When you have to say goodbye to a customer there are significant costs involved. Firstly, many subscription businesses often spend time and money on unsuccessfully trying to retain the customer. While there are no direct payments, the wages of the customer service agent is an expense that needs to be tracked. Also, the resources used may be minimal but there is still an associated cost.
Another cost is the administrative effort into ensuring their account is closed and that all charges are up to date. While for the majority of software businesses this is often automatic, for some this may be manual. And you could have to pay back some of their fee if they haven’t finished a subscription period.
So Why Is This Needed In Forecasting?
Forecasting is an important business activity. You need to know exactly what funds are being generated and spent throughout the business. This helps you create a budget that is accurate and can help you grow your business. If you don’t include the costs of something this can be devastating. For instance, say you forget the customer churn is at 5 customers per month and each customer costs you £500 each – then the expenditure on customers leaving the business (£2,500) isn’t being accounted for.
This means that another area of the business, normally marketing, will have a reduced budget. If this is taken from your marketing budget then you risk not signing up enough members to replace those lost and therefore your business can start to shrink fairly quickly. This could contribute to your subscription service failing.
Another important aspect to consider is that when you are predicting growth you must remember to remove those leaving the subscription service at the same time. This is because when you are charting business growth it is not the number of new customers that you are signing up that is important but the net increase of customers. If there are more customers leaving than joining, then again, your business is shrinking rather than growing, even if you’ve signed up 100 new customers in the past month.
Why Does Your Accounting Team Need To Know This?
Your accounting team needs to be proactive when it comes to customer churn. They see the effects of customers leaving where it hurts businesses the most – the bottom line. If they see that customer churn is costing the company too much, then they need to inform management and start looking at the budget to see if they can reduce the cost to manage departing customers, or improve efficiency in other areas.
For instance consider marketing techniques, for example, is PPC costing your business too much and should it either be made more effective or dropped altogether? If your accounting team isn’t aware of the customer churn or does not present you with the best options for you to remedy the situation, then they are putting your business at risk.
It is essential that your accounting team carefully looks at the figures and informs you immediately what the charges are for customer churn in your business. Then they need to develop a plan to make it more cost effective and to improve results on retaining customers.
This way, your accounting team will become an active part in your revenue generating machine and help your business move forward and grow.