Customer Churn Rate

By QuickBooks Canada Team

1 min read

Customer churn is the rate a company loses clients. It measures how many customers have previously done business with a company but no longer use their products or services.. The customer churn rate is used to gauge how many customers are leaving and can result in creating strategic initiatives that address how to retain clients. Customer churn can also be directly correlated with the customer loyalty of a company; businesses with lower churn rates have more loyal customers. Customer churn is calculated by taking the difference between the number of customers at the beginning of a period and the number of customers at the end of a period and then dividing this difference by the number of customers at the beginning of the month. For example, if a small business had 225 customers at the beginning of the month and 215 at the end of the month, the customer churn rate would be 4.4%, or (225 – 215) / 225. If the number of customers has increased, the churn rate is negative. Customer churn is an important metric for companies to measure and understand, as it is a leading indicator of potential issues. For example, customers may have stopped doing business because of poor customer service, better pricing elsewhere, a lack of product quality, inconvenience of good or service delivery, or a loss of demand. Although calculating customer churn doesn’t indicate which of these factors has resulted in your customer base decreasing, it may indicate that further investigation is needed.

References & Resources

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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