The Real Cost of Customer Churn

Jason StevensCRM, customer churn

Customer Churn
Churn will not succumb to a single initiative, because churn takes different paths and each path stems from several root causes.Bain and Company

As a sales manager has your sales force identified valuable customers in your database likely to switch to a rival? If your answer is no, it’s understandable: Finding and implementing a CRM that allows you reduce customer churn is extremely challenging, especially as you pursue broader wish lists encompassing sales pipelines, opportunities, tasks and reporting.

In particular industries such as property and casualty (P&C), customer retention is ranked as a higher priority than customer acquisition, seeking to preserve revenue and reduce churn especially as customers move to comment publically about brands in social media and other public spaces.

This issue has also become critical in the communications sector with mobile operators in mature markets fighting with rivals over the same customers.

As a result these industries have invested heavily in technology, including case management and policy management systems to give them an edge in this department.  However, the CRM may be the crucial weapon in their IT arsenal since it’s often the first point of contact with a customer and thus sets the tone for all future interactions.

“Get it right the first time and there is a better chance that a customer will go into all future interactions with a positive mindset and lower propensity to churn,” said RCRWireless.

As a small business, you may not have the complexity of the P&C industry or those within the Mobile Operator space, or for that matter the cash to burn in heavy IT infrastructure. However, you can carefully allocate dollars towards a nimble CRM that offers powerful automation structures to keep you in touch with valuable customers.

In addition, this CRM should preferably be cloud-based, secure and easy to use, in the same way that Dropbox and Google Apps aspire to be. A new wave of CRM systems are attempting to offer action-orientated approaches towards reducing customer churn, sometimes in the form of sales scorecards or customer health scores to provide a visual foothold for sales managers and the sales force to identify valuable clients who may be inclined to switch alliances towards your rivals.

The key word underpinning the approaches above is “automation”: A way to simply describe company business rules in the CRM that sets tasks and procedures in motion to automatically stay in touch with customers when certain events or conditions are triggered.

For example, GetScorecard, allows a sales leader to define universal health scores for customers that trigger emails or call-to-action phone call tasks for sales reps if the system detects a score falls below a certain level due to no ‘touches’ by the rep in the last 90 days. This automated approach detects the most vulnerable customers in the database prone to churn and gives small businesses an advantage in acting at lightening speed to rectify the situation.

The Cost of Churn

Startups and small businesses need to place the CRM at the forefront of their business operations, since churn can ultimately lead to huge losses in revenue.

Consider the impact in bigger industries such as Wireline providers, which tend to have a churn rate approaching 2.5% per month:

 “For a wireline company with 5 million customers, that means an estimated 1.32 million people and $2 billion in revenue walk out the door each year,” said Bain and Company.

Thus, reducing churn by 50 basis points thus would be worth roughly $240 million in lifetime value after 18 months and roughly $410 million after 30 months. If one includes operating expenses that could be avoided, the value would reach roughly $320 million and $490 million, respectively.

The Sales Scorecard and allied auto-tasking features mentioned earlier can help you fight customer churn as part of a disciplined CRM strategy. This could mean the difference between survival and sustained business success, especially when you consider the daily, monthly and yearly costs associated with a losing just one customer.