What Can You Do About Lost Customers?
Why it’s important to think about churn early, using the automotive industry as an example
Losing customers is never pleasant. You’ve probably experienced it before; a customer canceling her subscription, choosing another product over yours, or firing you following a bad experience.
Though unpleasant, every lost customer left for a reason. They possess valuable information on how to prevent the next one from leaving, making them a resource you cannot overlook.
In the following, we’ll dig into exactly why you need a strategy for churning customers and how you can start working with lost customers.
Why Is It Important to Address Lost Customers?
First, let’s take a look at why addressing the part of the customer base that fires us is so important. Let’s start with the monetary part of it.
A lost customer is not just a few lost transactions. A Bain & Company study shows that increasing retention rates by 5% leads to a 25% to 95% profit increase. It seems like a lot, but think of it this way.
From a business perspective, a customer has a lifecycle spanning from acquisition to churn. During the customer lifecycle, a series of revenue streams are generated.
In the automotive industry, these include the first car purchase and all associated service visits, then the next car purchase with related service visits and so on. Over the course of a customer lifecycle, it could potentially add up to several million DKK in revenue.
And it gets even better; returning customers generate increasing profits.
What it also tells us, however, is that early churn decreases revenue streams dramatically. Let’s say you lose your customer after the third service visit. You don’t just miss revenue from the fourth, fifth, and sixth service visit, you miss all future revenue streams including future car purchases and related service visits. Furthermore, you would have to acquire another customer, which is five to 25 times more expensive than retaining an existing one.
Losing a customer equals losing all future revenue streams coming from this particular customer — not just a few. This could add up to millions.
Performing well on specific customer expectations will increase the duration of the customer’s lifecycle, thus keeping the customer in your business for longer. Consequently, preventing customer churn or increasing retention will dramatically increase revenue streams and utilize your customer base much better.
With the economy of losing a customer all set, let’s move on to the strategic part and how you can turn a loss into a win. In that regard, it’s important to realize one thing. Customers don’t churn because of unfortunate or random reasons, they fire you because you don’t meet their expectations accordingly.
That means they’re not satisfied with your solution to their problem, or job. It’s not simply a mismatch between your great product or service and the customer, but rather you not performing on critical metrics that customers find important.
In relation to why it’s important to address your lost customers, it means that they possess valuable information on how you should improve. They’ve experienced something that was the last straw, which made them change their preferred solution and will, therefore, offer direct insight into the flaws and shortcomings of your value proposition.
- What was the single most important thing that was missing that made you fire this supplier?
- What were the three most important things to you when trying to solve your job?
- Describe the best-case scenario when trying to solve this job.
Additionally, whom/what customers choose to hire instead of your product or service offers great direction for improvement.
- Why did you choose product A over product B?
- What one thing does product A do well that product B doesn’t?
Lost customers are truly a goldmine of feedback that you can’t afford to neglect.
Breaking Down Lost Customers
It’s not productive nor correct to place all lost customers in one category. When working with lost customers, first of all, you need to clearly categorize the customers you risk losing.
Clear definitions will not only help you pinpoint which customers you can actually affect but will also provide clear thresholds for a lost customer, thus establishing a minimum requirement for your performance.
Before diving into what insights clear definitions will provide, such definitions must be established. For this purpose, the natural starting point is to consider the whole customer base and start breaking it down into bits.
The first step is to divide the customer base into sleeping and active customers.
Active customers are still “in the loop.” They have recently had interactions with your business. In regard to the automotive industry, it could be defined as customers who have visited the workshop at least once during the past 12 months. This group shows no signs of leaving you.
Sleeping customers or non-active customers is an umbrella term for both lost and non-lost customers. Common for both is that there have been no interactions with your business during the past 12 months. When a customer falls under the classification of sleeping, it’s the first indication for possible churn. Compared to an active customer, a sleeping customer is significantly more likely to churn.
Non-lost customers are still your customers. Despite being inactive, they still intend to return to your business. The fact that they have not had any interactions during the past 12 months, however, means that the risk of them churning is very high.
In the automotive industry, these customers are very likely looking for a new provider or are already using a new provider. Without immediate action such as follow-up calls, these customers will churn in the near future.
Lost customers are simply lost. For one reason or another, they’re no longer a customer in your business. Lost customers are further divided into avoidable churn and unavoidable churn.
Avoidable churn is caused by factors that you have the power to change. It’s among these customers you’ll find relevant insights when seeking to prevent churn or increase retention.
Related to the automotive industry, a customer falling under this classification may have experienced repeat repairs, is now using unauthorized workshops and will likely not consider the same brand for the next car purchase.
No business has no churn. There will always be churn to some extent, and you cannot always do something about it. This is called unavoidable churn.
For example, a car owner might sell her car because she’ll never use a car again. She’s a lost customer but no longer a part of your potential customer base.
Once you know and apply these definitions, you can define thresholds based on i.e. a customer experience score, allowing you to be even more clear on your customers’ expectations and classifications.
The key takeaways from this article can be boiled down to a few main points. In a nutshell, it’s all about preparation and proactiveness. Our research shows that churn is usually caused by failing to get the basics right the first time, repeat repairs, difficulties booking an appointment and uncertain prices.
To fight churn, you must have a strategy that takes the whole customer journey into consideration.
From acquisition to churn, how do I treat the customer in every part of the lifecycle? What do I say when things go wrong? When do I contact potential churners?
Minimizing variation in your interactions with customers and applying what you know works is the best thing you can do to create customers for life.