Why Increasing Cancellation Rates is Good News!

An IT company was concerned about the rising number of cancellations they were experiencing with the service contracts they sold. These contracts were payable monthly with a minimum term of 4, 6 or 12 months. They were unable to work out if the increase in cancellations was due to:-

• Rapid growth since 2005?
• Increasing customer dissatisfaction?
• Lack of a credit controller in recent months?

Why the Company Came To Me & What I Did For Them

They realised that a statistician was the best person to answer these questions and they turned to me due to my ability to convert their business objectives into SMART statistical objectives. It did not take me long to build a statistical model to discover the following:

• The increase in the number of cancellations was almost entirely due to a bigger business and more customers with longer minimum terms.
• The recent lack of a credit controller had a minimal impact.
• Whilst the expected lifetime of a contract was longest for those with 6 month minimum term, the expected income was highest for 12 month minimum term contracts.

What Happened Next

Using the model I built, I developed an easy to use spreadsheet tool to predict the expected number of cancellations for the next few months. The tool included a range around the forecast known as control limits. If the actual number of cancellations was within this range then there was nothing to worry about.

The company was delighted with the way I was able to apply complex statistical methods in order to answer simple questions in a way that was clear to everyone.  They now had a tool that would stop them from wasting time on non-issues and instead use statistical thinking to identify when they had to take action.

Within a few months, the model proved its worth by identifying a problem they never realised existed with their clients!