1. HR Glossary
2. Churn Rate

Churn Rate: Definition, calculation, and importance

What is Churn Rate?

Churn rate is the discontinuation of an employee with the company due to lack of satisfaction and also known as attrition rate. Further, it is also said to be the rate at which employees leave the organization in a particular period of time. In general, the rate helps businesses identify the rate at which their employees leave the organization and what are the reasons behind it.

How to calculate the churn rate?

To measure the churn rate for the company, follow the following steps:

• Select a particular time period for which the churn rate is to be calculated.
• Collect the total number of customers acquired and churned during that time.
• Divide the churned ones by the acquired ones.
• Multiply the output by 100%.
• The final data received is the churn rate. Its formula can be written as - Churn Rate = (Lost employees ÷ attracted employees) × 100%.

Frequently Asked Question

Why is the churn rate important to know?

For any organization, the churn rate helps organizations with the following aspects.

• Knowledge of organizational health from the perspective of a total number of customers.
• Insight into how to create better future programs.
• Understanding how much to invest in customers.
• Identification of customer lifetime value.
• Analysis of improvement in relationships and retention.

What is the allowed churn rate for any organization?

The rate of attrition should be around 5% to 10% annually. It says that in a total of 100 customers, 5 to 10 are leaving every year. However, this rate may not be constant for every company.

How many types of churn rates are there?

Churn rates can be divided into 2 types.

The voluntary churn rate

shows customers who unsubscribe from the services/products based on their personal decisions.

Involuntary churn rate

It shows customers who have unsubscribed from the services due to inevitable reasons.

What are the steps to decrease the churn rate?

The steps to decrease the churn rate of any organization are:

• Understand the customer needs.
• Ensure satisfactory customer support and experience.
• Refine strategies based on the previous rate of attrition.
• Gather feedback from the customers.
• Think competitive as per the market conditions.

How does the churn rate influence company growth?

The company is said to be on the path of progress when its rate of attrition is low and its growth rate is more. But if the situation is contrary, the company is directed against the growth rate, and more customers are lost than acquired.

Should the churn rate be measured annually or monthly?

There is no solid law for measuring employee or customer churn rate. It can be annually, quarterly, monthly, or whichever the company decides. However, there are two main criteria that should be noted before measuring the churn rate.

• If the time frame for calculation is to be changed, it is essential to make the changes adequately to avoid any errors.
• It is a myth that no customer can leave in the first month of their joining.

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