Why your CEO Cares About Churn
When we talk about churn we ain't talking about the way great grandma made butter. Dat be good churn. We are talkin' the bad stuff here.
So what is churn and why does your CEO care about it?
According Wikipedia...Churn rate (sometimes called attrition rate), in its broadest sense, is a measure of the number of individuals or items moving into or out of a collective over a specific period of time. It is one of two primary factors that determine the steady-state level of customers a business will support. The term is used in many contexts, but is most widely applied in business with respect to a contractual customer base.
So why does your CEO care about churn? Churn is one of the key figures he or she should be analyzing when looking at the short-term and long-term health of your company. Some firms simply look at sales in terms of volume aka "gross adds" (gross additions). However, this is a very myopic way to analyze the health of your business. Businesses need to consider "net adds." Net adds are simply:
GROSS SALES - CHURNED CUSTOMERS = NET ADDS
If a company was simply considering its gross adds more customers could be churning than were being generated by new sales. Assuming average revenue was the same on new customers and churning customers the firm would be dying without anybody realizing what was going on until net profit starting dropping.
So how can churn be prevented?
- Conduct customer satisfaction research
- Identify churn drivers (is it a people, product, process problem)
- Modify people, product, processes accordingly
- Stay in constant contact with customers and analyze behavior
- Consistently analyze your churn