1 and 8 customers will not renew their contract after 1 year if you attract 720 new customer this year how many of them will on average cancel their contract next year
The Correct Answer and Explanation is :
To determine how many customers will cancel their contracts next year based on the information provided, we need to calculate the average cancellation rate and apply it to the new customers acquired this year.
- Understanding the Cancellation Rate:
- You mentioned that 1 out of every 8 customers will not renew their contract after one year. This means the cancellation rate can be expressed as a fraction:
[
\text{Cancellation Rate} = \frac{1}{8} = 0.125
] - This indicates that 12.5% of customers will cancel their contracts after one year.
- Applying the Cancellation Rate:
- If you attract 720 new customers this year, we can calculate the expected number of cancellations next year using the cancellation rate:
[
\text{Expected Cancellations} = \text{Number of New Customers} \times \text{Cancellation Rate}
]
[
\text{Expected Cancellations} = 720 \times 0.125
]
[
\text{Expected Cancellations} = 90
]
- Conclusion:
- Therefore, based on the calculation, we can expect that approximately 90 of the 720 new customers will cancel their contracts after one year.
- Explanation of the Calculation:
- This calculation assumes that the cancellation rate remains constant and applies uniformly to all new customers. It is important to note that customer behavior can be influenced by various factors, including service quality, customer satisfaction, and market conditions, which could affect actual renewal rates.
- Monitoring customer feedback and adjusting services accordingly can help in reducing the cancellation rate over time. For example, implementing loyalty programs or enhancing customer engagement can increase retention rates.
In summary, from attracting 720 new customers, we can expect that about 90 will not renew their contracts next year, based on the given cancellation rate of 1 in 8.