Why Keeping the Right Customers Provides More Value to a Business

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In a landmark study conducted by Frederick Reichheld of Bain & Company, it shows that retaining the right customers- even a measly 5%- can amount to 25% to 95% increased profits.

A lot of e-commerce websites try to do its best to attract as many customers as possible. However, some online entrepreneurs focus on the wrong thing.

Customer retention is very important in a business, especially retaining the right customers. Although you will need to look at your customer retention rates, it is actually the churn rate that you need to keep in mind.

So, what exactly is churn rate and how do companies and online businessman use this information?

What is It?

According to Jill Avery, a senior lecturer at Harvard Business School, the customer churn rate is basically a metric that helps measure the percentage of customers who ends their relationship with a particular company at a certain period of time.

In most analytics tools, the churn rate is measured either by month, by quarter, or annually, depending on the products that you’re selling and the industry you are in.

For example, if you are selling antivirus software, then typical churn rates for your type of business would be done annually. However, if you were to have a gym or any other business model that would require a monthly subscription, then the churn rate is measured monthly.

A lot of business executives do not look at the churn rate, but instead, they look at the retention rate. Retention rate is different from the churn rate in that it indicates how many people are staying in a company or keep going to a business to buy products or acquire services.

Although looking at the churn rate or retention rate is basically the same in terms of their impact on your business, most businessmen nowadays now look at the churn rate.

How Do Businesses Use It?

Avery said that if you are interested in retaining customers, then you are interested to know how many of your customers are leaving and what the possible reasons could be.

If there are any changes in the company’s churn rate, then there is a possibility of positive growth, meaning that everything is working well or there are things that you need to change, hence people leaving.

The reason why most entrepreneurs and executives now look at the churn rate as opposed to the retention rate is due to the fact that it is better to look at the reasons why your customers are leaving as opposed to taking measures for them to keep coming back. That is so that it will be easier for you to troubleshoot whatever it is that is not working in your current marketing and business strategies.

Companies should make use of inbound marketing tools that will help them gauge how much traffic that comes to their websites and make sure that you do everything that you can in order for you to keep them.