Considering the long-range impact of COVID-19, the role of retention leaders in recurring revenue or subscription-based businesses is becoming increasingly more important and challenging as customer expectations continue to evolve. Customers are more informed, competition is stronger, and service is really today’s only differentiator.
Customer loss is a nightmare for businesses as it directly determines their bottom-line growth. The following example provides a simple explanation of basic economics. Suppose a recurring revenue company has one million customers with yearly revenue of $500 per customer. A 20% annual churn rate means a loss of $100 million every year, but future revenue loss is not the only thing retention leaders should be concerned about. Churn is a precursor of the long-term health of a business for more than one reason.
Churn Costs You More than Just Customer Revenue
In the example above, in addition to losing $100 million annually, the company must now acquire new customers to replenish its customer base, incurring significant acquisition costs. Additionally, numerous studies show that new customers are far less likely to spend, try new products, and stick with a company, than loyal customers. The cost to serve new customers is also much higher. Finally, there is a loss of word-of-mouth and prospective referrals. You can read more about the hidden costs of customer churn in this blog.
5 Strategies to Minimize Customer Churn
Over time, the churn risk grows along with the accumulation of customer concerns, negative experiences, and the availability of other options, to name a few. Creating an effective churn prevention strategy requires a strategic roadmap and risk awareness at all levels of the organization. It also involves gaining in-depth insights into customer expectations, concerns, sentiment, and intent for every customer.
To predict high-risk customers and proactively transition them to a low-risk segment, this analysis-awareness-actions loop should repeat at an early stage in the customer lifecycle. While it sounds slightly complex, it’s worth all the planning and effort. Below are a few actions points that we recommend:
1. Uncover customer intelligence hidden in customer interactions.
Details such as service history, payments, multiple callbacks, and competitor mentions can help identify early signs of customer defection. You can use this intelligence to plan addressable and cost-effective retention actions and save significantly with targeted offers to customers.
2. The use of artificial intelligence (AI) shouldn’t be optional.
Applying AI, machine learning, and customer interaction analytics can provide you with more accurate insight into customer behavior and churn tendencies. You can use this to proactively engage with at-risk customers and take corrective measures before they decide to cancel.
3. A single-model retention approach is inadequate.
A single churn prediction model is typically reactive in nature and focuses on the end of the term. Using multiple models enables a broader view of the customer lifecycle using multiple health attributes. This approach increases retention opportunities by allowing risk-based micro-segmentation and helping drive targeted impact.
4. Leveraging location intelligence can multiply retention ROI.
By filtering at-risk customers by location, you can rank every branch by performance, identify high-risk routes and top churn drives, and understand competition level. This not only allows you to improve brand performance and optimize service routes but also enables risk-aware service and proper allocation of resources while boosting retention results.
5. Empower your frontline with prescriptive retention guidance.
Your contact center agents are your first line of defense against churn risk. Provide them with a comprehensive view of the customer profile, risk score, and relevant offers so they can better engage with an at-risk caller and put their best foot forward in preventing cancellations.
To stay in the game, businesses need to develop an effective and agile customer retention strategy led by predictive technologies. This five-point approach is based on proven practices that have delivered real-world retention impact to many recurring revenue leaders across various industries. The key to a successful and profitable customer retention program lies in identifying the causes of churn and proactively intervening at the individual customer level.
This article was originally published in VOZIQ Blog.