The churn rate, or attrition rate, is a crucial indicator for businesses, measuring the proportion of customers lost over a given period.
In this article, we explore the churn rate, looking at what it means, how it’s calculated, the industries that use it, and strategies for reducing it.
Understanding Churn Rate
A key indicator of customer satisfaction and profitability, used primarily in subscription-based industries, it helps to assess customer satisfaction and loyalty, as well as company profitability.
Distinctions include total vs. relative attrition, and voluntary vs. involuntary churn.
How to Calculate Churn Rate
Methods and Importance in Customer Loyalty Monitoring.
Calculating the churn rate can be complex, with 43 methods of calculation listed.
The simplest methods involve dividing the number of customers lost by the total or average number of customers over a given period:
The method chosen must be consistent to track its evolution in a relevant way, and the analysis period can vary, being weekly, monthly, or yearly.
Who uses Churn Rate as a Key Performance Indicator (KPI)?
The churn rate is mainly used as a KPI in industries that rely on the subscription system.
This includes online services such as streaming platforms, telecom services such as cell phone providers, banking, insurance, and software-as-a-service (SaaS) companies.
In these industries, the churn rate is used to measure customer loyalty and satisfaction and is often seen as a direct reflection of the effectiveness of the customer offering and service.
Tracking this indicator is essential to understanding customer retention and long-term profitability.
Churn reduction strategies
To reduce churn, companies can explore avenues such as customer knowledge, customer service development and the use of CRM.
Customer knowledge is essential for understanding needs and expectations, while customer service ensures the relationship runs smoothly and efficiently.
The aim is to offer an optimal customer experience, improve customer satisfaction and reduce the attrition rate, thus contributing to the company’s profitability.
A practical example of Churn Rate Calculation
The simplest and most commonly used method for calculating churn rate is to divide the number of customers lost over a given period by the total number of customers over the same period.
For example, if a company has 1000 customers at the beginning of the month and loses 50 customers over the course of the month, the churn rate would be 50/1000, or 5%.
This method is beneficial for companies with a solid customer base and steady growth in the number of customers.