What does customer churn reduction mean?
Before we learn about the top things that CSMs need to arrest churn, we need to understand that churn is of utmost importance as it helps us assess why customers leave and how it impacts the business, so, customer churn reduction is very important. Modern business concepts have focused on two parameters Customer Acquisition Cost (CAC) and Customer Lifetime Value (CLV).
In mathematical terms:
CLV = mL – CAC
Where ‘m’ is the marginal contribution to the organization for a given unit contribution of a product sold or a service broken into billing cycle units. L is the length of time that the customer persists for with the organization without break i.e. customer acquisition cost need not be spent again for repeat purchase of a product or continued billing cycles of service.
Customer churn occurs when a customer stops purchasing the product or subscribing to the service of a company. Let us take a common B2B example. A company X is subscribing to an IT enabled service from company Y. There are issues that company X is facing with the service and they complain to company Y. With the issue not being resolved timely, or to satisfaction, company X explores other options and stops subscribing to the services of company X. This occurrence is customer churn.
Not only has company Y lost a continued subscription from a customer, but to woo back the same customer would require a renewed effort. This implies, another customer acquisition cost for the same customer.
Retaining a customer or customer churn reduction is, therefore, as important, or even more important than acquiring a new customer.
What are the top key things CSMs need to arrest churn?
Finding the right platform
Technology is at the forefront of everything today. You can make a plan but to implement the same you need technology. This helps not only in articulating your plan into an implementable strategy but also to capture real time data and automate actions through appropriate plug ins.
There could be a debate on whether one should first have the plan in place or one should first find the right platform. Phillip Kotler’s 4P’s keeps getting debated upon why the customer is not one of the P’s, and the answer always is that the customer is the common focus upon which the 4P’s then apply. Similarly, a basic plan for a customer success manager is already in place.
The CSMs need to arrest churn is the primary objective. Let us look at this from a different perspective – the organization which has developed a technology platform for customer success must have the best professionals and expertise in this space. It is also likely that the most recommended platform is one that many CSMs find user friendly and flexible enough to do justice the broad plan that they already have in their mind.
It is important for a CSM to keep learning and be flexible enough to adapt to the latest and more advanced methodologies that a technology platform provides and keeps updating. Recommend the readers of this article to check out smartkarrot.com.
Choosing the Right Parameters – Value vs Vanity
In simple terms it means we should choose parameters which have value to the customer. As a simple example a customer is interested in the end result or the benefit. So if we purchase an air conditioner for the summers we are interested in its ability to cool at a reasonable cost. If someone is telling me how much is the RPM and torque of the motor, it is immaterial.
The value must be seen from the perspective of the customer. There are several articles written on Customer Lifetime Value but few on Net Customer Delivered Value. CLV is what the company gets from the customer while NCDV is what the company gives to the customer. The parameters we choose for CSM should be based on what we give to the customer. Results on those parameters are definitely going to keep the customer engaged and help with overall customer churn reduction.
Customer Health Score
Each customer is unique. There are platforms available that provide a method for businesses to customize according to their business. There is no standardized customer health score. At the same time, standards keep evolving based on data received and the results achieved. For example, if a business subscription has lasted for over 12 months with timely payment and no complaints, they are likely to continue their subscription for a longer period.
This has to, therefore, be an iterative process and since the data captured is going to be large and real-time, it needs to also be automated. Every activity has to be broken down into the customer responses and each type of response should have a score. Breaking down the engagement process of the customer into as small units as possible and then employing an automated customer health score, would almost certainly ensure
- Effective customer success management where those with a healthy score are kept on a routine engagement process
- Timely acknowledgment of customers whose customer health scores are dropping or unstable. Identifying the reasons for such cases can then be done. And if the reasons are not extraneous or beyond control, timely corrective actions can be taken.
The concept of value versus price has explained several things. Why is Apple the most profitable company? Why do people buy their products at such high prices? The answer lies in usage. The more a product or service is used, the more value that will be derived.
It is actually a very simple concept. Take for example an automobile. The more it is used the more value that the customer derives. If it is only parked in a garage it is a cost to maintain as well and will become a liability.
Which subscription are you likely to discontinue? For example, let us consider that Company X has a commercial internet service provider. The first few months went by smoothly and then downtime started and speed started getting slow. Complaints were made but there was no satisfactory answer or resolution.
Payments were happening in every billing cycle and were never delayed. Alternate service providers were pitching earlier also but they were disregarded. Now alternates are being explored. Finally, the subscriber discontinues service from the existing service provider and shifts to another service provider.
As long as the new service provider does not default on service levels, it is very unlikely that Company X would revert back to the earlier service provider.
Building customers’ perceived value and keeping a customer engaged and monitoring the usage level at all times through the customer health score can be said to be an effective method for CSMs to follow.
Customer churn has the potential to make or break a business.
While there will always be uncontrollable factors, due to which some churn cannot be avoided, it is imperative that CSMs need to arrest churn where possible.
The CSM needs to find the right technology platform for customer success management which is flexible enough to meet the broad strategy that the CSM has. Each customer is unique and the right parameters which are of value to the customer should be chosen.
Following a customer health score approach will make the whole process consistent and effective. The key is to ensure that the customers increase their usage so that they derive more benefits which translate directly into derived value. Any customer who derives high value is the least likely to churn.
To learn more download our Customer Health Score ebook here. Learn how to create and implement a health scoring mechanism relevant to your organization. This guide is written for successful practitioners who want to sieve through the clutter and implement these best practices in their functions and organizations the right way and as per what is relevant to them to help with customer churn reduction. Download your copy today.