How to Calculate the Customer Churn Rate
By James Bell
- Finance , Higher Level Management , Metrics and Ratios ,
- 22 Nov
For a company to grow, typically they need to acquire more customers at a rate higher rate than their churn rate. Churn rate is also referred to as the rate of attrition. This will help you identify the stickiness of products of products and services. This can also help with allocating resources more effectively.
Customer Churn Rate
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where
Churn Rate
Number of Customers at the Beginning of the Period
Number of Customers at the End of the Period
Period
Churn Rate
We take the difference between the number of customers at the end and the beginning of the period and divide this by the number of the customers at the beginning of the period to get a rate.
Number of Customers at the Beginning of the Period
This is the total number of customers at the beginning of the period.
Number of Customers at the End of the Period
This is the total number of customers at the end of the period.
Period
Typically this would be a month, but it could be a quarter, year, or even by day. It’s important that you keep it consistent so that you compare them to other periods consistently. When thinking about Periods, relevancy and timeliness of calculating the metrics is an important determinant in knowing how often to calculate this metric.
Other Considerations
Industry averages are a great way to compare your company performance against your competition. Some industries naturally lean towards a very high churn rates and others are relatively low.