Definition

Customer churn rate or attrition rate is the rate at which a company loses its customers in a given period. In businesses with subscription models, churn rate means the number of subscribers who cancel or choose not to renew their subscriptions. A higher customer churn rate, correlates with more customers stopping business with the company, while a lower churn rate correlates with more customers that the business is able to retain.

Example

Churn rate is calculated as: (Lost Customers ÷ Total Customers at Beginning) x 100. Suppose a business had 250 customers at the start of the month and 10 customers dropped by the end of the month. In this scenario, the churn rate calculation would be (10 ÷ 250) x 100 = 4% monthly churn rate.

Why it matters

Every company, whether big or small, experiences customer churn. It is part of any business cycle that involves losing some and acquiring some customers. Understanding customer churn rate is important for businesses as it highlights the effectiveness of a company's marketing strategies and the customer satisfaction levels. It’s also easier and cheaper to retain customers as against acquiring new ones. Once businesses know their customer churn rate, they can deep dive into how, where, and why customers are leaving.

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