How to analyze churn rate and its effect on business by Mahindra Comviva

How to analyse the churn rate and its effect on business

ÂŠ Copyright Comviva Technologies Limited. 2017

Introduction  Customer expectation is the main thing driving all types of industry today.  Thanks to the digital world, information is now available on real time basis. One service failure in one part of the world can blow up and soon people from across the globe can get to know about it.  Signing up a customer is difficult and time-consuming, however, losing a customer is not.  One misbehaviour or one system failure and a business can see painstakingly acquired customer leaving the system and joining a competitor.  Understanding customer churn is extremely important.  Knowing what is customer churn and how the same affects a business can be crucial in finding out gaps and loopholes in a system.  Analysing churn can help the management understand the system better and take corrective actions.

Introduction  Churn rate is the loss of customers. It is the measure of customer leaving over a certain time period and is used to identify how much revenue is lost due to this attrition.  Churn rate is an important measure used by organizations to understand the revenue opportunity loss.  Churn rates help organizations identify a potential issue with regards to their operations. This issue can be anything like a competitor or inventory problem of absence of good customer service.  The results can be eye openers and are essential to take corrective actions.

Effect of churn rate on business  Churn rate is crucial for a business.  It affects the rate of growth of a company, thus affecting the profitability of a company in the long run.  Any company which seeks profitability should ensure that their cost of customer acquisition is lesser than the lifetime value of the customer. The lifetime value of a customer essentially depends on the amount of time the customer has stayed loyal to the company. Hence, churn rate plays a major role in this case. A higher churn rate means the relationship time is shorter and hence the lifetime value of the customer is less.  A higher churn rate can mean two things for a company - the customer service level is poor or the company is acquiring the wrong types of customers.  In both cases, there is a problem which needs to be addressed by the company. A company which analyses its churn rate well and keeps it under checks will definitely stand to gain in the long term.

4 effects of churn rate on business 1. Far reaching consequences .Most businesses look at the short term effect. Most enterprises think that if a customer stays as long as the cost of acquiring them is recovered, there is no loss to the business. .This is not true. The longer a customer stays with a business, the more value he/she generates. .When a customer is lost, the business loses critical opportunities like cross selling or up-selling. .This is a critical value loss for the business in the long term.

4 effects of churn rate on business 2. Benefits competition directly 

Customers who leave a brand are pretty vocal about why they left.

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The negative reviews benefit the competitors directly.

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Negative reviews are a powerful ammunition in the hands of the competitor and can negatively affect a product or a service.

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Competitors will be more than happy to spread the bad word and gain whatever they can from this negative publicity.

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Can affect revenue goals adversely.

4 effects of churn rate on business 3. Can indicate larger problems 

A high churn rate is almost always indicative of the fact that there is something gravely wrong with a business. If everything is hunky dory, then why should a customer leave? A high churn rate is that red light which should tell a business to look for problems within.

4. Direct effect on valuation .Churn rate does not only indicate that the customers are unhappy, it can also lead to gross unhappiness in the minds of the investors. .Churn rate is a major factor by which investors value a company. .A higher churn rate indicates things are not alright with a certain enterprise and this can lead to a negative valuation of a company. .Nobody wants to invest their money in something which doesn’t look all smooth. Hence, churn rate is a crucial factor in influencing how much investment will a company attract. © Copyright Comviva Technologies Limited. 2017

Churn analysis and customer experience management • Customer Experience Management the key to achieving a distinctive competitive advantages. • It is one of the most important ways to keep up to the competition. • One of the best ways to understand customer experience management is by analyzing and understanding what churn is. • Customer Experience Management is basically the experience that a service provider provides to a customer. It includes customer experiences across different touch points and is an important concept to ensure minimal churn and healthy growth of a business. • About 96% of ‘unhappy customers’ do not complain about why they are unhappy and simply move away. Out of these, 91% never come back. • Managing churn is a very important problem in the telecom industry where there are innumerable competitors and switching between service providers are easy. • In most cases switchers don’t complain or provide reasons for switching and hence service providers remain unaware why customers move away.

Churn analysis and customer experience management • Churn analysis is extremely useful. • Churn analysis helps businesses prepare subscriber profiles and various predictive models through which churn triggers can be identified. • Service providers can take various remedial measures like starting discounts and offers to retain customers, managing any service delivery gaps to reduce churn and improving on the overall customer experience.

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