Churn Rate

How can I calculate the churn rate for my organization?

To calculate the churn rate for your organization, simply divide the number of churned customers, that is the number of customers that left your service over a certain period of time by the total number of customers you had during the period. Multiply the resultant by 100 to get the churn rate as a percentage.

What is the importance of churn rate?

Churn rate is an important metric since:

• It tells about the overall health of the organization with respect to the customer factor.
• It helps the organizations make long term plans.
• It helps in analyzing whether the organization is improving customer relationship and thereby customer retention.
• It helps in figuring out which customer to invest more on or which customer is more profitable.
• It also helps in determining the Customer Lifetime Value.

What is an acceptable churn rate for any kind of business?

An acceptable annual churn rate for most of the companies is in the range of 5 – 10%. It essentially means that 5 to 10 customers are churning out of every 100 customers per year. But this is not a constant and varies widely across businesses.

What are the types of churn rates?

They are broadly two types of churn rates:

1. Voluntary Churn Rate.
2. Involuntary Churn Rate.

How can you reduce the churn rate of your firm?

• Be proactive and understand your customer needs.
• Provide a good customer experience in terms of excellent service.
• Analyze the previous churn rate to improve on your strategies for new customers.
• Always stay competitive in the marketplace.
• Ask the existing customers any feedback that they might have.

How does churn rate impact growth?

Growth rate is the metric that determines the growth the organization experiences. The lower the churn rate and the higher the growth rate implies that the company is accelerating towards growth. Whereas, if the churn rate is higher than the growth rate indicates that the company is losing its customers.

Is churn rate calculated monthly or annually?

There is no rigid rule as to how many times you can calculate the churn rate for an organization. It can be calculated annually, quarterly or monthly as decided by the company. Also, if we want the churn rate metric to be robust, we need lots of data. Also, while switching the time frame for calculating churn rate, say from monthly to quarterly, it is crucial that the adjustments be made rightly to avoid any discrepancies. There is another thing to be kept in mind, that is, in the monthly calculation, there is an underlying assumption that no customer can churn in the first month.