Churn Rate
Candlefocus EditorFor subscription-based businesses, churn rate is determined by measuring the percentage of customers who have canceled their subscription in a given time period. Similarly, employee or personnel churn rate can be measured by tracking the number of employees who have left a company. It is important to observe both customer and employee churn rate, as they may indicate different issues and often times are correlated.
Some industry sectors such as streaming services may have a higher churn rate because customers sign up to try a service, don’t find it useful, and cancel it. Similarly, employee churn rate could be high if businesses are unable to retain talent and employees are leaving in search of better work opportunities. Low customer and employee churn rates indicate that businesses are doing well in both areas, providing customers with high quality services and providing employees with satisfactory working environments.
When tracking and measuring churn rate, it is important for businesses to consider their industry and customer segment specificities, as different customer segments exhibit different rates of churn. For example, a business selling baby products may have a subscription-based service and an entirely different customer than a business selling athletic apparel. Consequently, these two customer segments may have different churn ratios. Measuring customer or employee churn rate correctly requires data from relevant industries, customer or employee segments, time periods and customer or employee pools, as well as analysis of other performance metrics of a company to reach meaningful conclusions about churn rate.
Churn rate is also a good measure of customer satisfaction since it measures the customer’s willingness to continue using a product or service. Therefore, businesses must track customer churn rate regularly, both to understand customer satisfaction and to quantify their marketing and customer service successes and areas of improvement. As the customer churn indicates how many customers are leaving, businesses can work on retention strategies that would encourage customers to stay and make sure that customer satisfaction levels remain intact.