This action might not be possible to undo. Are you sure you want to continue?
Annual churn rate with contracts: 2 % * 12months = 24%
Annual churn rate without contract : 6 % *12 = 72 %
The difference is 48%
For AT & T with a customer base of approx20.5 million, this would mean that it wouldhave to acquire an additional of 9.84 millioncustomers at the cost of 3.64 billion tooffset customers lost to the higher churnrate.
____________________________________________________________________________________ Additional customers lost o churn : 48 % *20.5 million = 9.84 m customers
Acquisition cost per customer $ 370 percustomer
Total cost of offsetting higher churn rate: $370 * 9.84m = 3.64 billion
Hence a strong reason to hold customers through contracts regardledd of the customer dissatisfaction.
____________________________________________________________________________________ Pricing levels
Break even analysis
Monthly ARPU $ 52
Monthly cost to serve is $ 30
Monthly margin is $ 22 ( 52-30)
Time required to break even on theacquisition cost is
$ 370/22 = 17 months
Annual retention rate in thisindustry is .76
1- ( Monthly churn rate * 12months) = 1 – 0.02 * 12 = .76