{"id":1644,"date":"2013-04-24T17:47:38","date_gmt":"2013-04-24T15:47:38","guid":{"rendered":"http:\/\/www.invest-aura.com\/?p=1644"},"modified":"2018-02-01T16:07:18","modified_gmt":"2018-02-01T14:07:18","slug":"the-true-cost-of-churn","status":"publish","type":"post","link":"https:\/\/www.investaura.co\/wordpress\/2013\/04\/the-true-cost-of-churn\/","title":{"rendered":"The true cost of churn"},"content":{"rendered":"<p>We are often asked how high the cost of churn to service providers really is. As often in economics in general, and costing in particular, it really depends how you look at costs and value, i.e. whether you focus on the direct costs only, or include the indirect costs as well.<\/p>\n<p>The direct costs of churn mostly include:<\/p>\n<ul>\n<li>the SIM card costs (not much these days, but you might want to consider the fully loaded costs i.e. the sourcing, logistics, packaging, and all other costs directly associated with the SIM card, including staff costs)<\/li>\n<li>the SAC (subscriber acquisition costs), including marketing, advertising and commission of various sorts paid to the acquisition channel (indirect sales) as well as the fully loaded costs of the direct sales channel<\/li>\n<li>a portion of the SRC (subscriber retention costs), as \u2018retention\u2019 money is certainly spent on subscribers who none-the-less decide to leave.<\/li>\n<\/ul>\n<p>All in all, the direct costs of churn will typically be in the range of $20-$100 per churning customer (depending in which country you are, and how much you spend on acquiring customers).<!--more--><\/p>\n<p><a href=\"https:\/\/i0.wp.com\/www.invest-aura.com\/wordpress\/wp-content\/uploads\/2013\/04\/churn_simulation_1.png\"><img data-attachment-id=\"2116\" data-permalink=\"https:\/\/www.investaura.co\/wordpress\/2013\/04\/the-true-cost-of-churn\/churn_simulation_1\/\" data-orig-file=\"https:\/\/i0.wp.com\/www.investaura.co\/wordpress\/wp-content\/uploads\/2013\/04\/churn_simulation_1.png?fit=1346%2C623&amp;ssl=1\" data-orig-size=\"1346,623\" data-comments-opened=\"1\" data-image-meta=\"{&quot;aperture&quot;:&quot;0&quot;,&quot;credit&quot;:&quot;&quot;,&quot;camera&quot;:&quot;&quot;,&quot;caption&quot;:&quot;&quot;,&quot;created_timestamp&quot;:&quot;0&quot;,&quot;copyright&quot;:&quot;&quot;,&quot;focal_length&quot;:&quot;0&quot;,&quot;iso&quot;:&quot;0&quot;,&quot;shutter_speed&quot;:&quot;0&quot;,&quot;title&quot;:&quot;&quot;}\" data-image-title=\"churn_simulation_1\" data-image-description=\"\" data-image-caption=\"\" data-medium-file=\"https:\/\/i0.wp.com\/www.investaura.co\/wordpress\/wp-content\/uploads\/2013\/04\/churn_simulation_1.png?fit=300%2C138&amp;ssl=1\" data-large-file=\"https:\/\/i0.wp.com\/www.investaura.co\/wordpress\/wp-content\/uploads\/2013\/04\/churn_simulation_1.png?fit=720%2C333&amp;ssl=1\" decoding=\"async\" loading=\"lazy\" class=\"aligncenter size-large wp-image-2116\" title=\"churn_simulation_1\" src=\"https:\/\/i0.wp.com\/www.invest-aura.com\/wordpress\/wp-content\/uploads\/2013\/04\/churn_simulation_1-1024x473.png?resize=640%2C295\" alt=\"\" width=\"640\" height=\"295\" srcset=\"https:\/\/i0.wp.com\/www.investaura.co\/wordpress\/wp-content\/uploads\/2013\/04\/churn_simulation_1.png?resize=1024%2C473&amp;ssl=1 1024w, https:\/\/i0.wp.com\/www.investaura.co\/wordpress\/wp-content\/uploads\/2013\/04\/churn_simulation_1.png?resize=300%2C138&amp;ssl=1 300w, https:\/\/i0.wp.com\/www.investaura.co\/wordpress\/wp-content\/uploads\/2013\/04\/churn_simulation_1.png?w=1346&amp;ssl=1 1346w\" sizes=\"(max-width: 640px) 100vw, 640px\" data-recalc-dims=\"1\" \/><\/a><a href=\"https:\/\/i0.wp.com\/www.invest-aura.com\/wordpress\/wp-content\/uploads\/2013\/04\/churn_simulation_2.png\"><img data-attachment-id=\"2117\" data-permalink=\"https:\/\/www.investaura.co\/wordpress\/2013\/04\/the-true-cost-of-churn\/churn_simulation_2\/\" data-orig-file=\"https:\/\/i0.wp.com\/www.investaura.co\/wordpress\/wp-content\/uploads\/2013\/04\/churn_simulation_2.png?fit=1350%2C633&amp;ssl=1\" data-orig-size=\"1350,633\" data-comments-opened=\"1\" data-image-meta=\"{&quot;aperture&quot;:&quot;0&quot;,&quot;credit&quot;:&quot;&quot;,&quot;camera&quot;:&quot;&quot;,&quot;caption&quot;:&quot;&quot;,&quot;created_timestamp&quot;:&quot;0&quot;,&quot;copyright&quot;:&quot;&quot;,&quot;focal_length&quot;:&quot;0&quot;,&quot;iso&quot;:&quot;0&quot;,&quot;shutter_speed&quot;:&quot;0&quot;,&quot;title&quot;:&quot;&quot;}\" data-image-title=\"churn_simulation_2\" data-image-description=\"\" data-image-caption=\"\" data-medium-file=\"https:\/\/i0.wp.com\/www.investaura.co\/wordpress\/wp-content\/uploads\/2013\/04\/churn_simulation_2.png?fit=300%2C140&amp;ssl=1\" data-large-file=\"https:\/\/i0.wp.com\/www.investaura.co\/wordpress\/wp-content\/uploads\/2013\/04\/churn_simulation_2.png?fit=720%2C338&amp;ssl=1\" decoding=\"async\" loading=\"lazy\" class=\"aligncenter size-large wp-image-2117\" title=\"churn_simulation_2\" src=\"https:\/\/i0.wp.com\/www.invest-aura.com\/wordpress\/wp-content\/uploads\/2013\/04\/churn_simulation_2-1024x480.png?resize=640%2C300\" alt=\"\" width=\"640\" height=\"300\" srcset=\"https:\/\/i0.wp.com\/www.investaura.co\/wordpress\/wp-content\/uploads\/2013\/04\/churn_simulation_2.png?resize=1024%2C480&amp;ssl=1 1024w, https:\/\/i0.wp.com\/www.investaura.co\/wordpress\/wp-content\/uploads\/2013\/04\/churn_simulation_2.png?resize=300%2C140&amp;ssl=1 300w, https:\/\/i0.wp.com\/www.investaura.co\/wordpress\/wp-content\/uploads\/2013\/04\/churn_simulation_2.png?w=1350&amp;ssl=1 1350w\" sizes=\"(max-width: 640px) 100vw, 640px\" data-recalc-dims=\"1\" \/><\/a><\/p>\n<p>But the indirect costs can be much higher, if you include the value of the lost customers. Let us take a long at a concrete example.<!--more--><\/p>\n<p>Say you are a Mobile Network Operator with:<\/p>\n<ul>\n<li>10m subs, flat over time<\/li>\n<li>5% churn per month, or about 60% per annum.<\/li>\n<li>$10 ARPU per month<\/li>\n<li>Total company revenues: $1.2bn per annum<\/li>\n<li>$150 Enterprise Value (EV) per sub.<\/li>\n<li>Say also that the direct costs of churn sum up to $25 per churning subs.<\/li>\n<\/ul>\n<p>Now if you lose an average customer, you are really losing $150, which is the (average) EV per sub. Some customers might have a CLV (Customer Lifetime Value) of $50 only, but high value customers with a CLV of $500 will also be churning, so let us assume that the churn rate is the same in all customer segments \u2013 for the sake of simplicity.<\/p>\n<p>In the example above, the direct cost of churn is $25 per churning subs, but if $150 is the total value of a lost customer, then $150-$25 = $125 per sub is the indirect cost of churn. With churn at 5% per month or 500k subs per month, the direct cost is $12.5m per month, or $150m per annum, but the total indirect cost of losing 5m subs is $625m. That\u2019s 50% of the enterprise value!<\/p>\n<p>If you don\u2019t agree with this result, then let us start from the revenues instead, as follows: suppose that you can reduce churn from 5% per month to 4% per month. Then each month, you are saving 1% of your customer base, so 100k subs. Over 1 year, these cumulate to 1.2m subs.\u00a0 So on average over 12 month, you have 600k more subs than before. At $10 ARPU, this means $72m extra revenues. At 15% Profit After Tax (PAT), this means $10.8m extra PAT. If you take the NPV of $10.8m at 10% discount rate, then this gives $108m. If $108m is the lost value associated with 1% point of churn, then the lost value associated with total churn (5% points) would be 5 x $108m = $540m.<\/p>\n<p>Either way, the simple calculations above illustrate that the true cost of churn can be 3-5 times higher than the direct costs.<\/p>\n<p>So if you are in a situation when you lose 30%-60% of your customers annually, it is high time to act. Investaura works with Lumata, a star in the areas of churn reduction and ARPU boost. Lumata&#8217; solution combines real-time predictive analytics with\u00a0micro-campaigning techniques, including a feedback loop informing the predictive engine about the performance of the marketing campaigns. Whether you already have a data warehouse or not, whether you already have a campaign manager or not, whether you already have a (most likely disappointing) predictive engine or not, we can help you and your business solve your churn problem.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>We are often asked how high the cost of churn to service providers really is. As often in economics in general, and costing in particular, it really depends how you look at costs and value, i.e. whether you focus on&#8230; <\/p>\n<div class=\"more-link-container\"><a class=\"more-link\" href=\"https:\/\/www.investaura.co\/wordpress\/2013\/04\/the-true-cost-of-churn\/\">Read More<\/a><\/div>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"jetpack_publicize_message":"","jetpack_is_tweetstorm":false,"jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":false,"jetpack_social_options":[]},"categories":[85],"tags":[7,9,20],"jetpack_publicize_connections":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v20.4 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>The true cost of churn | Investaura<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.investaura.co\/wordpress\/2013\/04\/the-true-cost-of-churn\/\" \/>\n<meta property=\"og:locale\" content=\"en_GB\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"The true cost of churn | Investaura\" \/>\n<meta property=\"og:description\" content=\"We are often asked how high the cost of churn to service providers really is. 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whitepaper quotes Investaura and the work that we are doing to reduce service provider churn","date":"May 5, 2012","format":false,"excerpt":"Investaura is pleased to appear in one of the most recent IBM whitepapers: \u00a0Harness the power of data and analytics to maximize the value of each customer [download id=\"3015\"] This excellent whitepaper highlights how mobile and fixed line telecoms service providers can leverage the data that they have about their\u2026","rel":"","context":"In &quot;Whitepaper&quot;","img":{"alt_text":"","src":"https:\/\/i0.wp.com\/www.investaura.co\/wordpress\/wp-content\/uploads\/2024\/07\/Business_Planning2.jpg?fit=1024%2C631&ssl=1&resize=350%2C200","width":350,"height":200},"classes":[]},{"id":1205,"url":"https:\/\/www.investaura.co\/wordpress\/2012\/02\/the-five-reasons-why-your-churn-reduction-measures-are-not-working\/","url_meta":{"origin":1644,"position":1},"title":"The 5 reasons why your churn reduction measures are not working, and what you can do about it","date":"February 10, 2012","format":false,"excerpt":"Truth be told, you don't need a Ph.D. in data mining or statistical analysis to reduce churn. Which is good news. Truth be also told: investing tons of money in data mining tools does not guarantee success - more often than not, it guarantees failure. Churn reduction is a complex\u2026","rel":"","context":"In &quot;Insights&quot;","img":{"alt_text":"","src":"https:\/\/i0.wp.com\/www.investaura.co\/wordpress\/wp-content\/uploads\/2024\/07\/Business_Planning2.jpg?fit=1024%2C631&ssl=1&resize=350%2C200","width":350,"height":200},"classes":[]},{"id":831,"url":"https:\/\/www.investaura.co\/wordpress\/2011\/02\/winning-the-churn-reduction-war-how-to-use-churn-prediction-techniques-to-improve-customer-retention\/","url_meta":{"origin":1644,"position":2},"title":"Winning the war against churn: how to use churn prediction techniques to improve customer retention","date":"February 21, 2011","format":false,"excerpt":"There is no question that churn is the plague of the telecom industry.\u00a0 In the mobile business, annual churn rate of 20%-30% are standard.\u00a0 In developing countries, churn can be as high as 60% per annum.\u00a0 Do you know any other industry where companies lose 20%-60% of their customers between\u2026","rel":"","context":"In &quot;Insights&quot;","img":{"alt_text":"","src":"https:\/\/i0.wp.com\/www.invest-aura.com\/wordpress\/wp-content\/uploads\/2011\/02\/Churn_prediction_ARPU_boost-1024x588.png?resize=350%2C200","width":350,"height":200},"classes":[]},{"id":768,"url":"https:\/\/www.investaura.co\/wordpress\/2011\/02\/what-does-service-costing-bring-to-pricing\/","url_meta":{"origin":1644,"position":3},"title":"What does service costing bring to pricing?","date":"February 7, 2011","format":false,"excerpt":"Comparing prices with costs is a most enlightening exercice.\u00a0 Unfortunately, service costing being as much an art as a science, many telecom service providers don't do much service costing; and as a result, they don't understand their service costs and their sources of profitability well enough. In many cases, prices\u2026","rel":"","context":"In &quot;Investaura Analysis&quot;","img":{"alt_text":"","src":"https:\/\/i0.wp.com\/www.investaura.co\/wordpress\/wp-content\/uploads\/2024\/07\/Business_Planning2.jpg?fit=1024%2C631&ssl=1&resize=350%2C200","width":350,"height":200},"classes":[]},{"id":775,"url":"https:\/\/www.investaura.co\/wordpress\/2011\/02\/calculating-your-customer-lifetime-value-correctly\/","url_meta":{"origin":1644,"position":4},"title":"Are you calculating the Customer Lifetime Value (CLV) correctly?","date":"February 11, 2011","format":false,"excerpt":"There are two main mistakes that people do when they calculate the CLV.\u00a0 \u00a0The first one is to simply multiply the customer ARPU by the EBIT margin of the company to estimate the customer profitability in a given month.\u00a0 This is quite bad, but the second mistake is a lot\u2026","rel":"","context":"In &quot;Investaura Analysis&quot;","img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":5609,"url":"https:\/\/www.investaura.co\/wordpress\/2018\/02\/whitepaper-customer-product-costing-profitability-analysis\/","url_meta":{"origin":1644,"position":5},"title":"Whitepaper on Customer &#038; Product costing and Profitability analysis","date":"February 12, 2018","format":false,"excerpt":"Investaura is pleased to present its new whitepaper on Activity-Based Costing and Profitability Analysis, which provides a step-by-step roadmap for a successful implementation over a 5 week period. Service Costing has the reputation to be complicated and time-consuming to implement. It doesn't have to be so. Using the eTOM business\u2026","rel":"","context":"In &quot;Whitepaper&quot;","img":{"alt_text":"","src":"https:\/\/i0.wp.com\/www.investaura.co\/wordpress\/wp-content\/uploads\/2024\/07\/Business_Planning2.jpg?fit=1024%2C631&ssl=1&resize=350%2C200","width":350,"height":200},"classes":[]}],"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/www.investaura.co\/wordpress\/wp-json\/wp\/v2\/posts\/1644"}],"collection":[{"href":"https:\/\/www.investaura.co\/wordpress\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investaura.co\/wordpress\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investaura.co\/wordpress\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investaura.co\/wordpress\/wp-json\/wp\/v2\/comments?post=1644"}],"version-history":[{"count":17,"href":"https:\/\/www.investaura.co\/wordpress\/wp-json\/wp\/v2\/posts\/1644\/revisions"}],"predecessor-version":[{"id":5521,"href":"https:\/\/www.investaura.co\/wordpress\/wp-json\/wp\/v2\/posts\/1644\/revisions\/5521"}],"wp:attachment":[{"href":"https:\/\/www.investaura.co\/wordpress\/wp-json\/wp\/v2\/media?parent=1644"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investaura.co\/wordpress\/wp-json\/wp\/v2\/categories?post=1644"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investaura.co\/wordpress\/wp-json\/wp\/v2\/tags?post=1644"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}