Customer Retention – Service business, or companies with services marketing elements like SaaS companies, should prioritize customer churn above all else.
You don’t eat. You don’t sleep. You do absolutely nothing before and until you know your churn rate and how it affects your business.
Why Keep Harping on About Customer Churn?
Because small reductions in customer churn lead to substantial profits. And on the flip-side, because small increases in churn lead to significant decreases in profit.
What, then, is churn?
Customer churn is the flip-side of retention. So everyone knows what retention is. Right..? Customer retention is simply a measure of how many customers remain with you over a given time, like a year. It’s a measure of how many customers have quit over this timespan.
What’s Your Churn Rate?
For automotive dealers, you’re not primarily interested in brand retention. If you have multiple brands and can retain customers by selling another brand car, you have retained that customer. The starting point for measuring the churn rate is your service history.
Of course, you don’t know precisely when the customer has left. Barring service, or maintenance contracts customers don’t usually call to inform you that “I will never service my car with you again!”.
So how do you define churn, when you can’t observe it directly?
Ideally, you would look at different servicing patterns from your customer base. Models like recency of service visits and frequency will give you a customer-by-customer view of churn. However, for this exercise, you can do something more simple.
Simple Ideas to Get Started
First, take a cohort of customers that serviced for the first time during a given period, like three years ago. Look at maintenance service or visits that are regular and preferably voluntary. Count the number of customers at the beginning of the period, then count the number of those customers (the cohort) that are still with you at the end of the period.
What’d you get?
For the dataset I’m working with, I calculated a staggering 76% churn rate!
Well, so what?
Quantifying Churn Over a Customer Base
In the intro to this post, I said that churn has massive implications for your bottom line. To see how much, we can plot lifetime value as a function of the churn rate. To do this, you will need to know the annual net profit per customer. To calculate the incremental net profits, from a reduction in churn, you can use a simple Excel spreadsheet:
Download the Customer Churn Spreadsheet
Try it for free .
How Would You Decrease Customer Churn?
Do you think you can reduce churn and increase profits? How would you go about it?
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