How to project customer retention

At the heart of any contractual or subscription-oriented business model is the notion of the retention rate. An important managerial task is to take a series of past retention numbers for a given group of customers and project them into the future to make more accurate predictions about customer ten...

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Bibliographic Details
Published in:Journal of interactive marketing 2007, Vol.21 (1), p.76-90
Main Authors: Fader, Peter S., Hardie, Bruce G.S.
Format: Article
Language:English
Subjects:
Business models
Customer retention
Regression analysis
Studies
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Summary:At the heart of any contractual or subscription-oriented business model is the notion of the retention rate. An important managerial task is to take a series of past retention numbers for a given group of customers and project them into the future to make more accurate predictions about customer tenure, lifetime value, and so on. As an alternative to common “curve-fitting” regression models, we develop and demonstrate a probability model with a well-grounded “story” for the churn process. We show that our basic model (known as a “shifted-beta-geometric”) can be implemented in a simple Microsoft Excel spreadsheet and provides remarkably accurate forecasts and other useful diagnostics about customer retention. We provide a detailed appendix covering the implementation details and offer additional pointers to other related models.
ISSN:1094-9968
1520-6653
DOI:10.1002/dir.20074