When you’re deciding where to invest capital or what changes to make in your business, you need accurate data. Data also lets you know whether you’re retaining customers or subscribers. One of the most valuable pieces of data is the churn rate, also known as the rate of attrition. Your churn rate is the percentage of customers or subscribers who leave your company or discontinue a service over a given period.
To calculate the churn rate, simply divide the number of customers lost over a given period by the number of customers you had at the beginning of the period. For example, if you started last quarter with 10,000 customers and lost 300 customers during that quarter, divide 300 by 10,000 to arrive at a churn rate of 0.03, or 3 percent. So is this a good churn rate or not? To answer this question, you need to compare this rate to your growth rate. Your growth rate is the number of new customers divided by the total number of customers at the beginning of the same period. If this number is greater than your churn rate, your business is growing. If it is smaller, you’re losing customers. Use this method to determine whether your whole business is losing customers, or use it to measure one segment or department. You can also apply the formula to employees to see how well you are retaining workers.
Churn rates are particularly important to watch in some industries, such as the telecommunications industry. A recent study focused on the 400 million cell phone subscribers in the United States. With 100 million cell phone users spread among the top four providers and a monthly churn rate of 1.9 percent, the cost of acquiring new customers is the difference between profit and loss for these companies. Reducing customer churn rates comes down to improving product offerings, customer communications and customer service.