and services have to be able to interact with IT and product development based on data on what customers want. Does that require a dedicated person with a team that interacts with other departments? Or is it better to have an integrated approach with different departments combining to create specific strategies?
In today’s subscription-crazed world, customers are evolving into a member of a community rather than just a buyer of services, and this dynamic is rapidly replacing traditional buyer-seller relationships. In most cases, revenue starts to ramp up after the initial sale, requiring a whole new set of strategies to maintain ongoing revenue streams and manage customer happiness.
The earlier you can define what makes customers happy, identify tools and people to ensure their happiness and integrate dedicated teams into the company structure, the better you’ll be able to manage and prevent voluntary customer churn.
Our advice? Develop a holistic approach to reducing subscriber churn.