In today’s economy is money better-spent marketing to potential new customers or addressing Churn? The cable industry spent hundreds of millions of dollars in the last few years in search of new clients, competing with Satellite/Direct TV, Telecommunications giants (like Verizon and AT&T), all for a piece of the same shrinking pie. In business schools these days they call it fishing in the same Red Ocean.
What is Churning:
Churn is the loss of subscriber base as percentage of the overall client base due to both controllable and non-controllable issues. In many industries this is called client retention ratio.
Non-controllable issues include losses such as:
- a customer has moved to a non-service area
- customer has passed away
- customer has gone out of business
Controllable reasons include:
- poor service
- economic factors
- gone to competition
- theft of services
It is the controllable reasons that cable companies should pay more attention to. The acquisition cost of a new customer is on average 5-10 times as much as retaining a client. For discussion purposes let us say the cost of a new sale is $800. Therefore, if you are going to spend $250 million on attracting new clients you might get better results by spending just 20% (using just 5x ratio) of that amount building your client retention programs.
Churn Math:Let us see how that plays out with some simple math if we take 20% of annual expenditures and allocate toward client retention.
|Last Year Spending||Suggested Churn Investment||Suggested New Sales Spending|
|Cost of Sale||$800||$160||$800|
|Ave. Revenue Per Client/per month||$100||$100||$100|
|Impact per month||;$31,250,000||$31,250,000||$ 25,000,000|
|Impact Difference when allocating 20% to reducing churn||Additional $25,000,000/mo|
Average revenue per month may be higher or lower depending on the number mix of internet, video and telephone customers. The average revenue per churn client is only for customers that would have been completely lost (no revenue). Using this scenario you can almost double your overall return by investing in client retention tools.
Sounds nice right? The reality is Sales teams are largely rewarded by the number of new connects sales. Diametrically opposed to this are Customer service teams (operations) whose compensation is often tied to the churn rate. So who is going to get the money? Fortunately, the state of the economy is providing the direction. The answer is “where are you bleeding the most” and for cable companies this means the focus should be on client retention AND up selling or cross-selling services.
Best Practices for Reducing Churn:
- Merge Sales and Operations incentives. Make client retention a % of sales incentives and incremental sales a % of operations incentives.
- Get to know your customers. Make scheduled frequent personal contact. Provide them with the latest information on services, rate specials and customer service tips (frequently asked questions). Guard against wasting money on mailers or literature as most bulk mail gets thrown out anyway.
- Do a customer service survey. Find out what your customers like and dislike. Use special coding to identify customers who have a particular interest. For example, if enough customers indicate a desire for more or better access to International Soccer, run a special for the World Cup. Have pricing to reflect seasonality and prepaid sign ups.
- Make use of common sense. If a customer makes use of triple play services, cross sell accessories, up sell premium services. Customers with multiple service subscriptions are more likely to stay with you when they move if the service has been of quality.
- Train your staff. Train to better handle customer service issues and encourage your clients to speak up. An outspoken customer is easier to keep than a quiet customer. How you handle customer problems establishes the path for customer loyalty. Any expert in customer service will tell you that exceeding the clients expectations makes it very difficult for a customer to leave over marginal price considerations.
- Price Objection Handling. It is a tough economy and some people will decrease their service levels in order to compensate for less income. How much they decrease is a direct result of the value they perceive in your service. Everything you do needs to create value. Go back and visit the customers.
- Give the customers greater value. Content can be downloaded from the internet in several free or inexpensive venues. Adjust to the market, if you are offering something that one can obtain at little or no cost then there is no value. Adjust your content and service levels, create value.
- Decrease theft. The reality is customers that value content are willing to pay for it or find it at the lowest cost possible (including theft). There are many ways to decrease theft, these include but are not limited to:
- Tap Audits: Focus on highly populated clusters and areas of low service. Pay attention to the new pirates who tap into unsecured wireless networks. Offer customers an incentive to secure their networks.
- Identify service downgraders especially those who live in apartment buildings, high cluster zones or who might have access to unsecured networks.
- Train your Tap Auditors in the art of selling to persons obtaining free services. Train your DSRs to be on the lookout for potential fraud and of course train service personnel how to up sell and cross sell clients.
How important is churn? Reducing Churn just 10% can add millions to the bottom line.
Do you have additional Churn tips? We would like to hear them.