In today’s world, having a high-quality product is table-stakes. While fundamental, a good product alone is not enough to get customers coming back. The robustness of a business’ customer retention comes from a strong relationship between the brand and its customers. Without it, you’ll see a high churn rate for ecommerce brands coupled with unstable growth.
Customers who are unhappy with what your brand has to offer, leave you for your competitors, or lose faith in the category as a whole. Some display noticeable behaviours of a dissatisfied customer, others fade away silently.
Most businesses react to churn with only a post mortem feedback session (that largely gets ignored) with “why did you leave” questionnaires. But smart brands know they have to proactively look for leading indicators of churn.
Before we go into the technicalities, let’s talk about what is churn, what causes it, how to identify it and prevent churn.
What is customer churn?
Customer churn, otherwise known as customer attrition, refers to customers that stop buying from you over a fixed period. This period depends on what you set it to be, but is commonly determined by the consumption period of your product.
Calculating the churn rate for ecommerce is simple.
Churn Rate = (Number of customers lost in period / Number of customers you had at the beginning of period) x 100
The lower the churn rate, the better of course.
Let’s take a supplement brand for example.
This store starts the year with 100,000 customers. After half a year, their customer base was down to 96,500. Using the customer churn formula, the store lost 3.5% of its customers in the past six months.
A question on your mind now might be… so what is the average churn rate for e-commerce brands?
To this, the answer is the dreaded IT DEPENDS.
There is no benchmark that you can compare yourself to. Different industries, different niches, different alternatives, different price points, and different seasons, among many other factors, play a part in determining that “industry benchmark”.
If your next question is “how can I prevent churn?”, we’ll cover that in a moment. But the more important question to ask is “what’s the reason my customers even buy”.
By answering this question, you can solve the problem before it even becomes a problem. This happens way earlier in the initial acquisition, where you collect essential Zero-Party Data so you know how to make this customer stay, rather than prevent this customer from leaving.
For the sake of understanding churn, we’ll stay on topic.
You might be interested in: How do you optimise your Customer Acquisition Costs (CAC)?
What causes customer churn?
Many companies fall into the same trap. They focus all their efforts on customer acquisition (getting new customers) and believe they’re doing the right thing when they see revenue numbers creeping up.
But what they are ignoring is the relationship with existing customers that we talked about at the beginning of this post.
Existing customers are what sustains a business though. Acquisition is merely a means to an end – keeping many customers.
By neglecting the relationship and not delivering value or ensuring customers are satisfied, customers churn. Here are the most common causes of churn.
Product Not Living Up to Expectations
It’s not uncommon to see brands hype up their product and make claims they can’t fulfil on. This is a classic case of overpromising and under-delivering. In such scenarios, customers feel cheated and because of this poor experience, never want to buy again.
There are also times when the customer expected to receive certain benefits after using the product, but was disappointed in the outcome. While this might or might not be your fault, again, the customer had a negative experience and takes their money elsewhere.
How to solve: Only make claims you can live up to. Improve on your product’s quality/capabilities. Clarify your product’s features/benefits.
Poor-fit Customers
Not every customer fits your ideal customer profile, and that’s ok. But if you find yourself struggling with bargain hunters who only buy when there are deep discounts, or those who buy with unrealistic expectations of the product, that might be a problem.
How to solve: Adjust your ad targeting. Change your messaging.
Disgruntled Customers
Have you ever bought something that took way too long to be shipped? And when you sent a ticket to their support, they didn’t respond? It happens way too often. Or maybe they received a damaged product that was extremely difficult to exchange.
How to solve: Invest in 24/7 live chat agents for better customer support. Streamline your forward and reverse logistics processes.
Competition
If competitors deliver more value or offer a similar product (or one that has better features) at a lower price, you’ll face a switching problem. Customers will hop over in a heartbeat because the truth is, people are loyal to their wallets first.
How to solve: Develop a stronger value proposition and lean into a niche. Find ways to surprise and delight your customers.
Leading Indicators of Churn Rate for Ecommerce
If we want to manage customer churn, we’ll need to anticipate dissatisfaction before customers actually start leaving for good. We’ve come up with a list of some key metrics to track.
Drop in purchase frequency and recency
There are 3 things to look at in customers.
1) frequency – how often they buy from you
2) recency – when was the last time they bought from you
3) monetary value – what is their total spend with you
When purchase frequency and recency drop below an acceptable level, it means customers are silently jumping off your ship. This leaves you reliant on only your high value customers, which is a risk to your business because if anything happens to them, you have no cushion.
Poor engagement
Lack of engagement is worrying. Inactivity on your website or app, not clicking on your emails and smses, not participating in your campaigns etc are signs that churn is impending.
Increase in complaints/negative reviews
This goes without saying. Unhappy customers voicing out their negative feelings means your reputation is at stake. For a customer to explicitly state that they’re already really annoyed. If you want to prevent churn, you’ll want to have superb customer support to appease them and recover the relationship before this happens….
Increase in returns
Returns can take a toll on your margins. It involves added shipping charges, warehouse space, manpower, inventory that must be repacked etc.
Common reasons for returns: damaged/defective products, incorrect fits, unmet expectations, customers no longer needing the product, buyer’s remorse, product was a gift they didn’t like. Although it’s not always the case that customers are unhappy, it’s typically a sign that you’re customer satisfaction rate is trending down.
How to reduce churn rate for ecommerce
We finally come to the answer you’ve been waiting for. How to decrease churn rate for ecommerce brands?
Give special treatment to your best customers
Whether it’s insider access to product lines, bonus points, extra freebies or exclusive deals, make your best buyers feel special. The simplest way to do this is to create a VIP club or a tiered loyalty program.
Invest in customer success
Without a doubt, customer support is a saviour when it comes to creating a great customer experience. Customer success reps can minimize churn by prioritizing helping VIP customers first, having a proactive approach when dealing with low NPS, and asking for customer feedback at any interactions to detect problems in the early stages.
You could go one step further by empowering your reps to give special discounts or send free gifts to customers. This way, they can truly surprise and delight customers.
Attract more of your ideal customers
Quantity is important. But that quantity needs to be paired with high quality audiences, else you run the risk of attracting those poor-fit customers that you spend so much to acquire, yet spend so little with you.
What you can do is to create lookalike audiences based on your best customers – those who purchase frequently and have a high lifetime value. This way you can target those solid customers who stay longer with you and spend more with you.
Keep on improving on the product experience
The key driver of any repeat purchase is a great product experience. In other words, their experience when using the actual product. This includes everything from unboxing to product activation (getting them started) to value maximsation (how to get the most out value from their purchase).
Finally, help them receive value beyond the products or services that you offer. Be genuinely interested in finding out how their first experience was and make sure you meet customer expectations if you want to transform them into repeat customers.
How do I reactivate a churned customer?
If you already have customers who’ve churned, you might want to reactivate them. In such cases, you should use the same channel they used to purchase from your brand. It could be email, SMS, messenger or if you can’t reach them, direct mail.
For email and SMS, you can easily use radio buttons that they can click when you ask what made them leave your brand. For channels such as direct mail, it’s always a good idea to give a little gift, it could be something as small as a free sample. Then follow up via email to check in with them. After getting your answers, build a creative approach to revive the customer relationships.
Keeping it all together
Customer churn is natural and will happen regardless of how brilliant your products and processes are. Some customers are going to stay, some are going to leave. But regardless, if we can create a positive customer experience, we should.
We begins with a well-planned out retention strategy that meets customers where they are. In real life, we cannot look at someone and be able to identify if they’re a good-fit customer or not. So it pays to treat every customer with care. You never know, even if someone leaves, they might still recommend your brand to someone else who might potentially be a loyal customer!