Customer Attrition for dummies
We started discussing what topics would be suitable for our audience when started to plan this blog. We know our audience would most likely be marketers and product owners. More than probably with a certain level of maturity on their marketing efforts. The stage when any company starts thinking about developing their audience acquisition channels is usually advanced. Most people do not think about creating an affiliation program before consolidating their paid marketing or email channels. In any way, and going back on track, we realized there was a gap in the knowledge some colleagues have on somehow basic concepts. One of those is Customer attrition.
What is customer attrition
A usual definition of customer attrition refers to a reduction in numbers of an organization’s customers. Expressed in a different way, the gradual loss or reduction of the number of clients a company has. It is sometimes expressed as Churn rate. Originally used in the Human Resources field as a metric to measure the organization’s ability to retain talent. Now widely used as a key indicator for any marketing and product department.
Why is it important?
A hill I will die on: company survival is tied to their customer attrition. We tend to focus on customer acquisition. Ignoring the declining amount of customers from our product lifecycle? a formula for disaster. Some could argue that for some B2C business models it is not as crucial. Pointing out that their cost of acquisition does not justify the effort (bullocks). But in any case, you’ll find way less opinionated people when the conversation revolves around B2B marketing strategies.
Why is that? because B2B marketers are very conscious of their cost of acquisition figures. They know how much effort takes to acquire those valuable customers. Plus a well-defined lifetime value makes hard to ignore how important is your attrition values. They know retaining customers is way cheaper. More economically efficient than growing your user base.
When is it crucial to focus on your attrition rate?
Depending on the stage of the product, and its maturity, there are phases more critical than others. In a pre solidified product-market fit stage, a high value on your AR indicates a weak alignment. Whatever the company is offering, is attracting customers. Although it is not polished enough to retain them. It is an efficient way to evaluate how well are you serving your clients needs.
In a fully fledged business, it could indicate an opportunity. The company has a clear path to increase its profits. In some situations, it might be a sign of a change in the consumer view, and a paradigm of change in the industry.
An example would be the evolution of the attrition rate on the use of SMS features. Before and after WhatsApp irruption in the world. Another would be the changes experimented in the hotel business since Airbnb disruption. Quite a challenging situation. Those cases demand either expanding the range of solutions, looking to diversify. Or adapting to the new situation, pivoting your offering. None easy feats.
What is the right strategy to reduce customer attrition?
In the next articles, we will talk about the first needed step, calculating customer attrition. For the moment let’s assume what are your values and if they fall within the normal figures for your industry. We will say that any decent strategy targeting to tackle a drain of customers should touch at least three points.
First, focus on your value proposition. How much value are you able to deliver? Is there any mismatch between what your customers are expecting and what you are actually giving them? The first measure would be to re-evaluate your marketing materials. Removing and lowering customer expectations. Customers are able to perceive such gaps. They will and more likely to leave your product with a disappointed feeling. The next logical step is to work on your product. Finding out how to incorporate whatever features or functionalities will make customers happy.
Next, you need a plan to improve your relationship with your existing customers. That would be your second pillar on your customer retention strategy. Iterating and improving your offering to your existing users is cheap. To have to go out again and acquire new ones, expensive. Actually, it is a pretty easy exercise to quantify the cost of acquiring said users. If you can retain them at a lower cost than that, there is low hanging revenue waiting for you.
Last but not least, create a continuous stream of communication with your customers. You need to draw a plan to use conversations as a way to systematically reduce the AR of your business. Talking with customers might be one of the most overused pieces of advice in the industry. For a reason, it could also become your most powerful tool.
Did this “actionable” definition of customer attrition help you? Is it a problem your company is facing now? Let us know if this is an issue you have and what are you doing to reduce it!