Churn means the loss of contacts in a database. This loss occurs, e.g. when the working population change jobs, retire, acquire a new e-mail address etc. Churn is ongoing which means that counteracting this data decay should be at the top of any database administrator’s agenda. If not, the result will inevitably be that the business is left with fewer and fewer people to send information to.
The degree of dropoff depends on the type of contacts contained in the database. After 25 years in database marketing business to business (B2B), our experience is that a 10-25% annual reduction in the number of contacts in the customer database should be expected. On an e-mail list of unknown origin, a loss of up to 95% of contacts each year should be expected.
Common estimates are approximately a 40% churn rate for telephone lists and 65% for mailing lists. For e-mail, this means that if the database had 100 active contacts (e-mail addresses) in January, only 35 active contacts would remain at the end of the year. After two years, only 12 active and 88 outdated contacts would be left.
The orange line in the graph shows the dropoff in the number of contacts over time. The blue line shows how the team at Icon Business Solutions (IBS) contributes to maintaining database quality through continuous maintenance.
The integral between the two graphs is contacts that remain in the CRM system. It still looks like the database has 100 contacts after five years, but in reality, only two potential customers remain. The other 98 contacts have changed jobs or employers, retired, changed contact information or opted out of the list.
This misinterpretation of data in a CRM system is called the invisible enemy. This means that database marketers assume that as long as the number of contacts remains fairly stable, the quality of the list will also be maintained. This also means that they are looking at the wrong target figures: numbers rather than active contacts.
The result of dramatically poorer databases is only felt when the response rate over time gradually reduces, but then other explanations are often sought. For example, weak communication, incorrect pricing, lack of knowledge among employees, waning customer loyalty, stronger competition etc. The reason for seeking other explanations is that the number of contacts in the database remains as expected. Businesses do not understand that the poor response to a campaign in Year 2 is due to the fact that the emails only reached 35 people, not the 100 that the database was thought to provide.
In the sections below, we will describe the factors that cause churn (the orange graph), and how the team at IBS works to counteract the dropoff (blue graph).
Dropoff 1: Mobility in working life
We start our working life, change employers along the way and end up as pensioners. The figures on how long we work, how often we change employers and how long we stay in the various workplaces vary, but the following are good indicators:
- On average, we work for 40 years. This means that 1 in 40 employees is either entirely new to working life or is on the way to retirement. 1/40 is 2.5%.
- We change employers every four years, which means a 25% turnover.
We then get a potential dropoff of:
- New employees 2.5%
- Job change 25%
- Retirees 2.5%
In total, this means a 30% rotation in the workforce. If we are not able to compensate for this, the number of correct contacts in the database will develop as follows:
The graph shows that after three years, only 49% of the original contact list are active contacts.
Dropoff 2: Internal mobility
Another factor that affects the level of churn is internal mobility, i.e. when people change jobs internally. Sometimes we stay in the same department. Sometimes we switch to a completely different role.
For example, a person in Company A may move from the position of logistics manager to operations director. This means that Company B, which sells warehouse solutions to Company A, loses a personal contact point (a lead). If Company B does not quickly find the name (and contact details) of the new logistics manager, the scope of sales to this company is reduced.
Sales companies often do not detect internal functional changes with potential customers (one type of churn/dropoff) as the telephone number and e-mail address of the original contact remain unchanged.
As a starting point for calculating how many people disappear from the target group due to promotion, relocation etc., we use the following numbers:
- Number of years between promotions: 2
- Percentage who are promoted to entirely new roles: 20%
This gives 20% divided by 2 = 10%.
We then add to this number the 30% dropoff due to mobility in working life and update the graph which then shows a 40% churn.
The graph shows that by Year 3, only 36% of the original list is usable for sales purposes.
Dropoff 3: Changes to business contact data
A great deal of dynamic change takes place in businesses during new setups, bankruptcies and other reasons for closure, name changes and mergers.
Our experience indicates that this figure is around 10%. This figure is reached by the looking at the bounce on our mailshots to large parts of the workforce in Norway and Sweden, which represents an average of approximately 0.2% per week. With 50 mailshots a year, there will be a total bounce of 10%.
Bounce in this scenario means e-mails that used to be delivered to the recipient, but which no longer are, even if the recipient is still with the company.
For an e-mail marketer, this means that 10% of the customer base is decaying. If we update the graph to include bounce, the graph will show a 50% annual churn rate:
As we can see, the basis for the list is disappearing faster and faster. Already by Year 2, it has been halved. This means that for every other contact we pick in the CRM system, every other contact will be unavailable or missing from the original target group.
Dropoff 4: Newsletter unsubscribes
Experience has shown that unsubscribes amount to 0.3% per mailshot. With 50 mailshots a year, this becomes 15%. This has been added to the graph, which now shows a 65% dropoff:
In Year 2, just over a third are left on the list. This shows the potentially sharp fall in the number of contacts we will experience if we fail to take action. With a 65% churn, we only have 4%active contacts left after three years!
IBS has a stable contact database
The master data team works continuously to keep data up to date and prevent dropoffs/churn.
Monitoring of changes in positions
We actively monitor companies on LinkedIn and Contact Us pages. We pick up changes to who moves on to new jobs and which companies recruit new employees.
These types of updates often need to be structured before they can be applied. Our algorithms perform two essential tasks:
- Structuring titles according to the methodology in I2OC-22, which stands for Icon International Occupational Classification
- Finding the exact employer. This is called company identity resolution and consists of matching the name the contact states as a company with its legal name.
Once this is done, the updates meet the criteria for the segments in the CRM system. If we have a segment where ‘product manager’ is to be included, each new contact with this title will automatically be added to this segment.
In principle, this takes place ‘under the hood’ and will be experienced as the segment being kept constant in size and response. This solves the problems of the 40% churn caused by internal and external mobility.
Monitoring of the company’s contact data
The IBS master data team monitors everything that may affect the company’s e-mail domain. This is mainly done at company level, and this especially applies to name changes, bankruptcies and mergers.
We capture this information by using daily updates from the public business registers in each country.
Monitoring of deliverability
Deliverability is the ability to get an e-mail to the customer’s inbox. Our team checks whether the company has recently set up a new e-mail domain, whether the e-mail syntax has changed and whether the sending domain is perceived as safe by the receiving company.
Based on this, we update the information and ensure that bounced e-mails arrive next time.
New contacts to replace unsubscribes
There will always be unsubscribes, but we reduce their number by sending targeted communications to targeted segments.
CRM and customer care have a strong focus on customer loyalty, where significant resources are spent on campaigns and other initiatives to increase loyalty. This is important, but there is probably more to be gained by getting back half of the contacts who have changed their jobs and company information than preventing 15% unsubscribes throughout the year.
The unsubscribes can still be compensated for by including related contacts in existing segments. The more leads we get, the more variations of titles, industries, cities etc. we will see among respondents. These criteria are easy to apply to existing queries using a tailored segment builder.
Summary of churn management at Icon Business Solutions
Churn has major negative consequences if no action is taken. Churn can be especially serious for e-mail marketers, but as in the examples shown above, this is manageable as long as we know the reasons and implement the right measures.
The dramatic difference between letting the decay run its course and how the master data team at IBS ensures that prospects are always available is shown below.
Active work to counteract contact database churn requires very particular knowledge and a willingness to troubleshoot. This is why you should contact the team at Icon Business Solutions to keep the users of your CRM system with continuously updated B2B contacts.