What Is Churn Rate?

Key takeaways

Customer churn rate is the measure of how often your customers or employees discontinue association with your organization over a set period of time. 

• To calculate churn rate, compute the number of lost customers or employees divided by the total number of customers or employees, then multiply by 100. 

• A low churn rate tends to mean your audience is satisfied with your organization’s services or environment, while a high churn rate may indicate the need for further evaluation.

• You can use churn rate alongside other customer insights as a digital marketer to uncover motivations behind customer behavior.

Learn more about what churn rate is, how to calculate it, and how utilizing this metric may improve your business strategy. To start preparing for a career in digital marketing, consider the Google Digital Marketing & E-commerce Professional Certificate. In as little as six months, you can learn the fundamentals of digital marketing and e-commerce to gain the skills needed for an entry-level job. By the end, you’ll have a shareable certificate to add to your professional profile. 

What is a good 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.

Read more: What Is a Brand Strategy? And How to Create One 

Customer churn rate meaning

Customer churn rate is a metric used to measure how frequently customers discontinue their association with a company within a specific time frame. 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 time frame. For a company to achieve successful expansion, its growth rate must exceed the churn rate.

How to calculate churn rate

In order to calculate churn rate, digital marketers use a mathematical formula called the churn rate formula. This formula calculates customer and employee attrition rates over a specified time period. 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) × 100. This will give you the percentage of how many customers or employees left the company.

Churn rate analysis

The goal of performing a churn rate analysis is to learn why your customers are leaving. If you can successfully identify some of the factors that are contributing to the churn, you can take measures to mitigate your losses. Churn rate analysis can help you improve your customers’ experiences, identify friction points, optimize your product, and ultimately increase customer retention.

What is churn rate in business?

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 the 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. A 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 life cycle of customer decay.

Related terms

• Bounce rate

• Clickthrough rate (CTR)

• User story

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