A Few Words On Churn

In my article about the city not understanding Sky, I mentioned how good the Sky churn rate was. An old client of mine wrote and said that most investors probably think that churn is something you buy milk in. Made me laugh, but it did remind me how much obfuscating jargon we use. Churn is simply the number of customers you lose in a year and is expressed as a percentage of your total customers.

Every business will suffer churn to some degree and the aim should be to keep it as low as possible. You’ll lose some customers through natural wastage (jargon for death) and others because they no longer have a need for the product or service. It’s tough selling nappies to mothers of young children after a certain age. So this must be subtracted from your churn rate.

Everything else you can manage and is all about how you go about recruiting and looking after customers.

A credit card company once asked me to get new customers to use their card. This activation process was as difficult as pushing water up hill, because the customers had been heavily incentivised (jargon for bribed), to sign up for the card. After testing various mailings, we found that the only way to get them to use their new piece of plastic was to offer a further bribe. So a cheap method of recruitment became very expensive.

This stupidity continued for quite some time, long after I resigned the business in frustration, because the company was more interested in telling its investors how many new customers it had. The important data was, of course, the number of active new customers.

This illustrates how important the recruitment process is, how much thought is needed to make it work effectively and how closely you should measure the results. But a further point needs to be made.

If you really want to drive your company forward you won’t achieve it by undertaking the most cost effective recruitment policy. You’ll need to take a few risks to build recruitment numbers and then work hard to turn them into customers. This can be achieved by delivering a customer experience that is second-to-none. A subject I will return to another day.