4 Ways Customer Churn Negatively Impacts Your Business
Business leaders know it’s much easier to keep an existing customer than to get a new one. But that doesn’t mean keeping an existing customer is easy. Companies that don’t invest in maintaining strong customer relationships risk high churn rates, and high churn rates can jeopardize your company’s future. Here are four ways customer churn can be devastating to your business.
The Aftermath of Churn is Long-Reaching
Some businesses think, “If a customer stays long enough to pay for the cost of acquiring them, then we’ve operated at a net profit.” This ignores all the value you’ve lost from future opportunities with them. You’ve now lost the chance to upsell them with other products or services in your portfolio. You’ve reduced your total addressable market because those customers have been removed from it. What’s more, your brand is now likely tarnished in the minds of your spurned customer.
Churn Helps Your Competitors
Churned clients tend to be vocal about why they’ve left you. Negative customer reviews are a gift to your competitors. As positive customer references can often make or break a deal, negative references act as powerful ammunition for your competitors to position against your product. And your competitors have no qualms about using them again and again with new prospects. Those churned customers just may come back to prevent you from closing your next deal and hitting your revenue goals.
High Customer Churn May Indicate Bigger Problems
Just like happy marriages don’t end in divorce, happy customers rarely leave. High churn indicates that something is failing in your customer relationships. Has your product or service failed to deliver on client expectations? Does your customer onboarding process need to be fixed? Are you devoting enough attention to your clients? Even if a high churn rate is from factors beyond your control, it reflects poorly on your company and your product.
Churn Hurts Your Valuation
Churn rate is a critical factor in how investors view your company. VC firms look at customer churn to determine if your product has legs on the market, and retention rate is essential in Software-as-a-Service (SaaS) public valuations. Smart SaaS investors use Customer Lifetime Value (LTV) as a metric to predict how much profit you will make and analyze the health of a company. High churn rates reduce LTV and can make investors doubt the strength of your business. So, if you’re churning and burning your customers, you’re likely making your investors pretty unhappy.
If you’re trying to grow your business, there’s no better place to look than at your existing customers. Are you invested in your customer’s success and happiness, and the tools you need to prevent churn? The health of your business may depend on it.