Churn to Retention: How You Can Make the Switch


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We live in a world of cutthroat competition. If you want to grow your business and stay ahead of your rivals, your mantra better be Sell. Sell. Sell., right? Focus on your sales team, and throw your weight around the new- business acquisition model.

Yet…It’s common knowledge around conference tables that retaining a client is much more cost effective than the price of obtaining new clients. Companies study their customer churn rates with the same intensity they put toward their quarterly financial statements.

Industry average churn rates vary, but estimates in the telecommunications sector state that annual churn rates range between 10 and 67 percent. Other industries claim to have a churn rate of 50% every five years. For many companies, the cost of acquiring, rather than retaining, customers is 10 times higher.

Low Satisfaction, Yet High Retention?

You may have seen some of AT& T’s stats prior to them losing exclusivity of the iPhone: their customer satisfaction (CSAT) rates were at 23%, yet their churn rate was 8%. (You can bet they sent a Christmas card to Steve Jobs.) Pretty remarkable, especially when you look at their competition’s rates. Verizon’s CSAT rate was around 49%, with a churn rate of 7%.

How did they do it? Why did 77% of dissatisfied clients keep renewing their AT&T wireless plans? Analysts attributed retention to two factors: AT&T’s iPhone exclusivity and the wireless carrier’s family and corporate plans. (To put the rates in context, in the non-AT&T world, one survey found that 70% of customers leave because of poor service.)

You can bet that the industry will be closely monitoring how AT&T revises their retention strategy, now that the iPhone isn’t exclusively in their back pocket, so to speak.

Churn Rate: Does Your Company Need to Shift its Attention?

Companies complain about their high churn rates and bemoan how expensive it is to acquire new clients. CEOs walk around carrying coffee cups emblazoned with “If we don’t take care of our customers, someone else will.” Yet, when you study how the majority of companies allocate their dollars, clear patterns emerge: sales teams are given a far greater share than customer service representatives. Compensation plans and organizational structures are weighted toward new clients, rather than existing ones.

Retention: New Focus for Your Company

The simple answer is to focus on customer retention. How? Well, if 70% of customers who leave claim it was because of poor service, you can certainly start by figuring out how to deliver value to the people purchasing your products. Narrow in on your retention strategy by understanding what you’re doing right and remedying what you’re doing wrong. Some research may be in order.

First, find out what you’re doing right. Yes, go for the good news first. Identify what “loyal” clients look like and reach out to them for some research (offer an attractive incentive or discounts—customers will bite). Determine what they enjoy about your product or service, and take notes on what influences them to be loyal to your business. You’ll see patterns emerge.

Then, figure out what you need to fix. Figuring out how to improve the customer experience will take a holistic approach. Here are some ideas:

  • Conduct customer satisfaction surveys to identify weaknesses and strengths (this is different from looking at your loyal clients—here, you’ll be asking more comprehensive questions, on a scale, about your services)
  • Do frequent price comparisons in your industry to gauge whether your product is priced too high or low
  • Conduct a cohort analysis among customers who started using your service at the same time and track them for a period of 6 months to a year. By looking at a group that started using your service in the same month, you’ll start to see patterns emerge if you change your product, pricing, or if your competition makes a big move
  • Identify the reasons why your customers leave. If they switch service providers, ask for their input so you can track the decision-making process and adjust accordingly

Finally, Allocate More of Your Budget Toward Your Priorities

If reducing your churn rate is truly a company priority, shift a proportionate amount of your budget toward retention, instead of acquisition. Invest in your customer service training for your customer-facing agents, and make low-churn a company cornerstone.

Republished with author's permission from original post.

Peggy Carlaw
Peggy Carlaw is the founder of Impact Learning Systems. Impact helps companies develop and implement customer service strategies to improve the customer experience. Their consulting services and training programs help organizations create a customer-focused culture while producing measurable business results. Peggy is also the author of three books published by McGraw-Hill including Managing and Motivating Contact Center Employees.


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