As the market becomes saturated, competition becomes fiercer and the cost of attracting subscribers also increases for a telecoms operator, such that becomes more realistic for the operator to concentrate on stemming the tide of subscriber outflow than to invest in attracting new subscriber inflows.
About the Subscriber Outflow
The normal subscriber outflow value for Internet access services and digital TV is between 1.2% to 1.5% of the subscriber base (in physical persons) per month, in conditions of moderate competition and good quality of services. But for many telecoms operators it reaches 2-2.5% per month, that is, every fourth subscriber leaves a year. This figure indicates that it is time to start serious work to reduce and better control the subscriber outflow.
Invest in attracting new subscribers or in retaining old ones? To do this, you can use the indicator CLV – Customer Lifetime Value, which (simplified) is equal to the sum of all subscriber payments for the entire time of its activity. However, if you measure CLV on the entire subscriber base, you will get an average. CLV values for active and leaked subscribers differ.
How to correctly calculate the CLV and the duration of the subscriber’s activity? How do you know if it’s leaked? CLV is easy to calculate in any telecom billing software, adding up all payments for the lifetime of the subscriber. If you count “by science”, you need to discount the future cash flow, but with a short period of subscriber activity for the sake of simplicity, this can be ignored.
The period of activity is calculated as the difference between the highest completion date of any service (except for non-payment blocking) and the smallest start date for any service. A subscriber is considered to be leaked if he has not used the services for more than N months in a row. The value of N each operator can select for their particular case, usually, it is within 2-6 months.
Let’s start the journey to the world of numbers by comparing the benefits of investing in attracting new subscribers or in retaining a greater percentage of existing subscribers.
Investing in Attracting a Subscriber
Let’s say that attracting a new subscriber – marketing, work, and materials – costs $3,000 at CLV $11,000. Add into this the variable costs for the maintenance of the subscriber (30% of CLV – additional load for technical support and subscriber department, trips for faults) which make up another $3,300. From this scenario the numbers break down into the following calculation, $11,000 – $3,000 – $3,300 = $4,700. This gives a return on investment formula that is represented as 4700/3000 – 100% = 56%
Investing in Subscriber Retention
Let’s say that holding a subscriber with a loyalty program costs about $500 per subscriber, for his entire life and the total CLV as a result grows by $1,700, of which 30% are variable costs. The total return on investment in this scenario is $1,700 * 70% / 500 – 100% = 138%.
We have displayed all calculations in the full detail so that you f can calculate the benefits of preventing outflow on your data for yourself and make the right decision. The right marketer is not someone who runs around the office pestering everyone with another crazy idea. The right marketer is a pedant who lives in a world of numbers. Before the action, he makes a bunch of calculations and until they show a positive ROMI, no one will lift a finger.
So, we propose the following algorithm for combating outflow:
- Establish constant monitoring of the parameters of the subscriber base:
- Dynamics of outflow (in absolute values and percentages) monthly.
- Calculate CLV for leaked and active subscribers separately.
- Schedule distribution of outflow of subscribers from their CLV.
- If there are anomalies in the figures, be sure to study them. They can lead to surprises.
- Compare your data for return on investment in attracting and retaining subscribers.
- Make a decision – is it worth halting the outflow now?
The analysis should result in a set of goals for developing a suitable loyalty program. Of course, you will not be able to prevent the subscriber outflow. You can compete only for those subscribers who are losing their loyalty to you. It is worth keeping in mind that not all subscribers will participate in any loyalty program and not all its members will take advantage of any enjoy privileges offered, so on average, the total cost is smaller than it might seem. Of course, the cost of retention is calculated so as not to work out as a negative. Figures can vary from operator to operator, but in any case, the cost of retention should be much less than the cost of attracting new customers.