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Revenue Optimization Part 3: Why Customer Churn Rate Matters

Mary Grothe April 5 2022
Revenue Optimization Part 3: Why Customer Churn Rate Matters by Mary Grothe, CEO of House of Revenue™

We often hear about why it’s important to optimize revenue during The Buyer’s Journey and how to do it. But what about The Customer’s Journey? Isn’t there a way that we can optimize our revenue there? 

Think about the people, resources, and technology you need to use in your current onboarding process. How much time does it take to fully train your new clients to adopt your product or service? It’s these elements that we can optimize.

Through revenue optimization, you’ll be able to quantify how much customer churn rate could be costing you, and determine precisely how much of an impact customer-centric improvements will make for your company.

What’s Your Cost of Adoption?

Are you able to identify the cost of adoption in your business? Adoption is stage one of The Customer’s Journey in The Bowtie Funnel. It includes new client onboarding, implementation, customization, and training. You can find your Cost of Adoption by calculating the labor, technology, resources, and the length of time it takes for new customers to implement your product or service. Understanding these metrics is key to optimizing the Adoption stage. 

Remember, revenue optimization is the process of identifying and implementing new methods that make the process of attracting, acquiring, and retaining customers more cost-effective. 

When you're looking to make your Adoption stage more efficient and cost-effective, it’s helpful to be able to allocate a dollar amount for the expense of the people, resources, and technology to get your new client onboarded. The onboarding process includes the time your staff spends to get your client trained and the software customized to your client’s needs up to the time when they give you a  thumbs up and sign off that they've adopted the technology and everyone in their company is using it. 

One point to consider: You have very little risk of churn at that step because they’re highly adopted. 

What’s Your Customer Retention Cost?

Studies show it's 7% less expensive to retain a customer than it is to get a new one, so you could start there as a benchmark when you’re calculating retention costs. You could look at a number that's 7 times less expensive than your client acquisition cost (CAC) for retention as a benchmark. 

  • How much should you be spending on retaining a customer? 
  • How much does your customer success team cost? 

Divide that by the total revenue amount they carry. Then, what is marketing doing to help with customer education and ensure that the customers have everything they need? Be sure to add that expense in as well. That’s the easy way to calculate the cost of retention, but if you want to get fancy, you could also look at the expense of retention when a client is on their way out. Some teams have to discount heavily to save the business - this hurts your retention calculation. Be sure to review all these components and factor them in for an accurate cost.

What’s Customer Churn Costing Your Business?

If you're looking at understanding the cost of your churn, you should run more than just a regular churn analysis. You should look at the churn by lead source, by type of client, and dig into the granular-level detail to understand if you have trends in churn. 

Let’s simplify this. Maybe you conduct a churn analysis based on a company's size or its current lifecycle stage. 

For example: Let's say you churn startups at 50%, but your retention rate is 90% on mature companies. 

Well, you have a decision to make. 

Always Ask The Uncomfortable Questions

Do you stop working with startups because you're killing your bottom line with that churn rate, or do you optimize your process for onboarding, implementing, and servicing startups? Or perhaps you adjust your product, technology, or service to meet the needs of startups better. 

To learn more about how you address this churn, interview your customer! You have to ask questions and understand that revenue optimization is not just a set of numbers, KPIs, and metrics. You've got to create an active feedback loop. 

Again, revenue optimization is the process of identifying and then implementing new methods. A method is not a technology or just a process. We're talking about the process of identifying the root cause of the problem so you can fix it. 

“Opinions Are Valuable. Data Is Priceless.” - Mary Grothe, CEO of House of Revenue™

Audit, research, ask questions, compare the data, then implement new methods. Typically a method contains the process, the methodology, the technology, the people, and the how-to. But it’s essential also to implement a customer feedback loop after you get through your churn analysis. 

As you can see, optimizing your revenue can get incredibly uncomfortable. The goal is not to place blame for any shortcomings you may find, it’s to find any and all gaps you may have and optimize your processes. 

Pro Tip: Make sure that you leave your ego at the door when you start this process. 

Plus, once you’ve optimized The Customer’s Journey, you can actually expand your revenue even further. Join me as I walk you through several Revenue Expansion tips in “Revenue Optimization Part 4: Revenue Expansion 101.”

Asking Tough Questions is Our Speciality

We know it can be challenging to commit to significant investments without a high level of cash flow. However, this kind of investment will set your business up for success and return massive results, both in the short and long run.

You can start small, but you have to invest something into infrastructure, systems, processes, and automation from an early stage if you truly want to optimize and scale revenue. The good news is that the more you invest now, the quicker you will see the results (and the less you’ll have to invest in the future)!

For more information on how our team can help optimize your revenue, reach out and chat with us today. Let’s see if we’re your perfect partner in your quest to build your House of Revenue™.