What Is Churn Rate?

Churn rate is a metric used to measure how frequently customers or employees discontinue their association with a company within a specific timeframe. It is commonly utilized by companies providing subscription services to assess customer attrition. 

The term "churn rate" can apply to both customer and employee turnover. For instance, it can represent the number of employees who leave a company in a quarter, year, or other designated period. Typically, churn rate is calculated as a percentage and compared to the company's growth rate, which denotes the number of new customers or employees acquired during a specific timeframe. For a company to achieve successful expansion, its growth rate must exceed the churn rate.

Companies use churn rate to measure either customer or employee satisfaction. A low churn rate tends to mean that people are satisfied with a business’s services or have good job satisfaction. Industry professionals generally agree that an annual churn rate of 5 to 7 percent is a good range. Anything higher than those percentages may point to poor company performance.

In order to calculate churn rate, digital marketers use a mathematical formula called the churn rate formula. This formula calculates annual customer and employee attrition rates. The steps are as follows:

1. Determine the total number of customers or employees at the beginning of the period you are analyzing.

2. Identify the number of customers or employees who left during that period and subtract it from the value in the first step.

3. Divide the value of the second step by the value of the first and multiply by 100 to determine your churn rate percentage.

So, churn rate = (lost customers or employees / total number of customers or employees) x 100. This will give you the percentage of how many customers or employees left the company.

Churn rate is a key part of a marketing strategy because it gives digital marketers insight into how their businesses are performing with customers. If churn rate is high, it might point to a decrease in product or service quality. It’s a solid indicator that something needs to change, and quickly. Churn rate that increases year over year might be a sign that there’s a fundamental issue that needs to be addressed. Companies experiencing more attrition than retention won’t expand or grow over time.

That being said, it’s important to remember that, while churn rate lets you know how many people are leaving, it doesn’t tell you why they're leaving. It’s up to the digital marketer to dig deeper and find out exactly what’s causing the churn. It may be that people are leaving after taking advantage of a one-time promotion, or they might be part of the natural lifecycle of customer decay.

Related terms

• Bounce rate

• Click-through rate

• User story

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