OVERVIEW
● Customer Churn shows how and why customers stop engaging with a brand.
● Customer Retention focuses on keeping customers loyal through better service and engagement.
● The blog highlights churn as reactive, while retention supports long-term business growth.
Introduction
As a customer, I’ve had my fair share of experiences with brands that made me feel valued—and others that left me running for the exit. Think about Companies with the best customer service, like Amazon, Apple, or Zappos—they’ve built their reputation on stellar customer service, ensuring people stay loyal for years. But what about brands that struggle to keep customers? That’s where the difference between Customer Churn and retention comes in.
What is Customer Churn?
Customer churn refers to when customers stop doing business with a company. This could be because of poor service, better competitors, pricing issues, or even a lack of engagement. For instance, if you’ve ever canceled a streaming subscription because you weren’t using it enough or switched phone carriers due to hidden fees, you’ve contributed to that company’s churn rate.
What is Customer Retention?
On the flip side, customer retention is all about keeping customers engaged, happy, and loyal to a brand. Companies that focus on personalized experiences, quick issue resolution, and rewards programs often see higher retention rates. For example, Starbucks’ Rewards Program keeps coffee lovers coming back for more, while Netflix’s personalized recommendations keep subscribers hooked.
Customer Churn vs Retention: What is the Difference
● Mindset & Focus: Churn is about losing customers, while retention is about keeping them.
● Metrics Used: Churn is measured by the percentage of customers leaving, whereas retention is tracked by the percentage of repeat customers over time.
● Business Impact: A high churn rate means losing revenue, while strong retention helps a business grow and thrive.
For Example, if you have 100 customers and five of them have left, then your churn rate is 5%. Retention rates are a somewhat newer metric that is just starting to catch on. It’s the percentage of customers that are still using your service after a certain amount of time. For example, if you have 100 customers and five of them leave within the first month, then you have 95 customers left.
At the end of the second month, you will still have 95 customers. If you subtract the five customers who left from the total, you would have 90 customers. So your retention rate is 90%.
Why Does Customer Retention Matter?
Retention is the most important factor in customer satisfaction, profitability, and growth. In other words, customer retention is important.
Churn is the opposite of retention. If you want to increase your customer retention, you want to lower your customer churn rate. And to do that, you need to understand what churn is and how it works.
Harvard Business School research shows that increasing customer retention rates by just 5% can significantly increase profits by 25-95%.
What are the Best Practices for Customer Retention?
Customer retention is a vital part of any business and one that must be monitored and managed. A good retention rate means that customers are happy with your business and are continuing to use your product or service, while a bad retention rate could mean that your customers are unhappy with your product and/or service.
● With customer churn, you have a negative retention rate, which means that customers are leaving your business.
● This can be due to a variety of reasons, ranging from over-saturation of your market to your product no longer appealing to your customers, or even a bad user experience or a poor customer experience.
● On the other hand, a good retention rate can be accomplished through a variety of means, ranging from a positive user experience and a quality product to competitive pricing and competitive shipping.
Common Mistakes Made by Businesses in Customer Retention
Business owners are always looking for ways to retain more customers. It’s expensive to acquire new customers, but keeping the old ones is relatively cheap. Businesses have developed a ton of tactics for retaining customers, but many of these tactics have the opposite effect.
82% of organizations agree that customer retention costs less than customer acquisition. (MARKINBLOG, 2020)
These mistakes are costly, and in some cases, fatal.
The two most commonly made mistakes are:
● Not knowing your customer: Having a customer retention strategy without first knowing what you’re trying to retain is useless. You need to know their demographics, their buying habits, and their lifestyle in order to develop an effective retention strategy.
● Not caring about your customers: Most businesses are so focused on acquiring new customers that they don’t bother to keep the ones they already have.
How Do You Measure Customer Retention?
There are many ways to calculate and look at customer retention rates. Some of the most common are customer churn rates, Customer Retention rates, customer lifetime values, and customer lifetime revenue.
All of these have their uses, but they’re not all created equal.
Imagine that you own a business. That business has two groups of customers: a group you can sell $1,000 (INR75,476) worth of stuff to, and a group you can sell $10,000 (INR 7,54,760) worth of stuff to. If a percentage of people in the $1,000 (INR75,476) group leave you, that’s not really a big deal. You can make up for the lost revenue in this group. If a percentage of people in the $10,000 (7,54,760) group leave you, that’s a big deal. You can’t make up the lost revenue in this group.
There’s no easy way to say which of these is better — you’ll have to look at your business and see if it makes more sense to focus more on customer churn rate or customer retention rate.
Conclusion
Customer retention is an ongoing process that requires a lot of effort, planning, and strategy. Customer retention isn’t just a one-off thing; it takes constant work to keep your customers happy. In fact, how you treat your customers can make a big difference to the likelihood they’ll return! Unfortunately, certain business owners tend to jump the gun and make crucial mistakes when trying to retain customers and end up pushing them away instead.
Are you still losing customers to your competitors?
Contact one of the Companies with the best customer service today. We help businesses reduce customer churn and increase revenue by offering cost-effective and scalable customer service solutions.