This last disconnect post (for a while) will cover a few odds and ends on churn.
- Establish a clear definition of disconnect: For example, a disconnect is an event where an existing customer no longer needs a particular service thereby causing revenue to be removed from our billable run rate.
- Include re-rates: It is usually better to retain a customer and lower the price than lose the customer all together. However, the disconnect process must capture the impact of price decreases. It should be categorized differently than a pure disconnect.
- Disconnect metrics should capture both disconnects and re-rates: Though re-rates are less painful, they still must be included in reports that track the revenue attrition.
- Include disconnects that are associated with upgrades: In Telecom-land, a customer disconnect is sometimes the result of the customer stepping-up to a higher level of service. For example, the customer replaces an OC-3 with an OC-12. Sometimes these are referred to as good disconnects especially if the amount of revenue is higher after the upgrade. My philosophy is to treat these disconnects just like all others–and treat the new service as a new sale. The net positive impact comes out in how we track net installs (that is, gross installs less gross disconnects.) For those who treat good disconnects differently, I offer a word of caution. Read my prior post again to understand how tempting it is to call murky situations a good disconnect if this term is more socially acceptable than a bad disconnect, thereby creating false security.
- Verify accuracy of reporting: I’m not sure exactly how our folks do this but I know they do. In general, they run billing reports that compare this month’s recurring revenue to the prior month. Changes are flagged and compared to the disconnects that are tabulated in the managements reports. The goal is that 100% of actual billing changes have been included in management reports–and vice versa. When there are exceptions, the process is analyzed for what caused the miss and the process is tightened as a result. The goal is two-fold: (1) we don’t want a false sense of security about what is really happening with disconnects, and (2) we want to make sure revenue that should be billed is in fact billed.
- Set reasonable goals: Generally speaking, a disconnect rate of 1% or less is excellent. (1% means that 99% percent of last month’s revenue was retained during the current month.) 1.2-1.4% is usually acceptable. 1.4 to 1.7% is manageable but not comforting. Above 1.7% is generally a sign of bigger problems.
With this completed, I hope to never have to write about disconnects again. More importantly, I hope I side-step the next Disconnect Inferno.
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