What is Customer Churn and How Can it Be Reduced?

Written By: Leah Gourley
  • 12/22/2020
  • Read Time : 4 min
Learn how to define customer churn and how to reduce it.

Simply put, customer “churn” is when customers don’t renew their contracts. Also known as customer attrition or turnover, churn can look slightly different at every company. Customers may actively close their account, cancel a subscription, purchase from a competitor, or allow their maintenance agreement to lapse.

Even highly successful enterprise businesses may find themselves grappling with customer churn. While companies usually hold highly favorable opinions of themselves, customer churn can be a harsh, objective reminder that there is room for improvement. And for companies that are transitioning to subscription-based revenue models, it behooves them to be prepared to recognize and quickly remedy the factors that cause churn.

While nobody would argue that customer churn is a good thing, you can use it as an opportunity to better meet customer needs, improve quality, and become more competitive. But to do this, you need to be able to recognize its sources, access and measure quality correctly—and most importantly—use that data to take the correct actions that reduce customer churn. 

How to measure churn

One of the most straightforward ways to calculate your churn rate is to find the percentage of customers lost over a certain time period. A basic churn rate equation may look like:

(# of users at beginning of period - # of users at end of period)

                                                                                                         

# of users at end of period

However, there are additional ways to measure and quantify churn, and its impact on your business. These can factor in the revenue of closed accounts, the average lifespan of a customer account, the total lifetime value of those accounts, and patterns over different periods of time.

Why customer churn is becoming more important

Why should you care about churn? Historically churn has been the concern of companies who rely predominately on delivering services for revenue. And that’s actually also why you should be worrying about it too—even if it feels less relevant today.

While there will always be some fraction of the manufacturing economy that does business through the selling of goods and licensed products, the trend for most businesses is shifting away from product-intensive revenue. Instead, more and more companies are competing by way of monetizing usage, consumables, uptime, and availability. Many businesses are generally pivoting toward a subscription-based model.

These models have existed for a long time (think of large-volume office all-in-one printers), but they are becoming more widespread. Take a company that historically built and sold large, expensive industrial presses. Using this new model, the manufacturer sells a subscription that allows uninterrupted access to the press.

There are a variety of reasons for this shift—from product complexity and customer expectation to increased competition and reliable revenue. Despite these differences, there is a common shift toward emphasizing service, and vendors are becoming more accountable for their customers’ success. As traditional product sales give way to renewable subscription models, the importance of managing churn becomes increasingly important.

Causes of customer churn

Understanding customer churn causation is fundamental to reducing the rate of attrition. While there are many reasons a customer might go elsewhere, there are some common factors likely to have an impact:

Poor customer experience: Customers will value their overall experience if they have positive interactions at each touch point of your organization. From receiving reliable, efficient customer support to having success working with account managers, these factors all inform future spending decisions. Customers have increasingly high expectations and if their experiences don’t match up, they’re likely to depart.

Quality of products or service: Customer perceptions of the quality and reliability of equipment or services influence future spending decisions. Equipment and services that are unreliable, too expensive, require too much maintenance, or otherwise fail to demonstrate value are likely to drive customers elsewhere.

Machine downtime: Significant downtime, whether it’s scheduled or due to breakdowns, has a direct impact on customers’ bottom lines. Slow response times, undertrained technicians, and poor first-time fix rates all add to downtime, and will contribute to your customer churn rate. If you are already absorbing some or all of the cost of customer downtime, this can be doubly damaging.

Reduce customer churn with technology

The best way to minimize customer churn is to exceed customer expectations while saving them money. In manufacturing and service, every second counts when it comes to delivering exactly what your customer wants. Optimize your operations with the industrial internet of things (IIoT) and augmented reality technologies to reduce churn and maximize revenue growth.

Standardized industrial connectivity: Industrial connectivity is the foundation for real-time data visibility, remote condition monitoring, and predictive maintenance. It’s also considered the necessary technology for delivering competitive service optimization. By monitoring all equipment, you can identify performance gaps impacting customers’ success and profitability.

Improve design optimization: Leverage insights and operating data from real-world equipment to help design products that will exceed customer needs. Newly designed products backed with real-time data become more reliable and easier to service.

Reduce equipment downtime: Help your customers to eliminate unplanned downtime by delivering more efficient and proactive service. Replacing scheduled maintenance with condition-based predictive maintenance reduces interruptions to customer profitability.

Empower your service workforce: Optimize your service offering and equip your organization with the tools they need to deliver customers exactly what they need. IIoT-based equipment empowers technicians to arrive on-site with the necessary knowledge and tools, like 3D digital work instructions, to improve first-time fix rates, and limit machine downtime.

Satisfied customers don’t leave

Customers want to feel that they are getting a good value for their investment. The best way to deliver that value is with powerful technologies that minimize downtime, optimize their service offering, and improve efficiency. PTC enables companies to strengthen customer loyalty and keep churn rates low by ensuring equipment is running smoothly and to intended capacity.

Learn how you can continue to strengthen customer relationships and increase customer lifetime value.

Tags:
  • Industrial Internet of Things
  • Industrial Equipment
  • AR Improve Customer Experience
  • Improve Service Efficiency
  • Maximize Revenue Growth

About the Author

Leah Gourley

Leah Gourley is a Digital Content Marketing Specialist based out of PTC's Boston office. She enjoys creating and sharing content surrounding the latest technologies that are transforming industries, including augmented reality and the industrial internet of things.