What keeps a company going? Ask any business owner and you may receive different answers. A brand that has stood the test of time. Outstanding customer service. A product or service that offers clear advantages over its competition. Value that customers appreciate.
There are as many answers when it comes to what can cause a business to close its doors — potentially for good. Failure to adapt to a changing marketplace. A lackluster customer experience. An inability to manage costs that leads to a descending profit margin. However, another reason that some companies may not often consider is passive churn.
Understanding what passive churn is and why it occurs is the first step to combatting it. Some churn in business is inevitable; you simply can’t keep every customer. Active churn occurs when a customer makes the decision to no longer be a customer. Reasons vary: Maybe your client had a bad experience with your customer service department. Perhaps he or she thought your prices were too high compared to your competition. Or maybe the individual decided the quality of your product or service wasn’t high enough to justify remaining a customer. Whether it happened over a longer period or due to a one-time event, your customer has chosen to leave.
Passive churn, as its name implies, is not about what consumers do, but about what they fail to do. Say a customer’s credit card has expired, which causes a declined charge when it’s time for renewal. In many cases, customers may not even know that their credit cards have expired until they try to access your service and are unable to do so. When considering reactivation, they may decide it’s too much of a hassle and opt instead to start new with a competitor.
Passive churn, or involuntary churn, results from at least one failed payment and poor communication. It can have a negative impact on your customers and business. When a customer fails to make a payment (often without realizing that he or she has done so) and doesn’t receive a follow-up that makes it easy for him or her to reinstitute service, that service will be disrupted. That’s frustrating and may hurt your company’s reputation.
Passive churn also harms your company. If a customer churns before you’ve recovered the amount of money spent to acquire and convert him or her, you’re losing money, as well as the opportunity to make more money from the customer in the future. The accompanying resource explains more about this common business issue.
Infographic created by Fiserv, an eCommerce payment processing provider.