There is no doubt that the customer attrition rate is one of the closely watched parameter by an organization. The organizational management and marketers have to keep tabs with this indicator for various reasons. One of the most critical reasons is that customer attrition rate provides insights into how well a company is keeping its customers.
In fact, maintaining customers is far much easy and less costly than finding new ones. A company needs to find ways to transform new customers in returning customers. Therefore keeping this parameter at its possible lowest figure should be the overarching goal of both management and the marketing departments. Apart from for profit business entities, attrition rates provide key benefits to any organization that involves memberships. These could be sports clubs or even professional membership entities.
Ignoring the importance of the customer attrition rate, some executives often lack the skill and knowledge of its determination. How to calculate customer attrition rate should always form part of the crucial tools for gauging an organizational performance. For the many people out there who have always overlooked or have little knowledge about this parameter, this article provides a systematic process of its determinations.
Computation
Determine the meaning of active clients
The first step is to go through the company policy documents and the accounting procedures to determine what an active client means. Besides, company executives have to try to find out the guidelines about of terms of client recognition and retention. Most organizations define a lost customer or member as one whose account has been inactive for a certain period. In other circumstances a client could be considered once a formal request is received.
These aspects are very important in order to avoid any mix up that may arise in the process of calculating the customer attrition rate. Better still, this kind of data is readily available at the accounts office. Accountants and finance professionals usually classify client’s accounts depending on their balances and level of activity. Additionally, they always follow on the clients to demand payments, which help them effectively track the activity of these customers.
Determine the cut-off dates
It is important to have a specific time upon which these figures can be compared. Like many other analytical data, a single computation may not make any sense unless it is compared over a period. Monthly, quarterly or annual computations may be the best way to go. This way, it is possible to determine the growth or decline in the number of customers over the particular period. Most organizations release their financial performance on a quarterly basis. This could be also the right period to track the customer activity level.
Once the cut-off time has been established, the company management needs to find out how many customers were added over the period. For example, the third quarter of the year starts on June 1 and ends on September 30. If you want to determine the customer gain rate over this time period, establish the number of customers who have been added to the company’s record over this time.
The next step is to perform a detailed analysis of the customers who have been lost. It is good to realize that losing customers may be a factor depending on many variables. Take for example a customer who changed location because of work commitments like transfer to new posting. While the company not has lost this client, location factors may hinder the relationship. Separating these factors is an important factor in coming up with the best analysis of the attrition rate. Appreciate that there are factors may be beyond the organizational capacity to contain the losses.
After establishing these parameters, you can now compute the attrition rate. Simply deduct the number of the customers acquired during the period then divide the figure by the number of customers as at the start of the reference period. The result is usually expressed in terms of a percentage. This is so because percentages make more sense in any analytical work than basic numbers.
How do you interpret the results? For example, you get an attrition rate of 30%. Is this good enough for your business? The best approach to perform an analysis is to compare with the previous figures. Look at the past quarters and establish a trend. Trend analysis allows businesses to look at their operations over a period. The best scenario for the attrition rate is to have a declining trend. If a contrary trend is observed it is advisable to flag it and seek audience with the client relationship teams. Another approach is to compare the figures with competitors. Organizations usually benchmark their operations to those of other similar entities. Hence, if the figures established are worse compared to those of the peers, immediate solutions should be sought.
How to Improve the Attrition Rate
It should be the goal of every organization to improve their attrition rates. If management and the business owner are not satisfied with the company’s customer attrition rate then the organization needs to establish a number of tactics in order to see an improvement. Start by establishing the customer expectations. Obviously, customers could be leaving because they are not being satisfied. Conduct intensive customer research and surveys on the existing customers. Find time as well to interrogate the disappointed clients to find out their reasons. Once these expectations are established, seek to not only satisfy them but also exceed their expectations.
Value addition is an important element that is almost forgotten by many organizations. Customers are very dynamic and they shift positions and expectations over a very short period. A great product may not necessarily remain great over the next year. It is important to seek strategies of developing superior products and services.
Always be on the lookout on what the competitors are doing. Competition is constant in any business operation. Develop competitive advantages that peers cannot copy. Product differentiation is an important element. Always seek to produce superior products and services. For that reason, customers will certainly remain loyal to your brand over a very long period.
In the recent past, many organizations have embraced the practice of rewarding customers. Loyalty programs are important in retaining your clients. It is not enough to know how to calculate customer attrition rate, results interpretation and developing further strategies should be the overall objective.
