Analytics-blog

One of the guy’s here at AOD said “Churn Rate” was one of his favorite metrics.  You know that you are serious about analytics when you have “favorite” metrics.  But we would expect nothing less from the guy we call “The Mayor.”

Churn Rate Metric Definition (Mayor’s version):  Measures customer attrition.  Refers to % of customers a business loses over a specific time period.

Churn Rate Metric Definition (Wikipedia version): Customer attrition, also known as customer churn, customer turnover, or customer defection, is a business term used to describe loss of clients or customers.

I like the Mayor’s definition better as it offers a little more in the way of detail.  Also, he might give me lunch for saying so.

So, here’s the magic formula.  (Our version)

Churn = Ct / Cat

Ct = number of customers a business loses over time period

Cat = number of active customers at the start of time period

Below is a sample chart:

So what conclusion can we draw from this chart above?  Frankly, nothing concrete if you view this chart only.

However, if I were in charge of the company above, my research would begin with the customers that have stayed over three and four years.  I would be curious to learn why they have stayed with the company, and try to find more customers like those loyal folks first and foremost.

In addition, I would take a close look at the chart above cross-referenced by my media channels and campaigns.  It might turn out that you have specific marketing campaigns that are contributing to high turnover.  Common suspects include any promotions where you discount your offering.

Then I would cross-reference the data above against the customer support information.  However, as you are probably well aware, most folks that “churn” don’t take the time to tell you why they are leaving or even that they are leaving.

One last cautionary tale about churn metrics.  The chart above is pretty simple by design, but I’ve watched churn rate discussions turn into spontaneous combustion at the executive management level.

It normally goes like this:  Your meeting is going along fine because of your painstaking preparation and then someone…with their chart upside down…says “I don’t get this.”  Then your head explodes.

So be very cautious about how you define your time periods and make sure everyone understands up front EXACTLY how this is calculated.  Some of your co-workers may have a difficult time understanding charts like those above.  For those people, tell them “The Mayor” is on your side.