AREAS UNDER THE RETENTION CURVE
 

 

 

 

 

 

 

 

 

 

 

 

 

 

P The area under the customer retention curve is the average customer lifetime for the period of time in the curve. For instance, for a retention curve that has 2 years of data, the area under the curve represents the two-year average tenure. This simple observation explains how to obtain an estimate of the average customer lifetime. There is one caveat when some customers are still active. The average is really an average for the period of time under the retention curve. Consider the earlier retention curve in this chapter. These retention curves were for 10 years, so the area under the curves is an estimate of the average cus­ tomer lifetime during the first 10 years of their relationship. For customers who are still active at 10 years, there is no way of knowing whether they will all leave at 10 years plus one day; or if they will all stick around for another century. For this rea­ son, it is not possible to determine the real average until all customers have left.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

A group of customers with different tenures are stacked on top of each other. Each bar represents one customer. time At each point in time, the edges count the number of customers active at that time. Notice that the sum of all the areas is the sum of all the customer tenures. Making the vertical axis a proportion instead of a count produces a curve that looks the same. This is a retention curve. The area under the retention curve is the average customer tenure. Although we don’t generally advocate comparing customers to radioactive materials, the comparison is useful for understanding retention. Think of cus­ tomers as a lump of uranium that is slowly, radioactively decaying into lead. Our “good” customers are the uranium; the ones who have left are the lead. Over time, the amount of uranium left in the lump looks something like our retention curves, with the perhaps subtle difference that the timeframe for ura­ nium is measured in billions of years, as opposed to smaller time scales.