Sorting the “money makers” from the “value-destroyers”

Sorting the “money makers” from the “value-destroyers”
Could a small cohort of customers be costing you millions in profits? Telecoms companies must protect their revenues by focusing their energies on seeking out profitable subscribers. How can CSPs refocus their attention away from value-destroying customers and towards the money makers?

In another sign of the broken state of telecoms pricing, one in five subscribers are “value-destroyers”, according to a new report from Sagacity, creating a “multi-million pound revenue leak” for telcos every year.

While roughly 80% of new customers are profitable, with the top quartile of these estimated to bring in over 65% of profits, around 20% of new customers are costing 40% of profits through a “high cost to serve, high cost of acquisition, and high churn rate.”

To highlight the disparity in profit generated by these customers, Sagacity has created four categories of user based on the value – or otherwise – that they generate:
  1. Value-destroyers: these one-in-five customers that have a negative lifetime value, proving costly to acquire for a short contract period.
  2. Plodders: customers that have a lower churn rate and lower cost to serve than the value-destroyers, but don’t offer much in the way of opportunities for upgrades or upselling.
  3. Swingers: customers with the potential to become money makers, but may also have a propensity to churn.
  4. Money makers: low-cost customers with long contract lengths and high monthly spends – the ideal telco customer.
Rather than fostering the money makers though, many telcos dedicate their resources to winning new subscribers at all costs, offering customers reduced prices and bundles that completely obliterate their margin. If these methods are all to onboard value-destroyers or plodders with a high cost-to-serve, only to churn, then this cost to acquire is simply not worth it.

Telecoms companies need to move away from “vanity figures” such as customer acquisitions or ARPU, and towards more value-based models, according to Harry Dougall, co-founder and CFO of Sagacity. “To really compete,” he argues, “telecoms companies need to start making business decisions based on the value of their customers, not how many customers they have.”

Telecoms companies can increase their number of money makers, while reducing the time and energy spent on the value destroyers, using AI and machine learning with key metrics such as cost of acquisition, contract length and churn, to build new models for customer lifetime value.

Creating these models, though, requires breaking down of data silos that make it hard to bring all the necessary customer information together through pre-integrated solutions, with Open APIs making it easy to get data in and out of BSS/OSS.

Through digital customer engagement, telcos can onboard and retain the money makers and swingers, and create greater opportunities to upsell, while lowering the cost of serving plodders and value-destroyers through personalisation and target offers that are most likely to drive profitability, helping to retain the right customers while reducing the cost of servicing those less valuable ones.

Ensure you’re getting the most value out of your customers with Cerillion’s Enterprise BSS/OSS suite. Get in touch with us today to find out more.