Definition of “Churn” [follow up to "Pizza Post"]

I forget that not everybody’s done time in retail. Sorry.

"Churn" is the propensity for a customer to switch from one brand to another within a category, or for a worker to switch from one company to another within the same industry. It’s worse than simply losing a customer or an employee, because you’re not just down one unit, you’re actively contributing to a competitor.  It’s a net comparative loss of at least two units, if you catch my drift; you’re down one and your competitor is up one. Plus the fact that you’re out whatever investment you put into your customer or employee.

For example: to attract , train, house, equip, water, weed and polish a good, new associate for 3-4 years,  a firm these days probably has to spend between $200-$400k above and beyond what they’re able to bill them out for. If they then lose that associate to another firm, they’ve "churned" them to a competitor. So not only have they lost a worker, but they’ve paid $200k to train someone to go work at a firm that could take business away from them. And they’ve paid $200k for someone to take all his/her networking connections with them.  And they’ve paid $200k for someone to go badmouth them all over the place at their new digs. You get the picture. It’s bad on both ends.

What makes this  even more interesting, is that most firms don’t even think of 99.9% of all other firms as competitors, unless they are directly vying for very specific types of work in the same markets. Which is crap — all firms are in competition for a variety of resources other than clients; smart young lawyers being one of the most obvious.

So that’s what churn is. And it’s a bad thing. Good managers spend lots of time thinking about ways to decrease it. Bad managers make up excuses about why it’s inevitable. See how many of these phrases sound familiar to you:

• "He was simply a bad fit."
• "She never really connected with our culture."
• "He couldn’t find enough work to do."
• "She wasn’t able to gain the trust of the partners."
• "He wasn’t really sought after by the successful teams."
• "She wanted something different than she could find here."

All crap. Crap, crap, crap. Total and complete wind.

Here’s how you can tell. Imagine that you had one major client who represented almost all of your billable work. You devoted tons of time and effort to making them happy. And then, all of a sudden, they fired your firm. Out of the blue. And the only reasons they could give you were ones as vague and unspecific as those in the bullet list above.

Don’t get me wrong; by the time somebody leaves a firm on their own steam or is fired, there are usually a bunch of excellent, specific, measurable reasons why. But you’ll never know what they are. Because firms don’t measure associate and employee satisfaction. And they don’t do granular exit interviews, if they do them at all. So what you end up hearing is, "It just didn’t work out," or words to that effect. Which is as helpful as your doctor telling you, "We don’t know what the problem is. But we know it’s gonna kill you."

Marketing is about more than selling stuff. It’s about understanding how the decisions you make affect the perceptions and actions of everyone involved in your business. Advertising and pricing and web sites and PR are all at the tip of the iceberg. Developing systems to monitor and reduce associate and employee churn are deeper issues, yes… but they’re just as readily addressed by good marketing processes.

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Side note: It’s  called "churn" because it’s like water that froths in a closed container; nothing spills out, but there’s lots of movement. It has nothing to do with butter.