Commerce Tips

Is Your Brand Sick? Learn the Symptoms of Customer Churn

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There may be no greater feeling on earth than the satisfaction you get from dodging a cold. You start feeling that itch at the back of your throat or maybe the earliest hints of a runny nose; you do a couple quick mental calculations and realize that you haven’t been getting as much sleep as you should have been.

So you tackle it head on. You grab as many oranges as you can carry, bundle up extra warm and treat yourself to a full 9 hours of sleep (okay… maybe 7.5) and just like that you’ve avoided a cold! By knowing the signs and symptoms you are able to prevent a bad situation from getting worse.

customer churn recgonize symptoms

The rigor that we use to protect ourselves can be used to protect our businesses as well because our brands get just as “sick” as we do. Sure, they may not get runny noses or cold sweats but they definitely suffer from runaway customers and cold deals, and when they do it’s our job to make them better.

customer churn can you diagnose

One of the worst things a brand can come down with is a bad case of customer churn. So let’s take a look at some of the signs and symptoms of churn so you can catch it and stop it before it’s too late, doctor’s orders!

 

 

Declining Purchase Frequency: Sneezing

Churn, like a cold, can be subtle at the beginning, but that subtlety is exactly what makes it so dangerous. Luckily, one of the best leading indicators of customer churn is purchase frequency.

In fact, if churn is a cold, then a declining purchase frequency would be the first couple of sneezes that let you know something is off. It serves as a warning that something worse is on its way.

customer churn purchase frequency calculation

Purchase frequency is an easy metric to calculate and it lets a brand know how often their customers are returning to complete an order. Purchase frequencies that are higher than industry averages are indicative of happy and satisfied customers as their positive experiences draw them back to the brand for future interactions.

A declining purchase frequency however, is cause for concern. You see, while less frequent purchases don’t mean your customers have churned, they are often the first step down the slippery slope.

customer churn distance from brand

Customers begin putting distance between themselves and services that are no longer meeting their needs both consciously and unconsciously. While this distance may not appear immediately in churn calculations it will show up in purchase frequency. If your purchase frequency is on the decline, take action now before fewer purchases turn into no purchases.

customer churn doctor's orders purchase frequency

Like sneezing, declining purchase frequency can be easy to ignore because the effects of the symptom aren’t as visceral. The important thing to note though is that both are a signal, and can lead to many of the other symptoms listed below.

 

 

Declining Sentiment (NPS): Sore Throat

Another important symptom of churn is a declining positive opinion about your brand. Sentiment, and other “feeling based” metrics can be difficult to calculate but they can be effectively estimated by metrics like the Net Promoter Score (NPS for short).

customer churn declining feelings

In our ill-ustration, declining sentiment is a lot like a tickle in the back of your throat. It may seem like a small issue at the moment but it can actually end up much worse than some of the other symptoms in the long run (think strep throat).

NPS estimates the amount of positive sentiment going out about your business by asking your customers “on a scale from 0-10 how likely are you to recommend this brand to your friends and family?” Customers are then categorized into detractors, passives or promoters based on their responses.

customer churn nps scale

The more promoters (and less detractors) a brand has, the higher their NPS score will be. High NPS scores are correlated with satisfied customers and the highest NPS scores create brand advocates.

Low NPS scores lead to higher churn rates because customers responding with numbers below 7 (also known as detractors) aren’t being satisfied and are likely to leave your brand. The larger issue though, is that these customers often don’t leave quietly.

customer churn negative feelings

Dissatisfied customers often conduct their own negative word of mouth campaigns that can turn others off your brand and damage your reputation in the process. Keep in mind, humans tend to weigh negative information around twice as heavily as positive information so a few unhappy customers can make a lot of noise that can take down a healthy brand.

customer churn doctor's orders NPS

It’s important to give your brand sentiment frequent check-ups and take immediate corrective action if it starts to dip. Dissatisfied customers, like strep throat infections, are extremely contagious and left untreated can spread to affect healthy populations (or customers) in a hurry. When properly diagnosed and treated, a brand can be expected to make a full recovery from all but the worst of NPS infections.

 

 

Declining Average Order Value: Coughing

Average order value is one of the most calculated metrics in today’s modern business. AOV is one of the easiest ways to keep a finger on the pulse of your business. It makes sense to wonder how much money your customers are spending with you and it is perfectly rational to guide your business strategy based on the answer.

customer churn average order value calculation

Like coughing, average order value is easy to notice because it is a “loud” metric. In the same way it is hard to ignore a bad cough, it’s pretty hard to miss a drop in order value. Changes in AOV will very frequently be felt in both a brand’s revenue and profit lines and as a result they often prompt immediate action.

High average order values mean customers are spending more per purchase on your brand and are representative of a larger financial commitment to your products. This financial commitment is often indicative of an emotional investment or satisfaction that drives larger purchases.

customer churn dropping average order value

A dropping average order value, however, is a symptom of churn. Think about is this way: if your order value is shrinking, then your customers are spending less per order at your store. This means they are likely spending what they used to be spending with you somewhere else.

This “somewhere else” could be competitors or substitutes but the important thing is it’s not with you. This contributes immediately to revenue churn and can also lead to customer churn as customers continue to increase their emotional and financial commitment to other brands.

customer churn doctor's orders average order value

A sneezing fit is pretty annoying but a bad cough can be debilitating and downright painful. In fact, in extreme cases people have been known to break ribs from coughing alone. A decrease in AOV  is very similar as it can feel like a punch to your brand’s profits. Like a cough you’ll want to treat this as soon as possible because in this case, the symptom is just as damaging as the sickness.

 

 

Declining Customer Lifetime Value: The Flu

This right here is the big one. Customer lifetime value is often regarded as the holy grail of customer metrics. It estimates the total value a customer will return to your business over the entire time that they shop with you. Calculating CLV allows brands to figure out how much each customer is really worth to the business.

customer churn customer lifetime value calculation

Declining customer lifetime value is like the flu because it is a combination of many other symptoms on this list. A lot of metrics go into calculating CLV, including some we’ve already discussed like purchase frequency and average order value.

High CLV numbers mean that your customers are spending more money more frequently with your brand over a longer period of time. It is basically the ideal picture of a customer relationship: in a perfect world, all three of these factors would always be increasing, putting more revenue in your pocket as customers reap the benefits of your incredible customer experience. Great customer lifetime value comes from satisfied customers who integrate a brand into their lives on an ongoing basis.

customer churn lifestyle

Like the flu, declining customer lifetime value can set you back quite a bit. For every good aspect of a high CLV, the opposite is true when the metric drops. Your customers begin to return to your store less frequently, spending less with every visit and only remain customers for a short period of time.

customer churn doctor's orders customer lifetime value

When customer lifetime value starts to drop, it’s an all hands on deck situation. After all, the flu only gets worse when you ignore it. Trying to blindly power through declining CLV is as big of a mistake as trying to white knuckle through the flu. Take some time to appropriately diagnose the situation and figure out a treatment plan. Also, like the flu, declining CLV is highly preventable so make sure to invest in strategies that benefit the components of CLV the same way you’d make time for a flu shot.

 

 

Poor Investments In Retention: Bad Diet

At times we get sick and we wonder what happened but other times we know exactly where things fell apart. After a week of eating fast food and staying up late it’s not hard to feel like you’ve earned a trip to the walk-in clinic.

customer churn retention marketing quote

In the same way that living a healthy lifestyle is an investment in your health, retention marketing is an investment in the health of your brand. Too many businesses over-invest in customer acquisition and completely neglect customer retention.

Like a bad diet, these decisions start small but compound over time and eventually catch up with us in a big way. The average business devotes 80% of its marketing budget to the acquisition of new customers leaving only 20% for retention. The interesting thing is that while repeat customers make up only 8% of an average ecommerce customer base, they typically generate nearly 40% of a brand’s revenue at a fraction of the cost of a new customer.

customer churn budget allocation

Investing in acquisition alone turns your business into a revolving door. You work harder and harder to pump customers into your business but the lack of retention has them churning as soon as they get in the door. The result is that your brand doesn’t experience any real growth but incurs some very real costs.

Whether you’re talking about customer experiences or diet and exercise, the secret is balance. Investing in both acquisition and retention allows a brand to make the most of its customer relationships. Businesses who balance both needs are able to gain and retain their customers, so that every new acquisition represents a wealth of future value.

customer churn doctor's orders retention

Like a healthy diet, retention marketing isn’t a one time endeavour. It is an ongoing process that returns more value the longer you optimize it. One of the most important similarities between a good diet and customer retention is that for both the best time to start is yesterday but the second best time to start is now.

 Check out our ebook on calculating loyalty and retention metrics

 

Diagnosis: A Healthy Dose of Retention

Whether it’s fighting a cold or beating customer churn, knowing the signs of trouble can go a long way towards a speedy recovery. Declining sentiment, order values, and purchase frequency can spell trouble for a business. When these factors are combined with decreasing CLV and poor investments in retention, the diagnosis can look pretty bleak.

Lucky for us there is a cure. Rewards programs and other retention campaigns can help fight the symptoms of churn and leave your brand all the healthier for it. An apple a day may keep the doctor away but retention today makes your customers stay.

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