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Understanding Burn and Churn Rates

Narendra Kumar

| Updated: Feb 05, 2018 | Category: Latest News

Churn

The term “Churn and Burn” has been used to describe the activity of brokers trading on clients’ accounts in order to drive up commissions, not client value. Burning and Churning occurs when a broker makes unnecessary trades for profit on account of his clients. Burning and Churning is illegal and unethical. A Churn rate means the attrition of customer, i.e. those customers who had to stop using a particular brand or service of the company over a period of time. To calculate the Burn and Churn Rates, the company should add the aggregate number of customers discontinued and divide it by an average number of total customers.

Churning for Feedback

Big companies keep a watch over the churn rate, a report is created providing them with the feedback. The report contains the details of marketing efforts to a specific division, price change and a decrease in the product being counterfeited. More importantly, the reports provide the detail of the customer i.e. the duration or period with which the customer is linked to the company. This is very valuable for every Category business organization[1] to get feedback from the customer so that the company can implement new changes in management and policies.

The main motive of all brander marketer is to stay together and to retain the brand value in the market. Creating a healthy environment for such customers who is brand loyal and letting them not to go. Therefore, the company has to access the churn rate at regular intervals. Criminal or illegal activities within the business will damage the objective of the company for retaining their customers.

Low VS. High Churn

Wherever there is a conflict with counterfeiting such as high fashion, the company or brand owner should create a healthy environment where there is a low churn rate. The products or brands with a high churn rate continuously exploit the customer while gaining the new one.  Such brand makers should base their advertising strategy and find out the reason why the customers are not stable and are vulnerable to jumping ships.

If the churn rate is low, most of the loyal customers will stick together with the company. They will be least bothered about the changes in other brands. The loyal customer will finally purchase the material which the company sells. This will also eradicate the competition from the market.

The brand maker sometimes has to face challenges of the influential customer. Such type of customer is prone to switch to a different brand. While the loyal customer also purchases the product of the same brand which they are purchasing for a long time.

sIn view with the financial aspect, brands with low churn spend more to acquire a new customer but the lifetime value of those customers will be worth it. For brands with high churn attract new customers with a low budget but the lifetime value remains low.

Narendra Kumar

Experienced Finance and Legal Professional with 12+ Years of Experience in Legal, Finance, Fintech, Blockchain, and Revenue Management.

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