Glossary keyword - Churn Rate

Churn Rate

Churn rate, also called attrition rate, is a measure of the number of individuals or items moving out of a collective group over a specific period of time. It forms the two primary pillars that define the number of customers a business can safely support. The rate is used in different contexts. Most of the time, it is used in the business language in relation to the contractual customer base.

 

Revenue Churn

Revenue Churn is an application of churn rate that seeks to determine the monetary loss a business establishment of the divided by the total recurring revenue over a period of time. Business models like Software as a Service (SaaS), which rely on repeating revenue models depend on revenue churn calculations.

 

Customer Churn Rate

In terms of customer relations, churn is the number of contractual subscribers or customers, a supplier loses over a given period of time. This calculation determines various aspects of business performance like customer satisfaction or dissatisfaction, business package competitiveness, and customer life cycle performance.

 

This proportion is always related closely to the average lifetime of a customer, which is also related to some extent on the branding of the company. For instance, a churn rate of 25 percent per year would mean a four years customer life expectancy. Usually, a business would use different strategies and tactics to create a lock-in effect. Hence, preventing customers from easily changing suppliers.

 

As such, a high churn rate is commonly used to indicate that customer dissatisfaction with the business or service. However, it can also indicate a positive signal, especially in industries where services usually deliver on promises.

 

Employee Turnover

In another business context, the churn rate shows employee turnover within a given company. For example, most restaurants in the fast-food industry, employees have a usually high churn rate. Compared with the larger companies like the Fortune 500 companies, the churn is significantly lower. Therefore the acceptability of this rate in a company usually depends on its industry.

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