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You may like to refer to the measure cost of customer attrition for some more information. This KPI class is an indicator of customer satisfaction and retention.
Business Objective behind this KPI-Class
Minimize (or optimize) the customer Attrition
Definition and Calculation formulae
%age customers attrited = number of customers attrited in a given period of time/ total customer base
Explanation and Specification
This KPI does not cover the value of business lost due to customer attrition. There are two aspects of customer attrition. One is the number of customers which are attriting and second is the inherent business value of the customers which are attriting. These are related but different KPI classes. This KPI is for the number of customers attrited.
Type of KPI
- Lagging KPI (as the customer has already attrited)
- Period activity KPI- The number of customer attrited over a period of time.
example of KPIs in this KPI-Class
Within the customer attrition KPI class, followed are examples of some specific KPIs
- Average number of customer attrition for a given tenure (for example average number of customers attrited with tenure of six months or less).
- % age of customers attrited
- Rate of growth or decline in %age customer attrition.
Specifications
Customer attrition number is an important KPI-class to keep track of lost business. As mentioned in cost of customer attrition, companies are prepared for healthy customer attrition, whereby the life time value or current relationship value of a customer does not meet the ROI requirements of a company.
Customer attrition is defined, when a customer has either closed the account with you or customer has inactivity for a long period of time. For example- A customer closing the bank-account or not doing any banking activity over many years can both be termed as customer attrition. However, one has to be careful that one segregates these cases when one is measuring the level of customer attrition.
TIP- When you look at your attrited customer for regaining them, it is preferable to focus on the customers who have not closed their account with you but are not using your services. I have some inactive bank-accounts, but surprisingly no bank has contacted me to check on the reasons and tried to start my activity or usage. This tells me that the focus on the managing customer attrition is less than desired.
The other facet of customer attrition is on if a customer has attrited for one product or for all the products. For example, a customer may cancel his landline with you, but still keeps his mobile connection. An organization for this purpose has to have the capability to link a customer with different products- or in other words a single customer view across different relationships.
Coming to denominator- So far we have talked about different versions of the customer attrition figures in the numerator of the calculation- that is on how to calculate the number of customers attrited. Now let’s look at the various shades of the denominator- that is the overall customer base, against which the %age customer attrition is being calculated.
The denominator can be various shades:
- Simple count of the current customer base at the end of the period
- Average count of the customer base across the period
- The count of the total customers may or may not include the attrited customers. For example, if 10 customers out of hundred have attrited, the denominator can be 90 or 100.
- The overall customer base can be linked to the tenure. For example you can say that my customer attrition for customers more than 6 months tenure is 10%, whereby it is calculated not on the overall customer base, but the customer base which are more than 6 months old. Therefore you can have two options with you:
% age customer attrition for 6+ months tenure/ total customer base
OR
% age customer attrition for 6+ months tenure/ total customer base with over 6 months tenure
As a personal view we would recommend to use the second option as it gives you a more realistic picture.
NOTE- there is no hard and fast rule on which version of the above you should select for your calculation. The key is that you should be clear on what you choose, and be consistent with it. Secondly, your audience should know the formulae you are using.
Calculation of Expected Standards
What is the acceptable vs. unacceptable level of customer attrition?
You will need to set-up different standards for different customer segments, product lines and geographic locations. A decent proportion of the customer attrition figures are driven by these factors. However, a great degree of play is also linked to the company strategy and objectives. The inputs which can be taken to decide on your standards is:
- Industry benchmarks for given customer segment, product line and the geographic location.
- Past levels of customer attrition (you cannot change your attrition figures overnight.
- Your own strategy and focus around customer retention.
The success drivers for reducing customer attrition
These success drivers are mostly same as that increasing customer satisfaction
- Trust relationship with the customer
- Customer service and support
- Customer relationship and constant touch
- Level of customer satisfaction
- Product and services meeting customer expectations
- Product Quality
- Customer sales experience
- Customer post-sale experience
Interpretation and Analysis for attrition of customer
Customer attrition is a lagging indicator. Following are some of the leading factors, which would be pointing to the expected higher level of customer attritions:
- Level of Competition in terms of value proposition
- Increase in the number of customer complaint figures
- The reduction in the customer satisfaction index- Your satisfaction index should be moving south
- The deterioration in the metrics related to the order fulfillment- Are we delivering to the customer late?
- The deterioration in the turn around times in resolving customer issues- A higher TAT means more dissatisfied customer.
- The reduction in repeat purchase or the level of usage of your products and services.
TIP-Increase in the customer attrition should prompt a more intense customer survey, not only with the existing customers, but also with the customers, who have attrited. While your delivery and other operational metrics should point to the reasons for increased attrition, a focused survey will throw-up lot of blind-zones.
Measures related to this Customer Attrition KPI class
- Number of existing customers
- Number of attrited customers
Dimensions or attribute on which you can slice and dice this KPI class
- Customer attrition as per Customer Segment
- Location level customer attrition (KPI performance for London area)
- Product-level customer attrition (KPI performance for specific set of products)
- Business Unit
- Time period over which the customer attrition has happened
- Tenure slab of the customers (for example, % of customer attrition for all customers have more than one year old relationship)
Direction of improvement
Reduce
Industry Relevance
All
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