Churn rate
Also called: attrition rate or attrition rate
Churn rate or attrition rate is an expression of the number of customers dropping out or canceling members or subscribers. In Dutch, it is also referred to as attrition rate. The degree to which a company manages to retain customers is an indication of customer satisfaction (or dissatisfaction). Churn rates are usually expressed as an absolute number or percentage of cancelling subscribers per month or per year.
The indicator appears in a variety of contexts, but is most relevant to providers that operate on a subscription model. These include telecom providers, on-demand services, newspapers and magazines.
The churn rate is an important factor in the customer lifetime value (total value generated by customers) and return on investment of marketing activities. Every customer who leaves represents a loss of revenue and return on previous investments. Compensating for this requires new commitment.
The attrition rate or churn rate also says something about the potential for growth. When a company continuously loses many customers, it is advisable not only to focus on acquiring new customers, but also to ensure that they are retained for longer.
Churn rate and customer lifetime
A simple calculation shows that at a churn rate of 25% per year, the average life span of customer relationships is four years.
In addition to improving customer satisfaction, there are other, more direct ways to reduce churn rates and retain customers longer. For example, by making it more difficult to switch to a competitor's product or service using vendor lock-in or by rewarding loyalty with a loyalty program.
When analyzing churn rates over time, it should be kept in mind that a departing customer can also return within a certain period of time. Hence, a distinction must be made between the total number of churns (gross churn) and the actual loss of customers (net churn).
In addition to churn rate, survival rate is also considered. This is the exact opposite, namely the number of customers or subscribers who remain loyal in a given period. The survival rate can be derived from the churn rate by taking the difference by 1 (or 100%).
