The 6 Reasons B2B Customers Churn

And the Strategies to Retain Them

Highlights

  • Customer churn is the foe of sustained business growth and profits.
  • Understanding the factors and underlying causes of customer attrition enables corrective and preventative measures which result in significant increases to revenue and company valuation.
  • Due to upsell or periodic continued sales, even small reductions in customer loss lead to significant improvements in revenue, customer lifetime value, referrals and company valuation.
  • A 2 percent increase in customer retention has the same effect as decreasing costs by 10 percent (source: Leading on the Edge of Chaos, Emmet Murphy & Mark Murphy.) Or from another perspective, a 5 percent reduction in customer attrition can increase profits by 5-95 percent (source: Bain & Company.)
Johnny Grow Revenue Growth Consulting

Why Customers Churn

Business to Business (B2B) customer churn rates average 9 percent annually. That means over 5 years most companies lost half their customers.

The only thing worse than losing customers is not knowing why you are losing them.

Trying to fix customer loss before accurately understanding the customer attributed reasons and root causes delays progress and lessens results. Diagnosis is needed before prescription.

The most recent research report, Customer Service Excellence; What Best-in-Class Leaders Do Differently Than Their Peers, answers the question of why customers leave vendors.

Why Customers Churn
Why B2B Customers Churn | Source: Customer Service Excellence Report

Poor Customer Service

60 percent of survey participants that left a vendor cited poor customer service. But interestingly, the service was neither the cause of grievance nor the last line of defense.

The two overwhelming root causes for customer frustration were challenges with the product or service and inefficient business processes between the customer and vendor.

Too often these root causes are first realized by customer support but not effectively channeled back to the sources of friction in a way that incurs swift resolution. Instead, they persist for an extended period and irritate customers until they defect.

For business to business companies, customer service includes more than the traditional contact center customer support. In fact, customers that left vendors and cited poor support also cited a lack of business relationship and perceived indifference by the brand as contributing factors.

Customer relationships are the back stop to poor service or frustrating customer experiences. Even when incurring poor support, the research found that B2B customers are 3X less likely to leave a vendor where a meaningful customer relationship exists.

Research shows that B2B customers are 3X less likely to leave a vendor where a meaningful customer relationship exists.

Click to Tweet

Fixing poor service requires a holistic look at the contributing factors or root causes that bring customers to the call center in the first place and recognition that customer relationships are the last line of defense before defection. When customer support disappoints and there is no customer relationship to withstand the discontent, it leads to predictable customer attrition.

Poor Business Outcomes

B2B customers engage vendors to fix a problem or achieve a business outcome. If a vendor is unable to deliver those results, customer attrition is inevitable.

Customer results are measurable pursuant to customer perceived value. Even if a vendor delivers initial value, if continued business outcomes yield declining results, or results become fleeting, or results are less than the fees paid to the vendor, customer loss is also inevitable.

The research found that the Best-in-Class (top 15 percent) Customer Service leaders were 2.5X more likely to focus on their customer acquisition efforts by market fit.

When brands attract or acquire customers outside their target markets or ideal customer profile (ICP), they end up diverting additional resources to those customers who are much less likely to ever be successful and away from customers who will be.

Customer retention best practices clearly show that maintaining focus on the right customers doesn't just keep those customers longer, it also results in higher customer spend over time, much higher customer lifetime value, lower cost to serve and more frequent customer referrals.

B2B companies help other businesses solve problems.
When customers don't get their problems solved, they find somebody else.

Poor Quality

Problems with products or services were cited by 42 percent of customers that left vendors.

The research also found that customer attrition from poor quality was influenced by three factors – the uniqueness of the product, the vendors ability to resolve issues timely and the relationship with the vendor.

The takeaway is clear. Poor quality is an instant death nail for vendors in markets with plenty of competition, a reactive and slow process to fix quality issues and where no real customer relationship exists. Vendors which fulfill some but not all of these influencing factors can delay and somewhat lower customer churn but will still incur higher levels of attrition compared to operationally superior competitors.

Superior Competitor

B2B customers make considered purchases. Many times, these purchases incur lengthy evaluations, implementations and learning curves. No customer incurring these efforts is anxious to discard their investments.

However, procurement trends continue to change in ways that give customers more options. The cloud, on-demand products or services, software as a service (SaaS), pretty much anything as a service, an abundance of global competition and most of all, more connected, informed, and demanding customers, have given rise to more frequent customer churn. A trend that will most certainly continue.

The research found that B2B customers don't seek out competitors until one of the prior causes goes unresolved. It also found that once a customer seeks out competitors to replace an incumbent, they tend to make the switch regardless of vendor response. In effect, once they feel forced to look to the outside, they pass the point of no return. They also tend to find more than they were looking for. They discover higher value, more innovate or better fit solutions. At that point, the train has left the station.

Involuntary Churn

Some customers will incur business setbacks or failures. Many setbacks are temporary but often result in cash flow constraints and decisions by customers to terminate non-essential vendor products or services.

The research found that involuntary churn varies by the size and stability of your customer markets. Small and midsize companies incur more business failures so vendors that cater to SMBs will incur higher involuntary churn.

Fortunately, involuntary doesn't mean unavoidable. There are several customer retention strategies to reduce involuntary churn and preserve long-term revenues.