Don’t Lose Customers – Gain Understanding!

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Although most businesses incorporate an assumed churn rate, (however small), in the final version of their annual operating budget, no business wants to lose its customers.  Regardless of how a business forecasts its expected churn rate, how customer account departures are regularly managed is often overlooked as a key element of the success of any enterprise.  In fact, managing customer churn is as important as any other business growth measure that requires planning, forethought, and ongoing operational oversight.

Customer churn falls into two broad categories, voluntary and involuntary.  Involuntary churn is often ignored and/or accepted as a “cost of doing business”.  The sources of involuntary churn typically stem from a business failure or other dramatic change impacting the customer’s ongoing operation that presumably has little or nothing to do with their purchase of a product or service.  Voluntary churn is a far more serious issue from a management perspective.  The causation behind voluntary churn can run the gamut from unresolved billing and collection issues to long-ignored product or service deficiency complaints not responded to.

Unfortunately, a “drill down” into churn sourcing is not something that should be relegated to only being part of a quarterly, or even a monthly business review.  Rather, it needs to be injected into the day-to-day operating oversight of any growth-oriented business.  As many SMB business owners know all to well, a churned customer account will “speak” much more frequently and loudly than a business’s even most satisfied customer ever will, and the “echo” from those discussions can have a much more severe effect on sales growth.

An increase in involuntary churn cannot be ignored as it likely reveals an issue in either your sales channel communications, sales force hiring and/or training methodologies, and sales compensation plans that are not driving the frequency of proposals and closings of high quality sales transactions but only sales volume.

Indeed, the way that a business addresses customer churn will directly and significantly impact its ability to achieve medium- and longer-term growth, sustainable positive employee morale, and consistent bottom line results.  So, what questions should management address in order to determine whether they have a real handle on churn?

  • Does your management team have a detailed breakdown of your company’s current customer base with a comparison to how that compares to the last quarter, last six months, and last year?
  • Maintaining an ongoing understanding of the composition, ( not just the number of billable accounts), of your firm’s customer base will ensure that you will be able to detect impactful changes to the customer base.
  • Assuming you track customer churn, is it done in a way that provides a detailed review and analysis
  • Is customer churn only a KPI, ( key performance indicator), metric to be monitored by those responsible for Customer Support in your Company or are managers at all levels and in all functions focused on it as well?
  • Does your Company have an ongoing program that ensures that every churned customer account, ( as well as every new on-boarded account), is contacted and the results of that call are captured?
  • If there is an uptick in involuntary churn are those responsible for sales team training and compensation plan development brought into the review of those accounts impacted?
  • Does your company include a review of the churn, ( often thought of as order cancellations), of prospective customer accounts at all points along your new order on-boarding process?
  • Is there a detailed review and feedback mechanism based on the captured information from calls with churned customer accounts?
  • Does your business maintain an ongoing review and follow through of escalated calls to support by category?

This is a somewhat abbreviated list of questions that an experienced advisor would use when undertaking a churn management issue with the senior management of any business.  It is critical to maintain the necessary customer base data so that detailed “look-back” reviews can always be undertaken at any point in time.  Managing churn is critical to the success of any business which is why we say, don’t lose customers – gain understanding!