The churn rate, also known as the rate of attrition or customer churn, is the rate at which customers stop doing business with an entity.
It is usually expressed as the percentage of customer doing business transactions with a company who discontinue their purchases within a given time period.
It’s also used in Human Resources in this case is the rate at which employees leave their jobs within a certain period.
For a business to expand its customer base, its growth rate (measured by the number of new customers) must exceed its churn rate.
Key Points
The churn and growth rates are diametrically opposed factors as one measures the loss of customers and the other measures the acquisition of new customers.
The churn rate is especially important in market segments where revenues are heavily dependent on repeated business or done on subscriptions bases.
The churn rate measures the number of customer or employees transitioning away from a service or job over a specific period.
Let’s understand Churn Rate
A high churn rate could harmfully affect profits and be an important stopper to business growth.
Churn rate is evaluated in many business sector and if we look at the retail industry is an important factor.
In most areas, many of retail players compete, making it easy for customers to transfer their business with offers, promotions and new products.
The churn rate not only includes when customers switch shopping destination, but it also includes when customers stop shopping for a given merchandise category without switching.
If for instance we apply this principle in the mobile phone providers panorama ( which mostly operate on subscription basis and its a business where providers fight with offers to make customers switch) This measurement is even most valuable because the sign up fee is a big chunk of revenues and profits.
Churn and Growth Rates
A company can compare its churn and growth rates to determine if there was overall growth or loss.
Whilst the churn rate tracks customers that are lost, the growth rate tracks new customers that are acquired .
If the growth rate is higher than the churn rate, the company experienced growth.
When the churn rate is higher than the growth rate, the company experienced a loss in its customer base.
Let’s look at Churn Rate in Employment
Employee turnover within a business can also be measured with the churn rate, as it provides a system for analyzing the company’s hiring and retention patterns.
This can be especially helpful if overall employee longevity within a company is low or below average.
When statistics are examined on a department basis, it can highlight which particular departments are experiencing more frequent turnover within the company, highlighting other causes otherwise hidden.
Raffaele Felaco
UpBiz 