Customer Attrition and Impact on Top-line
Use Machine Learning to understand customers and reduce customer attrition
It’s an accepted reality of business that customers come and go. Loyal customers might remain with you longer than new customers but sooner or later they will churn. The idea is to keep on increasing the tenure of each customer with right customer engagement strategies.
In this article, we’ll look at:
- What is churn?
- How does it impact the top-line of the company?
- How can you predict who is going to churn?
- What should you do to stop the customers from churning?
What is Churn?
Churn is the number of customers who have use your products or services in the past and are not going to continue with it in the near future.
For different businesses, it can be defined in different ways -
Retail — Customers who aren’t going to purchase anything in next 2 months could be considered as churn (or inactive, dormant etc.).
Telecom — Customers who have raised the request to disconnect the services and operations team have disconnected the connection.
Retail Banking — Customers who are not using your services for a certain period of time and not keeping threshold balance.
Similarly how you see churn can vary from industry to industry and most importantly, in the same company it can vary for different segments. Make sure you understand your customers at the micro segment and macro segment level (will cover this in a separate post).
How does it impact the top-line of the company?
Let’s consider a company ABC with more than 100 million dollars in yearly revenues and have 100,000 active customers, which means each customer provide 1000 US dollar in revenue. Let’s assume, the acquisition cost for each customer is 100 US dollar.
1000 customers leave at the start of the year, it means you are looking at losses of 1000 * 1000 = 1,000,000 US dollars. And to acquire the same customers you again have to spend 100 * 1000 = 100,000 US Dollars.
Hence, Net loss with 1% churn rate is 1,100,000 US dollars.
I hope, you have my attention now!
How can you predict who is going to churn?
If you have only 10 customers — you might already know who is going to churn because you have the most advanced algorithm in your body i.e. your brain.
If your company interact with 1000’s of customers — You need technologically advanced processes which can identify at-risk customers at the right time. That’s where Artificial Intelligence comes in very handy.
Based on the trends and patterns in the historical data, we can understand with certain accuracy who is going to churn and more importantly, what are the main factors that are driving churn?
Let me quote — “if Customer is King then Data is Queen”
How better your company can predict the churn is dependent on the below factors -
- How many touch points (transaction data, demographics, call center, service requests, complaints) your customer has with you?
2. For how long, you are storing these touch points?
3. Quality of all the data points. It means, are you making sure you are not storing incorrect data.
In my previous experience, we can predict with 80–90% accuracy who is going to churn in near future.
What should you do to stop the customers from churning?
Like I mentioned earlier, you have to understand your customers at micro and macro level.
You should have answers to below questions. And based on the answers you can devise the strategies to increase the engagement for each customers. Remember, Personalization is the key word in today’s business.
1.Which segment of customers are generating most revenue for you ? — Loyal Customers
2.Which segment of customers are very new to your company? — New Joiners
3.Which segment of customers are infrequent buyers? — Dormant Customers
Answers to above questions will help you in devising the right strategies for each customers. For example -
Loyal Customers — These customers are very critical for your business and they deserve your urgent attention. Target them with most lucrative offers and make sure they have wonderful product experience. Remember, these are your loyal customers and also bringing lot of other customers to you.
New Joiners — New customers should be treated differently and help them in better product experience. Distributing user manuals / videos could help them in understand your products.
Dormant Customers— Identify if customers using some specific products experiencing more churn. Help them in experiencing your best products.
