Losing customers is an expensive proposition. SAMA (Strategic Account Management Association) estimates it cost 6-7x more to acquire new than sell to existing customers. A too-high customer attrition rate can also scare the market. It can set up a reputation that is difficult to overcome. Customers are important to your whole company. Keeping Customers is not only the Customer Service department, it’s everyone’s job.
This post is about causes of Customer Attrition (also known as churn.) It is for sales, sales operations and HR leaders. All three areas may need to be involved in resolving the causes.
Top Sales Reps Part of the Blame Your top sales reps may actually be one of the causes. They may be closing many deals and far surpassing their quotas. However, they may be selling products but not solving customers’ business issues. Or, they may be selling on price. There are other possible causes – some in Sales, some in Marketing, some in Customer Support. Sometimes, a lack of strategy or tactics causes customer churn.
Do you have a customer churn problem?
Digging into the SBI benchmark database, I was able to get these sample churn rates. This may give you a high-level gauge to determine if you have a customer churn problem.
Keep in mind that the definition of churn for these metrics may differ from yours. These are based on a customer that has not purchased from a company in the past 12 months. However, this may mean true customers are in the churn rate – because they buy something big one year and use it for a couple years before returning. If they are paying a maintenance stream, they would NOT be part of the churn.
Causes and Solutions of Customer Attrition
If your churn rate is high, here are a couple customer attrition causes to consider.
1. The sale was won on price
If your Sales Reps win a lot of deals by being the lowest price – STOP THEM! This is not good for future business. Winning deals on price requires you to show indispensable value AFTER the sale. Otherwise, you’ll be ever consigned to the low-price leader spot. Worse, there will always be a competitor that sells cheaper. You’ll lose to those competitors because you’ve taught (or condoned) the practice of discounting.
Two areas to correct:
A) Competencies – Sales Reps must learn how to sell VALUE – not just the product. Improve Rep skills using aspects of the Challenger Sale – which gets the customer to question their decision making process. Also, Reps must be able to quantify intangible value for the customer to see beyond price. Handling objections is a good course to teach your Reps here, too.
B) Process – Even more important than competencies is process. Sales and Marketing has to work in the earlier stages of the customers’ buying processes. This is the Latent Demand area – often where Marketing should be “selling when a Rep is not present”. When competing on price, it is usually because the customer is in Active Demand – they already did a bunch of research and decisioning to determine that they need a solution. Latent Demand is where the customer can be most influenced to your solutions. This requires a lot of work, but is worth the effort. You not only keep customers, but increase your capabilities to win more customers.
2. Customers are being acquired or going out of business
Unless your business strategy is to capitalize on a dying industry or vertical, this is bad. Check to see if you find a high number of your customers in this category. Yes, there will always be some level of these “disappearing” customers . However, this should be a very small percentage of your portfolio.
Three areas to correct:
A) Process – Your sales (and even corporate) strategy may be the cause here. Your Market and Account segmentation help prevent Sales Reps playing with these disappearing customers.
B) Product – Maybe your product/solution only allows you to sell to the bottom f the market. Consider upgrading or adding solutions that will move you up market.
C) Marketing – This will require a correlated increase in Marketing – to build awareness to more than just the bottom customers in the market.
What to do next:
- Determine, if possible, your current customer churn rate.
- Gauge if your customer churn rate is a problem.3. Download the Customer Attrition Cause Corrector.
- Identify causes of customer churn.
- Start to correct those causes by involving the necessary departments.
- If not already, start to track the Customer Lifetime Value of your customers.
- Use this metric as a target for your sales and marketing efforts.
Please reach out to me if you have ideas of other Customer Attrition causes.