March 25, 2011A Brief Discussion of ChurnPrepared by Joya L. Martin
What is Churn?Churn is the number of subscribersdisconnecting their service over a giventime period expressed as a percent of theprovider’s total subscriber base.
When you think of churn think ofcustomer attrition.Churn takes into consideration both voluntarydisconnections (at the customer’s request) andinvoluntary disconnections (through non-payment).Churn is a key metric in the telecommunicationsindustry and is usually measured on a monthly,quarterly or annual basis.
There are slight variations in the way companiesin the telecommunications industry computechurn. This can have a negative impact on thecomparability of reported churn rates betweendifferent companies.Annual churn rates in the telecomsindustry, although closely guarded, are estimatedto average between 10% and 67%.
2 Simple Churn FormulasVery simply, churn can be computed by calculating thenet movement in the existing subscriber base in a givenperiod divided by the subscriber base at the beginning ofthe period:S1 = subscriber base at beginning of periodS2 = subscriber base at end of periodCON = new installationsNPD = non-pay disconnectionsVOL = voluntary disconnectionsREC = total reconnectionsChurn = S2 – S1 – CON Churn = REC – NPD – VOL S1 S1
Non-Controllable Churn Factors- customer has moved to a non-service area- customer has passed away- customer has gone out of business
Controllable Churn Factors - poor service- price- economic factors- loss to competition- customer dissatisfaction- theft of service
Why Track Churn ?Monitoring churn is important because churnrates may be possible indicators of:- customer dissatisfaction,- cheaper and/or better offers from thecompetition,- more successful sales and/or marketing by thecompetition
Minimizing Churn RateOne of the traditional ways to keep churn ratesdown is to create barriers which discouragecustomers from switching service providers (e.g.time-bound contracts and restrictive clauses andpenalties).As the marketplace becomes more competitiveand subscribers become more savvy, the need tofind more creative ways of increasing customerretention is imperative.
1. Include Customer Retention in MarketingBudgets and Operational IncentivesBudget a percentage of sales & marketingspending on subscriber retention initiatives.Make provisions for customer retention as a partof operational performance metrics and incentiveprograms.
2. Develop Good Customer RelationshipsFind ways to interact with subscribersfrequently, providing them with the latestinformation on services, rate specials andcustomer service tips. Encourage subscribers tointeract: outspoken subscribers are easier tokeep than the quiet ones. Taking advantage ofsocial networking sites is a less expensive andmore interactive way to do this than bulk mail ortelemarketing.
3. Find Out What Subscribers WantSurveys may be helpful in identifying customers’likes and dislikes. Keep track of responses andmake changes to take advantage of customerdesires. Exceed customer expectations.
4. Up SellUp sell premium services. Customers withmultiple service subscriptions are less likely toswitch providers.
5. Invest in Customer Service TrainingTrain staff to better handle customer serviceissues. How you handle customerproblems establishes the path for customerloyalty.
6. Create Greater ValueIn tough economic times, many will decrease servicesubscriptions or look for cheaper alternatives in orderto compensate for reduced income. To offsetthis, continually look for ways to increase the perceivedvalue of your service in as many ways as you can. Focuson creating value in everything you do.
7. Reduce TheftCustomers who value your service may be willingto try to obtain it for free. Reduce theft byconducting audits particularly in high/lowpopulated areas. Pay close attention to servicedown-graders and train technical personnel to beon the constant lookout for theft of service.
Fact: It may cost five to ten times as muchto acquire a new customer as to retain anexisting one.Focusing on reining-in churn and achieving evensmall decreases in churn rates can create savings thathave a huge positive impact on profitability andoperating cash flow.
ConclusionA customer saved is money earned! End