Customer Attrition: Essential Guide to Understand, Measure, and Prevent It
Customer Attrition, in simpler terms, is the loss of a customer from an organization. It is similar to churn, customer turnover, and customer defection.
70 percent of the clients churn away from a company when faced with poor customer service. In SaaS industries, customer attrition is preferably the worst nightmare they want to steer away from. Although, it might look inevitable to have a zero attrition or churn rate.
Nonetheless, there are a few factors that fill the hairline gap between a failed business and a successful one. Before it is too late, you need to pull up your socks and act fast. Determine the causes behind this attrition rate and protect the health of your business.
So, what is meant by the term customer attrition? How it is exactly measured? And can it really be prevented, if so how? Let’s unravel into the topic to get you some thinking.
Simply put, customer attrition is the loss of a client by an organization. Unfortunately, most of the clients cease their business-relationship with you in a due course of time. It could also be, that they are more drawn towards some of your competitions.
This phenomenon, when some of your clients ‘vanish’ at times, is referred to as customer attrition. Customer churn, customer turnover, customer defection, and customer cancellation are some of its synonyms.
The customer attrition rate in other words is the rate at which your customers leave. Mathematically, the value is obtained by dividing the total number of clients present at the beginning of a time frame by that of the end.
Let me put it this way,
Say, a garment manufacturing company began with 5000 customers on the 1st of January 2020 and had 4500 clients by 31st December 2020, the attrition rate would be 10 percent.
Attrition Rate: Number of clients who left / Number of clients at the beginning of the company
In simpler words, this means that the company has 10 percent fewer customers than what it started with. The customer attrition rate is a pertinent factor that any given business must track down, especially SaaS ones.
It is a given that losing a client from your base could be quite upsetting. But you should somehow accept the fact that client attrition is almost inevitable to some extent. But beyond a certain extent, losing your customer base is unhealthy. This is when you must stop and introspect, what are we doing?
Before that, let us see what some of the adverse effects of customer attrition are:
There is no rocket science involved. The more is the number of clients you have, the less it will hurt when you lose a client. The more you go on losing your client base, you are slowing paving the way into lesser revenue and more loss. A larger customer base also gives you the buffer to yield when attrition does not take place.
To say the ‘goes without saying.’ When you are hit by attrition, you will surely see a drop in return on investment (ROI) and revenue. When a client of your leaves, that leaves you with lesser ability to monetize that client, any further. Also, your monthly recurring revenue (MRR), is a strong indicator that shows proper health and viability.
You should be striving to see a target to pep up your profit rate. That can only happen when the customer lifetime value (LTV), be slightly higher than the customer acquisition cost (CAC). Remember, if you are splurging on to buy clients and just in case, they churn away way before you redeem yourself all the costs, you are going to get in a severe loss. Refrain from letting that happen.
Statistics claim that a whopping $83 billion is lost every year due to pathetic customer experiences and customer attrition. Though bringing down this number to zero seems tough, there are ways to simmer down the number though. When faced with a highly competitive environment, all that you can do from your end is to give your client a stellar customer experience.
You can do so with your offerings, imbibe value, and quality. Additionally, most of the clients dislike a late delivery, so act upon that as well. And how about your customer rep team? Are they good enough to seal the deal? Ensure you work on some of these issues and stay prepared before your client faces an issue with it and eventually churns away. Or at the worse, chooses your competition over you.
A modern customer expects you to understand him or her. They need you to learn about their preference and interests. What they do not want from you is irritating texts or spam-like emails with captivating subject lines. That is when the magic of marketing begins.
For this, you need to have a strong marketing team. Communicate with your existing clients and build a rapport with them. Use highly personalized chats and frequent your interactions with them. Further, you could add a dollop of artificial intelligence into it. Enabling emotionally intelligent chatbots can help you carry a conversation almost like an actual human.
It is wise to understand some of the accurate customer demeanor that might give you a sign of customer attrition. Some of its rather advanced methods help to merge dynamic segmentation that segregates the client base into similar groups based on the data collected.
These sorts of models help to forecast a good extent of accuracy in customer attrition prediction. And tracking these predictions can help you to retain some of your customers from leaving you permanently.
Customer attrition should be as low as possible. Investigate what your customers genuinely want from. Determine whether you are able to give that to them. The research behind the causes of attrition and what can you do to steer away from it. Note that the customer attrition rate by industry varies. Therefore, you may track individual customers and monitor their purchase cycle.
Originally Published October 16th, 2020, Updated January 27th, 2021
Simran hails from the content marketing backdrop with extensive knowledge in blogs, articles, and technical whitepapers in the non-fictional domain. She uses her 'gift of the gab' to explore new possibilities on her way and to make an exquisite impact on her readers. In her spare time, she likes to read journals on artificial intelligence or play with her cute kittens. You can connect with her on LinkedIn here.