Why Is Measuring Customer Churn So Important?
Posted by Kim Walsh at May 21st, 2013
Measuring customer churn is critical to business success. Many companies measure how many customers they get in a specific timeframe and how many customers after that timeframe they are left with. This is CAC and CHURN. CAC = cost of customer acquisition, CHURN= how many customers are no longer paying customers. Do companies know what happens in between? How important are customer interactions to the equation. Would companies today leverage a customer platform management solution like Provisibly. Recent articles are starting to appear speaking to how the customer space is getting hot. One article specifically from David Raab that is titled: “I’ve discovered a new class of system, The Customer Data Platform.
Does it seem odd that solving for the customer is just getting hot? I think many companies have always focused on GETTING more customers, driving revenue, driving sales. Companies such as Zappos, Amazon and a few other that have focused on customer happiness figured it out early, and have proven to be very successful business models. Is it a good decision to follow this model, I think so 🙂
David Skok has written blog articles around this topic, stating how important it is for companies today to pay attention to customer CHURN metrics. Here is an article he wrote, its great and worth a good read.
Below are 3 Reasons why analyzing customer churn metrics are so important.
1. Combine intuition and customer data together.
Many companies account management or services team are working together based on intuition. While working off intuition is great if you have hired a lot of employees that have good business acumen. What if for some reason you didn’t, as a business owner, you will want to mitigate risk as best as possible. Customer platform management solutions make it effective for companies to combine intuition with actual data points. Pulling from a CRM system and also allowing custom input by the users. We think its pretty powerful!
2. Measure customer engagement
Measuring customer engagement is an important metrics for companies to pay attention to. Usage metrics are also important to monitor. Provisibly will allow companies to measure contract insights, engagement metrics, and usage metrics. Combine all this data and allow for account managers and service teams to execute on their day-to-day roles all while measuring the impact their specific sets of customers have on the business.
3. Learn the impact of negative churn.
Company that have a recurring business model of any kind really should focus on the impact of negative churn to their business. The below graph illustrates the impact of Churn. Look at the line when you see a negative CHRUN. The business is nearly three times bigger than one with 2.5% churn. Clearly getting to negative churn is one of the most powerful accelerators for growth. Since this can be hard to achieve, this does beg the question of what happens if you can’t get to negative churn, but were able to get to 0% churn. See the dotted line in the graph below: