Customer Attrition: Essential Guide to Understand, Measure, and Prevent It

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.

Table of Contents

• What is Customer Attrition?
• How to measure the Customer Attrition Rate?
• How harmful is Customer Attrition? 
• How to reduce Customer Attrition?
• What causes Customer Attrition?
• Types of Customer Attrition
• What is a Good Attrition Rate?
• Role of AI and ML in Customer Attrition Prediction

What is Customer Attrition?

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.

How to measure the Customer Attrition Rate?

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.

How harmful is Customer Attrition? 

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:

1. Lesser loyal fans

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.

2. Poor Revenue and ROI

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.

3. Reduced CAC: LTV ratio

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.

How to Reduce Customer Attrition?

Let the Customer Experience do the Talking

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.

Efficient and Effective Marketing

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.

Predictive Customer Behavior Modeling

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.

Target the right audience from the beginning

Know your audience and create a buyer persona. One of the easiest ways to shot in the bull’s eye will be to hone your content marketing as per your customer’s needs and tailoring them specifically. When you attract the right customers from the get-go itself, you ensure that you do not spend your time, money, and resources on retaining customers who were not even a good fit to begin with. Thus, you give the defection rates a backseat.

Review your Onboarding Phase

The second a customer signs up for your product, they are eager to know it all and put their hands on your product. If you onboarding phase is not smooth and runs full of complications and glitches, you customers might want to look for an alternative. Sad but true, you will have to craft an onboarding process that is seamless and convenient for the prospects to use.

Show Gratefulness to your Customers

It is understandable that you might not be able to have a great one-to-one relationship with each of your customers right from day 1. But the least you can do is to be grateful for their time and show them the value in your interactions with them. It is no rocket science there. You can simply say them ‘Thank you’ in your marketing campaigns or respond to their online reviews every now and then. This makes a customer feel special and lessens your turnover rates.

Solicit Feedback from your customers

The best way to know about your customer happiness and experience is by getting straight to the source. Reach out to your customers and solicit feedback on what do they like about your brand and what else do they want to see changed. You can do so via surveys too. And once you take their feedback, ensure working on it as well.

What causes Customer Attrition?

• Know that dissatisfaction is built over time: Sometimes, the last event that took place before a customer’s departure is what caused the attrition. A dissatisfied customer will not stay for long if you do not intervene with necessary solutions. As soon as you see an escalation issue, hop on and try to restore the satisfaction score as fast as you can.
  
• One Solution does not fix all Problems: Know that there can be multiple root causes that can result in a customer’s attrition. Fixing one issue will not necessarily reduce the attrition rate. This is where only detailed customer feedback will help your brand to understand and address these issues as and when required.
  
• A satisfied customer is not enough, always: Just because you get to see no concerns from a particular customer, it does not mean that they will not churn away in the foreseeable future. This does not imply that they are a super-fan. Therefore, as a brand, make it a point to surprise and delight them time and again. Who knows, this may trigger them to become brand advocates soon?
  
• Solicit Feedback from the Employees too: A good company is the one who makes customer experience a high priority and encourages departmental collaboration. This will lead to structural improvements as well. Involving employee’s suggestions will add to these improvements and show the employee that their voice matters too.

Types of Customer Attrition

• Active Attrition: In active attrition, a customer proactively cancels his or her subscription. This generally happens with the subscription-based businesses. Here, you can always get in touch with your customer and ascertain what drove them to reach to this conclusion and what can be done to affix the crisis.
• Passive Attrition: On the other hand, passive attrition is where a customer simply stops transacting with a business. This is actually tougher than active attrition as here you might never be able to predict when a customer is about to leave your business.

What is a Good Attrition Rate?

Now, there is no exact answer to this question. It is pretty subjective to the niche, industry and age of the company so far. It also depends on myriad other factors such as company’s particular industry model, the investment it has in customer retention and the level of competition as well. Similarly, there is no exact answer to what is a bad attrition rate too. On an ideal note, keep this rate as low as possible. Strive to not cross the range of 10% or above at all times.

Role of AI and ML in Customer Attrition Prediction

1. Uncover Customer Data: AI and ML helps in getting hidden insights about the customer’s data with the help of its advanced systems. They can also learn more about the customers from their behavioral and shopping patterns that hint at their likelihood of churning away.
2. Geeting the Business back on track: AI and ML can tell you more on what are the reasons behind a customer leaving your business. If you reach out to the customer in time, there is a fair chance that you could save them from churning away.
3. Refrain from more loss: Deploying AI and ML will help you know what are the substantial flaws in your business, it will also suggest ways to refrain from those losses. This way, you can give the bulging churn rates a backseat.
4. Retain Customer’s Loyalty: With the help of predictive analytics, you can easily know which customers are going to leave. And creating customized marketing strategies then will help them retain, thereby increasing customer loyalty.

That’s a Wrap

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.

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