Tag Archives: Churn rate

Beyond The Data

If you’ve been reading along this week, it must seem as if I’m obsessing with data. While my inner nerd is peeking through a bit, that’s not my real obsession. The data I’ve been writing about is only one aspect of what is a primary business obsession of mine: customer retention. It ought to be one of yours too.

Simply put, the only two things that should be a primary focus of your business thinking are making great products (or services) and providing great service to customers. Why? Because those are the two keys to customer retention and customer retention is the key to a successful business.

There is lots of research on the value of keeping a customer versus acquiring a new one. According to research by Market Metrics, your success rate selling something to an existing customer is around 65 percent. The probability of converting a new prospect, on the other hand, is only 5 percent to 20 percent. If you’ve been servicing those customers well and providing great products, that’s a very believable finding since the folks that know you, love you. They spend more too: research says about a third more.

So why aren’t you spending more time thinking about customer retention and about how to cut down the churn rate? Probably because the data points you’re reporting as KPI’s are emphasizing customer base growth. There is a place in the dataset for acquisition information and an important one at that. But, for example. when Google reports that 25% of new app users leave after the first day they install an app, obviously new users can only take you so far. Are you looking at retention rates by acquisition channel? Didn’t think so.

Data is a tool, not a crutch.  The business is about growing and retaining customers.  There are lots of ways to do that but at the core of every one of them are a great product and even better service.  Is that what you can honestly say you have?

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We have a statistic in the television business called churn.

English: Butter churn, Dunserverick Museum One...

(Photo credit: Wikipedia)

Actually, it’s more about the cable TV business and it’s short for churn rate.  As is sometimes the case, Wikipedia defines it nicely:

Churn rate, when applied to a customer base, refers to the proportion of contractual customers or subscribers who leave a supplier during a given time period. It is a possible indicator of customer dissatisfaction, cheaper and/or better offers from the competition, more successful sales and/or marketing by the competition, or reasons having to do with the customer life cycle.

Obviously, if a company is to grow, that growth needs to exceed its churn rate – you need to gain more customers that you lose.  Simple, right?  It points out pretty clearly that keeping customers is at least as important as adding new ones.  That simple thought is what popped into my head as I read the results of some research from the Accenture Global Consumer Pulse Survey.  You can look for yourself here.

What they found was that companies are not working hard enough to stop consumers from switching. In fact, among people who changed service providers – banks, phone companies, retailers – 81% said that the company could have done something differently to prevent them from switching.  Maybe it’s not as simple a thought as it might appear?  As MediaPost reported:

The report says that while service providers… have more data and insights into consumer desires and preferences than ever before, providers have failed to meaningfully improve customer satisfaction or reverse rising switching rates among their customers.

Ouch.  So what does that mean specifically?

  • 91% of respondents are frustrated that they have to contact a company multiple times for the same reason
  • 90% by being put on hold for a long time
  • 89% by having to repeat their issue to multiple representatives
  • 85% of customers are frustrated by dealing with a company that does not make it easy to do business with them
  • 84% by companies promising one thing, but delivering another
  • 58% are frustrated with inconsistent experiences from channel to channel

Marketing is often focused on growth.  However, as any financial person will tell you, improved profitability can come from cutting expenses as it does from growing revenues (and I’m a strong advocate for the latter since those cuts often kill growth and revenues but that’s another screed!).  Churn is the cutting of losses and helps reduce costs – I think it’s cheaper to keep a customer than to acquire one.  It’s also something that businesses can fix if they focus on it.  None of the study’s findings are difficult to address IF there is an awareness and a commitment to do so.  Is your business ready to do that?

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