Customer churn (often called customer attrition) kicks in when customers, for various reasons, abandon a brand. The opposite of this dynamic is customer retention (maintaining long-term customer loyalty) – two sides of the same coin. (Prefer to focus on the positive? Start with the other half of this pair of articles, Customer Retention Strategies for 2025 and Beyond!)
Churn is inevitable in every business in the US, even the most successful ones. Why? Revenue growth and churn go hand in hand – one is highly desirable, and the other unavoidable. Therefore, churn-proofing your business depends on understanding the difference between a healthy and threatening churn percentage. In other words, it’s critical to prevent overly destructive anti-retention drivers from throwing your customer base across the dividing line, where losing brand loyalty downgrades your ROI.
We’ll deal with the “unhealthy” churn initiators below, but in a broader context, it boils down to a company’s failure to effectively address defective touchpoints in their customers’ journeys. A look back at customer experience (CX) interference in 2024 will help you springboard off solid retention fundamentals in 2025, with the vision of better customer engagement as a realistic goal
What is customer churn and how do you calculate it?
Using a simple formula, calculating churn is always over time (e.g., usually a year):
Step 1: Total Customers on 31st December 2024 (3,000) – Total Customers on 1st January 2024 (3,300) = 300 customer churn without accounting for new customers during the year.
Step 2: Total Customers on 31st December (3,000) contains new customer additions (200) that we must add to the result in Step 1 = 300 + 200 = 500 (adjusted customer churn in 2024 or “AS”)
Step 3: Churn rate = AS (500)/Customers on 1st January 2024 (3,300) X 100 = 15%
- According to Recurly Research, expected average annual churn rates vary by industry between 3.5 % (software) and 6.9% (digital media).
- However, other research entities disagree:
- Custom Gauge estimate the churn rates for software companies are closer to 14%.
- Pacific Crest derived a 10% (or under) annual median churn rate for the SaaS category.
The implication is that anything in low double digits (as per our example above) should alert stakeholders’ to take a hard look at competitors’ churn experience to gauge things accurately. Any churn metrics in the twenty to thirty percent zone requires focus and attention to bring it down.
Finally, be aware there are two churn types:
- Voluntary (the customer’s decision)
- Involuntary (the company’s decision – usually a payment or breach of regulations glitch).
Both will emerge in our review below. Revenue churn is another way of looking at things, allocating dollar value to customer headcounts as described above. However, I’ll stay with the latter, knowing the P&L metrics automatically improve if businesses retain their customers.
Why did customers churn in 2024?
According to a wide range of sources, a significant percentage of those who leave a brand behind do so silently, without comment or complaint, leaving a gap in marketers’ understanding of why the churn occurs. It’s bad news. Why? When customers unceremoniously leave the fold – one day here and the following day gone – it’s the essence of non-predictability, a hovering threat that can strike without warning. Here are insights into the most obstructive churn touchpoints in 2024 that your terminating customers didn’t tell you about:
-
Poor customer onboarding
The rot often sets in right from the beginning, where an initial purchase or subscription converts prospects to the customer category but fails to follow through with repeats. One should appreciate that loyalty doesn’t just fall in your lap or naturally follow a customer’s initial trust in your value proposition. It depends on helping customers become acquainted with the brand culture and making them feel special. Errors traditionally emerge when marketers fail to do the following:
- Survey first-time buyers with customer satisfaction questions or address complaints when feedback does stream through.
- Provide a small reward as an incentive to buy again.
- Capture essential customer details and policy agreement signatures, resulting in accounting or regulatory issues that frequently end in voluntary or involuntary customer terminations.
- Ensure support agent training around typical onboarding issues.
- Personalize all communications, such as sending personal messages that welcome the customer to the brand family.
- Take the onboarding process’s complexity seriously, thus ignoring unique touchpoint obstacles.
-
Taking loyal customers for granted
Complacency is unacceptable in strategies focused on customer loyalty. When your team spends most of its time acquiring new customers, it detracts from their attention to long-term brand ambassadors who steadfastly support company revenue. It’s frightening to imagine competitors stalking this customer category day and night with virtual SM/email prompts and promotions zoning in on researched pain points. However, that’s exactly what’s happening because they know it takes only one frustrating, anger-provoking, or even mildly disappointing brand interaction to entice a loyalist to jump ship. In the fast-changing digital e-commerce environment with new technologies emerging at a wildfire rate, the following 2024 missteps are notable:
- Product quality slippage and failed undertakings, thus corrupting customer trust.
- Price increases that fail to reflect increased value.
- Service glitches in customer support. For example:
- Contact center frustration from long queuing to poor routing.
- Inadequate product usage or after-sale support.
- Confusing website navigation.
- Rude or impatient agent interactions.
- “Same old, same old” in a marketplace reflecting significant innovation.
- Emergence of negative customer reviews and brand controversies impacting brand image.
- Biased loyalty programs that favor preferred customer categories, are unexciting (with nothing new happening), or fail to offer genuine loyalty appreciation.
- Communications lack personalization or come across as insincere.
-
Service glitches expanded
I have highlighted this item above, but it deserves special attention. Companies striving for differentiation in 2024 have failed to:
- Provide a seamless and smooth route to pain point resolution, or:
- Solve pivotal customer issues coming to their attention.
- Find interim fixes for those pain points slipping through the cracks.
Modern marketing in the B2C and B2B marketplaces must maintain services aligned with product value. This ranges from signing up for subscriptions to technical advice on user instructions. In between are queries related to discounts, timing, deliveries, lost parcels, wrong sizes, returns, credit card rebates, and more. No wonder contact centers have transformed into omnichannel hubs for inbound and outbound customer communications that can make or break a brand.
Stellar agent training, instilling a genuine customer-care culture in the organization, and deployment of the latest routing and data analytic technologies are critical drivers of a positively memorable CX. Less than optimal performance on all these fronts results in customer churn or failed customer engagement.
-
Over-promising and under-delivering
Companies offering benefits such as “A One-Stop Solution,” “Best-in-Class,” “The only…,” “Second-to None,” and “Revolutionary” may not realize they’re over-promoting an otherwise good product. Another typical oversell that invariably disappoints cable advertising audiences is bargain offers based on the theme, “But wait, if you order today, we’ll give you ….. for the unbeatable price of …..!” or “For every four Xs we install, we give you one free!” coupled with demonstrations of product proficiency that fail to resemble the CX in reality. When the vision looks too good to be true, it probably is.
Matching one’s message to brand benefits and keeping it credible is a unique copywriting art that is frequently under-appreciated. It’s easy to get carried away by self-enthusiasm for your brand (after all, it’s the source of your livelihood). Unfortunately, too many businesses have resorted to sensationalism in 2024, creating a fertile landscape for customer churn.
-
An aggressive competitor
Competitors in hard-fought marketplaces are like sharks circling a ship, waiting for it to go into distress. The minute there’s a whiff of customer discontent, they’ll pounce with offers that can turn even thin strategy cracks into gaping crevices.
Remember, 78% of Americans are willing to pay higher prices for brands they’re loyal to, so it’s not pricing one should watch (although deep discounts may convince some to try another brand). It’s more likely that better personalization, more targeted messaging, or tighter customer support are the attacks one can expect from competitors orbiting your customer base.
What has 2024 taught us about the anti-churn strategy to take take in 2025?
Stakeholders should appreciate that churn above the average levels (cited above) not only threatens one’s customer base, it also deflates revenues and profitability metrics. Left unchecked, it can kill your business. Studies show that acquiring a new customer costs between five hundred and two thousand five hundred percent more than retaining an existing one.
Therefore, remedying undesirable churn is crucial. How? To know you’re on the right track, check out these insights from successful marketers who injected their strategies with an approach that minimized the 2024 churn drivers, as follows:
- Develop insights into customers’ emotions and thoughts through consistent surveys and other qualitative probing techniques.
- Structure a data analytics hub within your business to accumulate, analyze, and use the emerging data.
- Decide on KPIs that will serve as touchpoint alert signals for early obstructions to customer journeys. These include customer satisfaction scores, churn rates, NPS scores, Customer Lifetime Value (CLV) metrics, and financial ROI indicators.
- Ensure your calling center has the latest resources to provide a relatively superior support service.
- Monitor competitor activity closely. “Out of sight, out of mind” is not a mantra to live by if you want to maintain or gain a market-dominant position
- Under-promise and Over-deliver to earn a solid value-for-money reputation.
- Inject your customer loyalty programs with consistent innovativeness to hold customer excitement and upgrade personalization initiatives.
- Strategize your customer onboarding to follow customers until they’re ready for loyalty program membership.
- Go the extra mile to get your copywriting at the right readership level, your website welcoming and easy to navigate, and your bots technically aligned with readers.
- Train, train, and train your agents before letting them loose to interact with your customers.
Conclusion and FAQs
An enlightening perspective on churn is understanding the forces that drive it, and that’s what we’ve done in this article. By implication, a resolute response is to erase the misdirection and errors and do everything at our disposal to create a 180-degree change in strategy. You may discover you’re dealing with one or two churn drivers or almost all. Either way, pressured profitability is undoubtedly an ongoing perplexity for those on the wrong side of the dividing line.
Connect with a company like Sogolytics to revive or revitalize your strategy. They have the resources to develop the ten recommendations under my heading, “So, what has 2024 taught us about the anti-churn strategy you should take in 2025?” If you’re fed up with churn and want to climb on the retention bandwagon, contact us today for a straightforward review of your business’s customer retention strategy
FAQs
Q1: What is customer churn?
A: Customer churn (often called customer attrition) kicks in when customers, for various reasons, abandon a brand.
Q2: What kinds of churn are there?
A: Voluntary (the customer’s decision), Involuntary (the company’s decision), and Revenue churn (expressed in dollars, not person count).
Q3: What key characteristics are always in the churn calculation?
A: Time is usually measured over a year and as a percentage.
Q4: Why is churn so crucial for stakeholders to know about?
A: If allowed to gallop out of control, it can devastate profits.
Q5: What’s a worrying churn rate over a year?
A: It varies by industry, but generally, any churn that shows as a double-digit percentage should cause concern.
