What is customer churn?

At its most basic, churn is the number of customers who leave a business over a given time period. Although the time frame varies from business to business, it is commonly measured in months, quarters, or years. Comparing your customer churn rate to your growth rate (the number of customers joining your business) gives a quick indication of the health of your company.

The term “churn” (sometimes also called “customer attrition rate”) originated in the telecommunications industry. But most business executives have adopted it as an easy measurement of how their business is performing.

Few companies can survive long if they are constantly losing customers but unless you’re actively monitoring your churn rate, the speed and volume of the loss may not be immediately apparent. Most successful organizations have a threshold for churn and a planned response they implement whenever they approach it. Many organizations shift resources between departments (ex: from marketing to product development) in response to increasing churn rates.

calculating churn rate formula

Determining your company’s churn rate and thresholds for actions helps sales staff react to market conditions. For example, imagine you’re a fruit company and customers are leaving because you no longer sell oranges. Perhaps they are no longer available due to supply shortages. 

Knowing this allows you to adjust your strategy and help customers make alternate choices without losing their business. You can market similar citrus fruits or share information on other products to make them more appealing. For example, you might send research that bananas have higher profit margins. 

If churn — and the reasons driving that churn — aren’t something that you’re already aware of, it might be time to seek out that information to help you close more deals and slow the churn of your existing customers. 

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