What is customer churn? Three effective strategies to reduce it

Do you know what kills most ecommerce businesses?

It’s not competition. It’s not supplier costs or pricing. It’s not even sky-high Customer Acquisition Costs (CACs).

It’s customer churn. 

Customer churn (sometimes called ‘customer attrition’) is an important metric that helps you understand how many of your customers have stopped doing business with you over a given time period.

High customer churn = business death. 

Many promising companies have gone belly-up because they prioritized new customer acquisition over customer retention. 

New customers over existing customers.

Those businesses all had one thing in common…

A leaky bucket. No matter how many customers they brought in, they were losing too many to stay profitable. 

And a leaky bucket means lost customers, which means lost revenue.

And there’s every chance your business is a leaky bucket too…

If you’re...

• Spending a small fortune on traffic acquisition on Facebook, Instagram and Google Ads...
• Bringing in too many ‘one-and-done’ customers with a low Customer Lifetime Value (CLV) that buy once and disappear into the wind...
• Failing to produce customers that rave about your product and can’t wait to add another item to their collection...
  

...you have a customer churn problem, and this article is written just for you.

Today, we’re going to show you…

• How to calculate your customer churn rate and three strategies you can use right now to reduce it and achieve profitability.
• Case studies to show you how real online stores have executed these strategies.
• The best Shopify apps to reduce churn and create loyal customers.
  

Table of Contents

Why is customer churn rate an important ecommerce metric?

How to calculate customer churn rate

What’s a good customer churn rate?

Four strategies to reduce customer churn rate

Why is customer churn rate important?

Here are three reasons you need to reduce your customer churn rate right now:

1. It costs six to seven times more to acquire a new customer than retain a current one.
2. The success rate of selling to a current customer is 60-70%, vs 5-20% when selling to a new customer.
3. A 5% increase in retention rates can translate into a 25-95% growth in bottom-line profits.
   

And in case you think it’s just the Segments team that have gone churn-crazy, twice as many CMOs are focusing on reducing customer churn rather than acquisition, perhaps as a result of the Coronavirus pandemic. 

And why not? Churn prediction models allow you to estimate your ‘revenue churn’ - how much lost revenue you can expect over the next period.

How to calculate customer churn rate

You can’t reduce your churn rate without knowing how many customers have stopped doing business with you, so let’s look at how to calculate your churn rate.

You can calculate the customer churn rate formula by choosing:

• The time frame you want to measure.
• The total number of customers you had at the beginning of that period.
• The total number of customers lost during that period.
  

Here’s what a customer churn formula looks like:

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Churned customers can be defined in many different ways, but most methods consider a customer to be inactive if they haven’t bought or engaged with your site for a set period of time. 

Here at Segments, we define churned customers as those who haven’t purchased for double the Average Days between Purchases (ADP).

So for instance, if your online store’s Average Days between Purchase is 45, then as soon as someone hasn’t purchased from you in 90 days, we classify them as churned.

(Of course, you could always sign up for Segments free 14-day trial and we’ll work out your churn rate for you!)

What’s a good customer churn rate?

From what we’ve seen from the online stores we work with at Segments, ecommerce churn rates normally hover around the 65% mark.

Here are some customer retention rates for service-based industries, according to Statista.

Three strategies to reduce customer churn rate

First, you need to consult your CRM to identify your ‘at-risk customers’ - those customers who bought from you previously but whose recent behavior indicates they’re at risk of churning.

At Segments, we use data analysis to understand what good buying behavior looks like and what signals we need to watch out when customers are likely to churn. 

For example, if an average customer completes their second purchase within 30 days of their first, and the customer in question hasn’t made a second purchase after 40 days, that’s a good sign we need to step in and encourage them to buy. 

Simply identify how your best customers behave and use email, social media, SMS and letters when customers divert from this behavior.

Here are the three strategies we believe you should concentrate on to reduce customer churn along with stats, case studies and examples:

1. Email marketing strategy
2. Customer service
3. Loyalty programs
   

1. Build relationships using email marketing 

As we identified above, once our customers divert from the actions we want them to take, we need a way of getting them back on course. In our opinion, email is the best tool for this, bar none. 

Each email send is so low-cost it’s basically free, subscribers can read them in their own time and it gives you the ability to be in regular contact.

That last point is crucial - the main reason customers churn isn’t because they’re unhappy with products or that the competition steals them away...67% of customers churn because of a lack of customer contact. 

In our Customer Retention Ecommerce Guide, we outlined 11 email marketing strategies every online store should be using:

1. Birthday, anniversary and milestone emails.
2. Cart abandonment email series.
3. Company newsletter email.
4. MVP customer emails.
5. Post-purchase email series.
6. Product recommendations emails.
7. Repeat purchase reminder emails.
8. Review and testimonial request emails.
9. Rewards, deals and discounts emails.
10. Welcome email series.
11. Win-back campaigns.

How many of those can you tick off? In our experience, most online stores are only using a handful of these (usually the Welcome or Onboarding email series, Cart abandonment and Company newsletter), which means they’re leaving a lot of money on the table. 

And if you don’t have specific email campaigns set-up to combat churn, you are too. 

Luxy Hair’s hair extensions typically last between three months and a year, depending on how often they’re worn. They created an automated email sequence to incentivise repeat purchases, sent to each subscriber at the three month period. They follow this up with a longer email flow, removing them from the automated series when they buy again. 

Here’s a similar example from cosmetics brand Sephora, sent when supplies are running low.

Don’t make the mistake of assuming customers will automatically buy again, even if they love your products. Sometimes life gets in the way, and marketers need to remind customers to buy the products they care about when they run out.

You can execute these email campaigns easily using Segments. The platform automatically creates customer segments for you and auto-syncs with your email provider, as well as to Facebook for an effective retargeting campaign.

3. Improve your customer service 

A great customer experience can result in 86% of customers buying again from the same company.

According to Paul Galatis of Yuppiechef: 

‘A massive portion of our visitors come from word of mouth because people share positive stories and love telling others about their happy experiences.’

No matter how good you think your customer service is, it can always be improved. 

And the best way to understand what you need to work on, is to ask your customers.

Here are seven ways to get customer feedback:

1. Long form-based surveys - Google Forms, SurveyMonkey and TypeForm are all excellent tools and are free to get started.
2. Short on-site surveys - Crazy Egg and Hotjar Feedback Polls give you the ability to ask questions on your site in the form of a popup.
3. Website chatbots - program responses yourself or use AI to generate replies to your customers’ questions. 57% of businesses agree chatbots deliver a good ROI with low effort.
4. Transactional emails – you’re sending automated emails for product confirmations and deliveries anyway, so why not gather valuable feedback at the same time?
5. Net Promoter Score Survey - this tends to be used by larger brands, but you can learn more here.
6. Suggestion boards - These can take the form of customer requests, public roadmaps or forums. 
7. Social media - ask your followers for feedback through organic posts to understand them better and increase community engagement.

As well as the customer feedback you actively seek out, you’ll receive unsolicited feedback in the form of customer complaints. 

Online store owners sometimes view these in a negative way as a potential source of confrontation. That’s entirely the wrong mindset. 

When a customer complains, they’re letting you know there was a gap between what they expected and what you delivered. That’s valuable information and they’re giving you a chance to improve your offering, if not for them, then for all your future customers. 

Interestingly though, when you resolve a complaint in your customers’ favor, 70% of those customers may be willing to buy from you again.  

Don’t shy away when you fall short of your expectations for customer success. Instead use complaints to identify where your business needs to improve and make it an objective to improve customer satisfaction.

Best Shopify Apps to improve your store’s customer service

Here’s a mix of chat, FAQ, helpdesk and tracking apps available on Shopify

• EzySlips ‑ Shipping & Returns - ‘FedEx, Bluedart, Delhivery and XpressBees  integration.’
• Gorgias ‑ Live Chat & Helpdesk - ‘Gather all your customer service channels in one place.’
• HelpCenter | FAQ & HelpDesk - ‘FAQ page, Help Desk ticketing, Live chat for customer support.’
• Order Delivery Date - ‘Let customers choose their order delivery date or store pickup.’
• Reamaze Live Chat & Helpdesk - ‘Live Chat Customer Service + Chatbots & Helpdesk with FAQ.’
• Tracktor Order Tracking - ‘Real time package tracking and order lookup for your store.’
• Zendesk - ‘Omnichannel customer service and engagement platform.’‍

3. Create a loyalty program

Build a loyal customer base with a rewards scheme that gives enrolled customers discounts, free gifts and exclusive access.

A well-run loyalty program can result in more revenue, more referrals and a higher average order value, not to mention stronger customer relationships - 39% of customers enrolled in a loyalty program were willing to pay more for a product that was available at a lower price from another store, in order to generate more points.

Here are the questions you should ask yourself before starting a loyalty program:

Loyalty Program FAQs

What rewards should I offer? 

You can offer:

• Badges
• Charitable donations. 
• Discounts.
• Early access to new products and pre-sales.
• Exclusive events.
• Free Shipping.
• Points that can be redeemed against your products.
• Prize draws.

Why not create a poll and ask your customers which they’d prefer? Remember that you aren’t limited to rewarding customers for purchases, you can also incentivise engagement by rewarding them for creating a profile, sharing a post on social media, or giving a testimonial. This is a big opportunity, as only 35% of brands reward customers for non-transactional engagements. 

Sukoshi, the Korean-styled beauty and lifestyle brand, has a well-designed loyalty program which has a free-to-join lower tier of rewards which take effect no matter how much you spend!

By signing up, you get access to seasonal savings, free samples with every purchase, early access to product launches and a free birthday gift with purchase. 

What if people don’t sign up? 

If you get the incentives right, you have products that people want and you communicate the benefits effectively and regularly, people will sign up for your loyalty program. In fact, 52% of customers report that they would join a company’s loyalty program if they shopped with them regularly.

Don’t be put off from starting a loyalty program because you think your store isn’t big enough yet. With many free-to-start loyalty apps, you don’t need a minimum number of customers to begin. 

Do loyalty programs actually work? 

The short answer is yes. The slightly-longer answer is 66% of customers reported changing how much they spent to take advantage of the loyalty program benefits. 

Aren’t customer loyalty programs hard to do? 

Gone are the days where you have to create a loyalty program by scratch. These days there are many apps that allow you to offer your own with just a few clicks!

Best Shopify Apps for customer loyalty programs

Here are a few of the highest-rated loyalty program apps available on Shopify:

• AiTrillion Email + Loyalty - ‘Loyalty Program Points, Email Marketing, Reviews, Web Push.’
• Bold Loyalty Points & Rewards - ‘Flexible loyalty program. Earn points, get unique rewards.’
• Gift Cards & Loyalty Program - ‘Launch a Loyalty Program w/ Referrals, Store Credit & Rewards.’
• Loyalty, Rewards & Referrals - ‘Reward customers, build loyalty and grow referral sales.’
• Loyalty, Wishlist, Reviews UGC - ‘Loyalty program, rewards, referrals, photo reviews, Instagram.’
• Smile: Rewards & Loyalty - ‘Points & referrals. Attract & retain your most loyal customers.’
• Yotpo Loyalty & Rewards - ‘Loyalty, Referrals & Rewards by Yotpo (formerly Swell).’ 

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Thanks for reading!

We hope you enjoyed reading this post and have some long term takeaways to start actioning internally. As always check out the Segments app for easy to use actionable insights to grow your store revenue and don’t forget to follow us on LinkedIn for more #ecommerce tips and tricks!