Sometimes referred to as the rate of attrition, a churn rate has to do with the current rate of net expansion associated with a financial or business factor. The principle of the churn rate can be applied to such diverse circumstances as the turnaround in a client base, or the rise and fall in the number of employees within a given firm. Generally, a churn rate calculation is employed to ensure that movement is occurring in the direction desired by the directing entity.
In the case of the client base of a company, a churn rate will measure the growth or loss of active customers for the goods or services of the corporation. Companies that operate with a subscriber base find the calculation of the churn rate very helpful. Often, the churn rate can easily demonstrate changes that may be taking place by highlighting the decline of subscriber base participation, as well as growth of subscriber base in terms of a net gain of subscribers.
When the churn rate indicates a downward slump in the total number of subscribers, the company can choose to look more closely at why some subscribers are choosing to discontinue use of a service. The company may also use churn rate data as a basis for determining the average length of participation of subscribers in their programs, which can help to indicate whether the business is holding on to clients for the long term or experiencing a steady rate of turnover in subscribers.
In terms of holding on to employees, the churn rate can be utilized in a couple of different ways. First, the rate can be used to determine the average length of employment for the overall work force. If the average length of employment is increasing from one period to the next, that is an indication that people are choosing to remain with employers. This illustrates satisfaction with current employment and plans to remain with the employer for the long term.
However, if the average length of employment is decreasing and the companies involved in the rate have not opened new facilities and hired a large amount of employees recently, the churn rate indicates a high degree of job mobility among employees. This would serve as a red flag to companies that steps should be taken to entice employees to remain with the companies for longer periods of time and thus ensure a greater degree of stability for the firm.