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What is Customer Attrition?
Customer attrition is a measure of how many customers a business loses over a specific period of time. Also known as churn or turnover, it speaks volumes about how customers feel about a company’s product and customer experience.
There are two ways companies need to classify customer attrition:
- Voluntary/involuntary attrition — Voluntary attrition occurs when customers actively decide to leave a business. Involuntary attrition happens when customers leave due to an unavoidable issue, such as a failed payment attempt leading to cancellation.
- Passive/active attrition — Passive attrition means the customer left without engaging with the business. Active attrition is when a customer reaches out to cancel their subscription.
Attrition is expressed as a percentage rate. Companies use it to evaluate the success of their products and the health of their current customer base.
A low attrition rate indicates product-market fit, effective retention strategies, and high customer satisfaction. A high rate means the opposite — customers are dissatisfied, or a competitor simply does it better.
- Churn rate
- Customer churn
- Customer turnover
Why SaaS Companies Measure Customer Attrition
SaaS companies use a recurring revenue model. While that means they have predictable revenue (which makes it easier to scale), it also means they have to focus heavily on retaining each source of that revenue. Customer acquisition costs are high in the SaaS world, so it often takes several months before a customer becomes profitable for them.
Attrition is the inverse of customer retention. That’s why SaaS businesses care so deeply about it. If customers continuously leave before becoming profitable, the organization is making plenty of sales and still losing money.
Besides attrition being one of the most crucial indicators of profitability, here’s a look at a few other reasons behind why SaaS companies measure it.
Enhance Products or Services
A high customer attrition rate usually indicates a company’s products or services aren’t up to par. When companies track and analyze their customer churn rates, they’ll know if/when it’s time to investigate further.
Then, they can reach out to customers who do churn with questions regarding why. After receiving a few dozen responses, it’s usually fairly obvious where the product falls short.
The product team uses this information to make improvements to the user experience, fix bugs in the platform, and roll out new features customers are looking for.
Refine Ideal Customer Profile
A company’s ideal customer profile (ICP) is the North Star for its sales team. It describes the ideal customer in terms of geography, size, industry, pain points, and other descriptive factors.
The ICP is only a helpful guide when it accurately describes the type of customer a product is actually meant for. Companies with high customer attrition often aren’t selling to the right types of buyers.
If this is the case, they’ll have to identify similarities between these customers to avoid targeting those segments in the future. Then, they can do the same for their customers who do seem to commit long-term. Once they refine their ICP, they can shift their focus to high-value customers known to stick around.
Improve Marketing Campaigns
Marketing is an iterative process requiring testing, tracking, and data-driven decisions. Once the company refines its ICP, the marketing team can craft better messaging to connect with the right types of customers.
But marketing doesn’t end there. Companies also use customer attrition data to determine which marketing channels produce the most profitable outcomes. That way, campaigns spend their budget more efficiently and reach people who are actually ideal buyers.
Overall, measuring customer attrition helps marketers minimize wasted efforts on a bad audience fit.
Identify Reasons for Customer Churn
There are numerous reasons for customer attrition (described below). Diagnosing the exact cause, however, requires some detective work. Companies can identify customer churn drivers by looking at customer feedback and survey responses.
From there, they’ll have a better idea of how to prevent customers from leaving in the future. Churned members of a certain customer segment may unanimously cite the product’s inability to perform a certain type of function. In that case, it’d be an issue with the accounts they’re targeting.
Common Causes of Customer Attrition
Some customer attrition is out of the comapny’s control. Budget constraints, company repositioning, and needs that evolve beyond the product’s capabilities all happen internally.
Here are a few main causes of attrition businesses can control:
Dissatisfaction with Products or Services
Dissatisfied customers are the most common source of voluntary attrition. As soon as customers realize the product or service won’t meet their needs, they’ll start looking elsewhere.
Customer feedback and surveys can help companies identify churn-causing issues early on. Fixing those problems immediately is essential for retaining current and future customers.
Particularly for SaaS products (which are often deployed companywide), customer onboarding can be the difference between adoption and attrition. If staff members don’t know how to use a new platform, they’ll reject it. And execs will see it as a cost, rather than a value-add.
Whether a company’s product is simple or complex, there needs to be an appropriate amount of onboarding materials. For a basic consumer product, this could be an instruction manual and a how-to sent to the customer’s email. Enterprise software might require in-person training to get everyone up and running.
Poor Customer Service
If it’s one thing everyone collectively despises, it’s bad customer service. 96% of customers would leave a company for it. Many of them would leave after just one instance.
Companies are under tremendous pressure to deliver consistently excellent customer service. This includes delivering timely responses to inquiries, resolving customer issues quickly, and providing helpful answers in a pleasant manner.
Leaving for a Competitor
There are a lot of reasons a customer would leave for a competitor (some of which have nothing to do with the company itself).
- They’re better suited for another vendor’s product.
- They received better customer service elsewhere.
- Discounts and promotions lured them away.
- There’s a new, more attractive product out there.
It’s impossible for a company to retain all of its business. Other companies have their own sales and marketing initiatives, some of which are bound to work. Still, it’s important to understand why a customer chooses another product over yours to know what it takes to improve (and differentiate) yours.
Billing is the main source of involuntary attrition. Without a billing system that works seamlessly, customers can wind up (unknowingly) unsubscribing, even if they didn’t want to. As a result, the company loses out on current and prospective customers.
Common billing issues include:
- Expired credit cards
- Outdated payment information
- Insufficient funds
- Incorrect customer contact info
- Inadequate subscription management
- Delayed or misplaced invoices
- Incorrect charges
In addition to a lost customer, billing issues can lead to chargebacks, refunds, and extra customer service costs.
Customer Attrition Rate Formula
Customer attrition is measured as a percentage. This formula is used to calculate the number of customers that leave a business over a specific period, usually monthly or annually.
The basic customer attrition rate formula looks like this:
Customer Attrition Rate = (Total # of Lost Customers / Total # of Customers) x 100
To determine your customer attrition rate:
- Determine the number of customers at the beginning of the period
- Determine the number of customers at the end of the period This is the total number of customers you have at the end of the time period.
- Subtract the number of customers at the end from the number at the beginning. This gives you the number of customers you lost over the period.
- Divide the result by the number of customers at the beginning. This will give you the attrition rate as a fraction.
- Multiply by 100 to convert the fraction into a percentage.
For example, if a business starts with 500 customers and loses 50 customers during a month, the attrition rate would be:
Attrition Rate = (50 / 500) x 100 = 10%
Customer Attrition Analysis Process
On its own, customer attrition isn’t telling of a company’s true health. A company needs to look at other factors to understand the business impact of that attrition and why customers leave.
- Gather data. The first step to analyzing customer attrition is gathering data from all available sources. These include customer surveys, billing records, and product usage logs.
- Identify patterns. Once you have the data in one place, look for patterns between customer attributes (e.g., demographics, product usage, preferences) and customers leaving.
- Analyze results. Use the patterns identified from step two to draw conclusions about why people are leaving your service. If these conclusions are based on customer feedback and usage, they should be accurate.
- Evaluate revenue churn to add context. It helps to know the value of the customers you’re losing. Hypothetically, you can have low revenue churn even with a high attrition rate (though the opposite is true as well).
- Take action. Now that you know the why and how of customer attrition (and its value to your bottom line), you can take steps to reduce it. This could include launching a loyalty program, improving onboarding materials, or revamping the customer experience in some way.
Customer Attrition Analysis Metrics
When you analyze your customer attrition, you’ll also want to look at other metrics related to customer health. This requires you to look at your loyal customers in addition to those who left.
The following metrics will help you understand the reasons behind of customer attrition :
- Customer retention rate — The number of customers that remain after a certain period of time (inverse of customer attrition).
- Churn rate — In your CRM, customer attrition may be labeled as “churn rate.”
- Customer engagement rate — How often and how long customers interact with your product and marketing collateral.
- Customer satisfaction score (CSAT) — A measure of how satisfied customers are with your product or service, based on a survey and calculated as an average of all responses.
- Customer health score — An overall measure of the health of your customer relationships. It combines customer engagement, retention, and other factors.
- Net Promoter Score (NPS) — A measure of a customer’s likelihood of referring your product or service to a friend, family member, or colleague.
How to Reduce Customer Attrition
There are dozens of ways companies can reduce their rate of customer attrition. It all depends on what their overarching problems are.
Contact At-Risk Customers
For a company that wants to reduce churn, at-risk customers are low-hanging fruit. Companies can spot them in a few ways:
- Poor customer reviews
- Low engagement with the product or company content
- Frequently opened support tickets
- A low NPS or CSAT score
Proactively reaching out to at-risk customers can save them from leaving for good. It can also give valuable insight into why people are disengaged in the first place.
Optimize Products or Services
Of course, user experience is of the utmost importance when it comes to customer attrition. Customers who find your product or service difficult to use won’t hesitate to take their business elsewhere.
A thorough UX audit (which includes usability testing and analysis of customer feedback) is a good start for identifying weak points. Generally, focusing on usability, accessibility of core product features, and a bug-free experience will make a big difference.
Improve Customer Support
When customers feel like they can reach out to the company for help, it goes a long way in building trust. Providing robust customer support (e.g., through live chat, phone, or email) reduces the risk of them leaving due to lack of communication or response times.
Helpdesk software and an AI chatbot make customer support a breeze. Chatbots solve easy support issues without the need for human involvement, freeing up customer support teams to respond quickly to complex issues. Helpdesk software keeps everything organized.
Improve Customer Onboarding
It’s worth saying again: The onboarding process determines whether a customer will succeed with your product or service. A poor onboarding process will lead to customer attrition.
Creating an effective onboarding experience requires the right combination of human and digital elements:
- Automated emails
- Guided product tours
- In-app messages and help bubbles
- Branded documentation and user guides in PDF format
To enhance customer onboarding, it’s a good idea to enable customers with updates via email. These could be how-tos, business process optimization tips that involve your product, or new feature updates.
Price optimization is an inexact science, and most businesses don’t get it right away. But it’s essential for reducing customer attrition as it can help make your product or service more attractive.
You should take the time to evaluate your pricing model with respect to market trends, competitive offerings, and customer feedback. Is your current pricing model too expensive? Are customers leaving because of it? Does your current product pricing reflect perceived value?
Actively Communicate with Customers
Customer responsiveness is a two-way street. If some customers are showing low levels of engagement, there’s a chance it’s because they aren’t getting the right content (if any at all). Weekly newsletters, product updates, blog posts, webinar invites, and customer events are all great ways to stay engaged with your customers.
When someone reaches out to the customer success team, it’s important to respond as quickly as possible. Set up a helpdesk system that automatically responds to every support request immediately. That way, you never have to worry about leaving somebody hanging.
Continue to Add Value
Companies need to add value throughout the customer journey. This ongoing effort requires companies to stay on top of customer trends and feedback.
Usually, value-add coincides with company growth. It includes things like:
- New content that helps customers use the product, run their business, or live their lives better
- Published research and market data that shows customers what’s going on in their industry
- New features or functions that make the product better or more well-rounded
- Acquisitions that help the company offer a more complete product suite
- Integration partnerships that help certain customers further optimize their workflow
- Discounts or price breaks that reward loyalty
Building relationships with customers is essential for reducing attrition. Doing the hard work to create value and add a personal touch is the only way to make them stick around for the long term.
Seek Customer Feedback
Talking to customers is the best way to keep a pulse on customer attrition. Even a satisfied customer will have something they’d like to see improved. It’s important to prioritize the wants and needs of the entire customer base, not just the ones at risk of churning.
When soliciting customer feedback, businesses should focus on a few key areas:
- Service — How helpful were customer support agents? Did they answer questions promptly?
- Communication — How was the communication between customers and the company? Did it make them feel valued or ignored?
- User experience — Is the product easy to use? Was the onboarding process efficient and simple to follow?
- Content — How helpful are the newsletters, blogs, and other content? Did they offer useful information?
- Value — Do customers feel like they are getting value for their money? Would they recommend your product to a friend or colleague?
People Also Ask
What are the types of customer attrition?
Businesses classify customer attrition as active/passive and voluntary/involuntary.
Active attrition is when customers actively leave due to dissatisfaction with the product or service. If a customer gradually becomes less engaged over time and leaves without communication, it’s passive attrition.
Voluntary attrition occurs when customers decide to terminate their relationship with a company on their own terms for reasons such as pricing or dissatisfaction. Involuntary attrition happens when customers cannot keep using the product or service due to external factors, such as a failed card payment or billing mishap.
What is the difference between customer retention and attrition?
Retention measures the number of existing customers who continue to use a company’s product or service over a specific period. Customer retention is the inverse of attrition. If a company’s customer retention rate is 80%, then its attrition rate is 20%.
What is a good customer churn rate?
SaaS companies should aim for a churn rate of about 3% to 5%. A lower churn rate indicates that customers are more satisfied with the product or service. Low churn rates also mean customer retention efforts are more likely to balance out customer acquisition costs.