Measure and Manage your Customer Churn
I'm BAAAACCCK! - I've been really sporadic in my postings for the last couple of weeks and for that, I apologize! The bottom line has been that I've been extremely busy with Interviews, meetings, and travel! I'm not quite ready to announce anything, but it's coming soon!
... Back to the topic at hand: Customer Churn - I'll start with a definition of what it is: Customer Churn is the percentage of customers that stop buying your products or services in a given period of time. In the B2B automation world where I've spent most of my career, I've always liked to measure customer churn on an annual basis. Customer Churn is a natural part of business - particularly if your focus is on B2B projects rather than selling to OEMs or Resellers who natively deliver repeating business. The first thing you need to do in order to manage Customer Churn in your business is MEASURE IT!
Measuring Customer churn is really pretty easily done - Essentially you want your Order Entry system to output a report of Sales for each customer that had revenue in the prior year and Does not have sales in the current year. By definition, those that have gone to $ZERO are either at risk of becoming "Churn" (part way through the year) or are "Churn" customers (upon completion of the year). Again my experience is all B2B sales in the Robotics and Automation space - and based on the sales cycles and repeat cycles of my business, I'd look at customer churn on a Quarterly basis throughout the year. This gives you the opportunity to identify those customers who have Declined in Sales (Declining sales report) or are officially "Churn" or are at risk of becoming "Churn". In the world that I've played in waiting a full year to complete this analysis is Too Long! Another recommendation from my world is that if your products are sold via a channel, is to measure both your Channel "Churn" and the end customer "Churn" via the reported sales that your channel partners submit. The end customer churn is the most important as that's your true customer and is usually the area that you can take some kind of action to resolve if your analysis proves that "Churn" is occurring.
So I've measured my churn - What do I do with the data and Analysis that I've completed? The first thing I'd recommend is understanding if your overall churn rate is within the normal range for your business and company stage. In one of the automation businesses I was involved with the churn rate was just under 70% and it was normal and expected because the manufacturer was focused on CapEx projects that typically didn't repeat within the next year. What tracking this and understanding the magnitude of our churn did in this business was help us to understand how much business had to be replaced in the coming quarter and year just to get back to the starting line of "Last Years results" - and thus what our pipeline size and deal creation rates needed to be - But more on managing the churn later in the article - I'll continue on the Benchmark process first. The natural "Churn" rate of a business varies very widely, even within the same industries. It is impacted by the channel approach chosen, the customer business model chosen and the rate of technological innovation - so deciding on a benchmark needs to be done by comparing your business with those that are similar on all dimensions. Your best benchmark may be available from an Industry Association (if it's a KPI that they track) or by discussing with your business peers that have business profiles similar to your own, or by back calculating the Average annual churn rate in your own business for the last decade. Regardless of how you get there - your churn rate itself has little meaning unless compared to a standard or expected rate. If your industry peers have a churn rate of 10% and yours is at 25%, there's likely something wrong with your value delivery to your customers.
So what do I do about Customer Churn? I'd recommend managing the Churn on a quarterly basis even if it's within your normal or expected churn rate. Reducing Churn further is an easy way to increase business at a lower cost than adding new customers. Remember every customer that "Churns" in any given year represents a customer and their revenue that your team has to replace just to get back to ZERO growth. So, break down your possible churn and actual churn customers by each Salesperson on a quarterly basis and charge each of them with coming up with a "Churn Plan" - this should include them understanding the amount of revenue that is represented by each category and to have conversations with each customer to understand if their business is likely to repeat or not during the year. Just completing this process will find some customers who are leaving because they are unhappy for some reason. The sad truth is that most unhappy customers don't proactively reach out and let you know and the fact that you've noticed and reached out to them will significantly increase your chances of rescuing this business. For others, they will confirm that their business was project-based and that they don't expect to have a similar project this year - There's usually not much that you can do to change this - so these become "Churn" business that needs to be replaced. Having your team assign a replacement target from their pipeline to account for this business is a best practice here. It drives the understanding that some of the "New" business that they are developing is really just going to replace "Churn" and growth doesn't happen until after the "Churn" is replaced. I've found that assigning "Churn" replacement deals from your pipeline both helps the sales team see the urgency in closing some of this business (and as a result increases your close rate on this business) and helps management understand the magnitude of the business replacement required before growth is really going to occur. So just by measuring and managing your Customer Churn with a Churn plan with each sales team member WILL reduce your "Churn" rate over time. You will find that by paying attention to this data (and just your declining customer data) that you develop a closer relationship with your customers, a better understanding of what's going on in their business (sometimes they are down because their business is down) and, that you get more chances to recover this business when it is recoverable!
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The next level of data analysis on your churn rate is to identify that business that has churned for reasons within the control of your company. There will be some percentage of customers who have churned for one of the following reasons:
You get the idea - these customer churn reasons are all in areas that your company has the control to respond to - some can be short-term responses (a price match policy) and others may be longer-term (new product development) - but it's all within your control. If these "Controllable" churn reasons start to spike as a percentage of your total churn or if a single reason starts to spike - it can drive you to take meaningful defensive action to correct this controllable churn in the future. Keep an eye on this for building trends and early warnings and use this data to drive action within your own company to improve this churn over time.
There are of course a lot of other things that can be learned and managed from measuring your customer churn. Consider this article both a primer for beginning this data collection and review and a call to action if you aren't tracking this today!
GTM Expert! Founder/CEO Full Throttle Falato Leads - 25 years of Enterprise Sales Experience - Lead Generation and Recruiting Automation, US Air Force Veteran, Brazilian Jiu Jitsu Black Belt, Muay Thai, Saxophonist
3 个月Andy, thanks for sharing your post! How are you doing?
Account Executive connecting top candidates with the right opportunities, unleashing potential, and delivering results for our clients.
1 年Great advice!