What Is Churn Rate?

Churn rate (or customer churn) is the rate at which customers stop investing in your business, or lose interest in your products or services. It’s a figure you’d want to be as low as possible.

It’s usually measured as the percentage of service subscribers who cancel their subscriptions in a certain time frame. But it can also be the rate at which workers leave their jobs within a specific period. 

For a company to expand its customer base, its growth rate (calculated by the number of new customers) exceeds its churn rate.

So, what role can churn rate play in your marketing strategies?

Why Churn Rate Matters in Marketing

The churn rate matters a lot in industries like telecommunications. In many regions, these organizations compete, making it easy for people to shift from one provider to another.

And a high churn rate could significantly reduce profits and hinder growth. 

Besides, churn rate shows when customers may shift over to substitutes and when they may terminate the use of service entirely. So, measuring this is most crucial in subscriber-based businesses where most of the revenue is subscription fees.

That aside, a business can also do a comparative analysis of its new subscribers versus the old ones it has lost - to determine whether there’s been greater growth or loss. 

In other words, measuring the churn rate (and growth rate) can help in business analytics and help managers make more informed decisions about the brand’s future!

So, if a business has been facing an increasing loss of clients later, we can then look into why this is happening and find ways to fix it. After all, a brand’s customers form its identity, and without customers, there would be no business at all.

There are both advantages and disadvantages of using churn rate as business data. Let’s explore these to understand when calculating churn rate is useful and when it’s not.

Pros and Cons of Measuring Churn Rate

The advantage of calculating a firm's churn rate is that it can help you understand how well the business retains clients. It's also a direct reflection of your company’s performance and gives you insight into what you may need to improve to avoid customer turnover.

So, for instance, if a business realizes that its churn rate has been steadily increasing, it could be a sign that something’s flawed and needs to be fixed. 

Perhaps it's a result of poor customer service or maybe a faulty product. But whatever it is, the churn rate can bring your awareness to it and let you consistently evolve as a brand.

However, on the other hand, one of the cons of churn rate is that the data it provides is fairly limited. 

While we may find out how many customers are leaving, we don't know what type of users these were and why they chose to leave. So, the information that the churn rate provides isn’t enough on its own.

What’s more, the churn rate also doesn’t necessarily give the most accurate industry comparison of the firms in the market. Because the truth is, most new companies will have a high growth rate as new, one-time customers find the brand but then soon after, they will also have a high churn rate when these people have made their purchase.

Key Takeaway

Nevertheless, the churn rate can be an effective measure of the engaged customers of a business.

It essentially shows the number of subscribers that stop using a service or leave a brand for another. So, a high churn rate would, in most cases, be detrimental to business growth. 

In any case, marketers should aim for the lowest churn rate possible and high conversions. The lower the churn rate, it means the more loyal your customers are!