Is the economy hurting your customers? 4 ways to tell

You might think you already know your customers. Here’s the truth: In times of economic turmoil, even the most loyal customers can become unpredictable. 

It doesn’t take an official recession for customers to change their behaviors. Speculation, headlines, and scrutiny about the economy can affect customers’ behavior even when individuals don’t personally feel affected.

Debate about an impending recession looms over us - and has almost since the last significant downturn. With inflation, spending, and the job market all in flux, it’s time to start asking how your customers are responding.

How are the current economic conditions influencing customer retention and churn? Check these metrics to analyze consumer behavior and see if your customers feel the pinch of economic conditions.

Sales cycles lengthen and conversions drop

Before the economic conditions affect the customers already paying you, you’ll see patterns among your prospective buyers as you try to acquire new customers.

Consumer spending slows when people begin to feel economic uncertainty - and so you’ll see signs of trouble among your prospects before you notice them among your current customers.

Ask yourself these questions:

• Are offers and advertising campaigns that have previously performed well not working?
• Do buyers seem more price sensitive?
• If you sell consumer products, are lower-cost options selling better than previously or making up a larger percentage of sales?
• Has the average length of a sales cycle changed?
• Has your sales conversion rate dropped?

Lower company engagement 

Has a customer who couldn’t get enough of you suddenly turned cold? Your engagement with existing customers can signal a weakening relationship, which could later lead to customer attrition and increased customer dissatisfaction. 

Engagement metrics can include:

• Time spent on a product’s website
• Email open rates and click thru rates
• Time spent using product
• Contact with your customer support team

Lowered spending

Your customers' lifetime value to a company largely depends on your product and industry. Still, nearly all business models offer some type of variable spending. When your customers disposable income decreases (or they merely worry that it could), they may begin cutting spending. This can signal price sensitivity that you may not be able to measure otherwise.

For example, lowered customer spending might show up when you see declines in:

• Usage fees
• Impulse purchases
• Purchases of non-core products
• Repeat business

Late payments

Sometimes, customers may simply forget to pay on time. But an overall spike in late payments can signal your customer base feels economic pressures, even if they still pay their bills. 

It's important to note that delayed payments don't always mean your customers don't have the means to pay. For example, during the time period immediately after the onset of the COVID-19 pandemic, many consumers took advantage of companies that offered delayed payments on mortgage payments, even though they remained employed, as they waited to see if their job was stable. 

Will your customers churn in response to economic pressures? 

Economic uncertainty, or even a recession, doesn't automatically equal the loss of customers. Economic circumstances are just one reason your customers might leave. Customer churn analysis can help you understand if your happy customers are leaving because they didn’t have another option, or if there are opportunities to improve your customer experience or product offerings that could reduce customer churn.  

Customer loyalty decoded: 10 common reasons customers churn

If you analyze your customer feedback and churn rates, you can understand what issues led to customer churn and work to gain back loyal customers. 

1. Poor customer service:

Customers who have a negative experience with customer service are more likely to churn.

2. Lack of personalization:

Customers want to feel valued and appreciated. A lack of personalization in the customer experience can make customers feel like they are just a number and can increase the likelihood of churn.

3. High prices:

Customers may churn if they feel like they are paying too much for a product or service that they can get elsewhere for a lower price.

4. Poor product quality:

Customers are unlikely to stick around if they are consistently dissatisfied with the quality of a product or service.

5. Ineffective marketing:

Customers may churn if they are not aware of the full range of products or services that a company offers, or if marketing materials are not compelling enough to retain their interest.

6. Lack of communication:

Customers want to feel like they are in the loop and that their opinions matter. A lack of communication can lead to confusion and frustration, which can increase churn.

7. Inconvenient service:

Customers want products and services that are easy to use and readily available. If a company's products or services are difficult to access or use, customers may be more likely to churn.

8. Poor user experience:

Customers expect a seamless and enjoyable user experience. If a product or service is difficult to use, unintuitive, or not aesthetically pleasing, customers may churn.

9. Competition:

Customers may churn if they are offered a better deal or experience from a competitor.

10. Life events:

Sometimes, customers churn due to life events such as moving or changes in financial circumstances. While these factors are beyond a company's control, companies can still take steps to retain customers in the face of these challenges.