What is the Churn Rate?

Malcolm Tatum
Malcolm Tatum

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.

Offering bonuses may help curb high attrition in the telemarketing industry.
Offering bonuses may help curb high attrition in the telemarketing industry.

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.

Malcolm Tatum
Malcolm Tatum

After many years in the teleconferencing industry, Michael decided to embrace his passion for trivia, research, and writing by becoming a full-time freelance writer. Since then, he has contributed articles to a variety of print and online publications, including wiseGEEK, and his work has also appeared in poetry collections, devotional anthologies, and several newspapers. Malcolm’s other interests include collecting vinyl records, minor league baseball, and cycling.

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Discussion Comments

everetra

@SkyWhisperer - I worked for a company that was churning employees almost as fast as your residential customers switched providers. Employee church is a common concern among upper level management. I can tell you that in my company it was due to several factors, including poor pay and low morale.

I think that if companies want to do well in the business marketplace, they need to dedicate themselves to employee retention.

It’s far more expensive to hire a replacement than it is to keep a current good employee. This is almost axiomatic in the business world, but I still see so many businesses that don’t live by this rule.

SkyWhisperer

If you want to know why telecommunications companies fought so hard for your business after the big breakup of the baby Bells, it’s because of churn rate among residential companies.

I worked in telecommunications for nearly ten years, and the telecom churn rate was awful for residential customers. Every six months customers would switch telephone company providers.

It got to the point where we could no longer make a profit on residential business, even when we slashed our margins to the bone on rates per minute. Add to the mix the intense competition that came from Voice Over Internet phone calls and you can understand why the telecommunications business was a difficult business to be in, with many carriers falling by the way side.

The only way for us to continue to exist was to drop service to residential customers and focus only on business customers who generated at least $500 per month in billing.

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