Why do we perform churn analysis, and how do we do it?

Customer churn is the loss of clients or customers (also known as customer attrition, customer turnover, or customer defection). This concept was initially used within the telecommunications industry when many subscribers switched to other service providers. However, it has become a very important issue in other areas of business, such as banks, internet service providers, insurance companies, and so on. Well, two of the primary reasons for churn are customer dissatisfaction and cheaper and/or better offers from the competition.

As you can see in Figure 1, there are four possible contracts with the customer in a business industry: contractual, non-contractual, voluntary, and involuntary. The full cost of customer churn includes both the lost revenue and the (tele-) marketing costs involved with replacing those customers with new ones. However, this type of loss can cause a huge loss to a business. Think back to a decade ago, when Nokia...