Reducing your Churn Rate!!

source: https://getid.com/wp-content/uploads/2020/04/1200x680px-getid-43.png

Ever thought why all of a sudden a company starts to message you more? Starts to give you more discounts?

Well, you guessed it right, it’s because they have reasons to believe that you have stopped interacting with their platform(s) or you are going to leave them and go to a competitor. This phenomenon is known as Customer Churn.

source: https://lh5.googleusercontent.com/7LcytAcc9c_9ZvtRCMjnH8dS49t6payEIb1j3cP5nqlmqIu6PmdKaaeZLiSpiA1omYcVJZ0n77_24nWxs3lIwjahP62tJmJLkdrjLmgCaTMwEIsR1ybDtvYqlYj0TLF-b048958q

Who should care?

This is one of the most essential and common problem for:

#Telecommunication,

#Banks,

#Fintechs,

#Ecommerce

#Retail,

#Foodchains,

and even #actuaries etc

Why is it important for you?

In this discounts and offers-driven time, a champion customer churning is a nightmare for any business.

Source: neenopal.com/

Let’s see why is it recommended to increase the rate of retention rather than acquisition ⁉

1️⃣ Just by retaining 5% more, you will produce around a 25% increase in profit.🚀

2️⃣ Acquiring a new customer is between 5x and 25x more expensive than retaining an existing customer.😨

3️⃣ The probability of converting a retained customer is between 63%-71%.🤩

4️⃣ Existing customers are likely to spend 67% more on average than most new customers.🥰

5️⃣ 76% of companies see Churn forecasting and CLV as crucial concepts for their organization.😎

Know who will churn beforehand?

Now that we know the importance of doing it, let us focus on how it can be done.

First and foremost you must know which customer(s) will you count churning or in easier words, how will you define; what is churn for you. This is probably the most crucial question you need to answer. If done wrongly, the rest of the analysis you do and the prediction you make will become useless.

Is the customer uninstalling your app a churn?

OR

Is it no orders for x number of days a churn for you?

As soon as you define your churn accurately, congrats! you are halfway there already.

The next milestone for you is to decide what your end goal is with your defined problem.

Do you just want to know when a customer will churn?

OR

Do you want to know why the customer is churning?

Let us discuss one scenario and build over our churn analysis on it. Assuming you are a Telecom business. The most certain churn for you would be if the service is closed, unsubscribed or the number is being shifted to a different service provider.

But which customer is more important than whom? This might be a very tricky question to ponder over, how would you do the segmentation? Are the customers who use your service while promotions(offers/discounts) your target audience? Or are the customers who stay and use your services irrespective of your promotional offers the real deal for you?

Well, my favorites are the 2 renowned methods, Behavioral Segmentation & CLV. The Behavioral Segmentation method segments your customers based on their purchase behavior. It is a non-technical business-oriented method that stakeholders can easily grasp. Behavioral Segmentation analysis is a marketing technique used to determine quantitatively which customers are the best ones by examining how recently a customer has purchased, how often they purchase, or simply the number of their transactions, and how much the customer spends.

However, I always suggest doing an advanced variant of the combination of the two, which I did for my previous company. I was able to figure out the future values of the total value of customers based on their expected lifespan.

The only thing that now remains is calculating the churn itself. Since we know which customers we need to know can churn and why. We need to select all the factors that can influence customer behavior, such as;

1. The macroeconomic factors(like inflation, price value for money, Forex rates, etc),
2. The customer experience(how satisfied is the client/customer with your service/product, NPS score, etc),
3. The demographics(where they belong to, how it works over there), and
4. Most importantly defining the loss functions(how you calculate the accuracy and how helpful is it with the business, for example, you don't invest in retaining a customer whose win-back investment is lower than the CLV of the customer) and optimizing it.

Let’s reduce your churn rate!