No matter how good a company is or how great its products or services are, they are bound to lose a certain number of employees and customers each year. While losing employees and customers is inevitable, there is hardly any company that does not experience such incidents.

Churn rate is the term used to measure the number of customers or employees leaving a company over a certain period of time. And for a company, keeping track of the changes in its churn rate can provide valuable insights into the trends of its business. Read on to know everything about churn rate and its importance.

Understanding The Difference Between Churn, Attrition, And Turnover

Churn, attrition, and turnover are closely-linked terms that are often used interchangeably. But, these aren’t exactly the same thing. When it comes to employees, attrition is when an individual voluntarily decides to leave the company, and no effort is made to rehire someone to fill that particular position. Employee turnover, on the other hand, is used to measure the employees who leave the company and are replaced with new recruits. The attrition and turnover rates combined together make up the employee churn.

Importance Of Measuring Churn Rate

Usually, the churn rate is expressed as the percentage of employees or customers who leave or discontinue their association with a company or business. A high employee churn rate can prove to be costly for a company, while the customer churn rate equates to a loss in revenue. Therefore, keeping track of these figures is essential for businesses as it can provide valuable insights into the success or profitability of a business. 

What Is Customer Churn Rate?

Customer churn rate, simply speaking, is used to measure the number of customers who stop opting for the product or services offered by your business. This often refers to the number of subscribers who don’t renew or cancel any ongoing subscription with your company. The higher the customer churn rate, the more revenue you lose.

Formula For Customer Churn Rate

The formula for calculating customer churn rate is pretty simple. You have to divide the number of customers you lost during a given period by the total number of customers you had at the beginning of the said period and multiply the result by hundred.

Formula: Lost customers (difference between total customers at the beginning and end of the given time period) ÷ number of customers at the beginning of the period ✕ 100.

What Is Employee Churn Rate?

Employee churn rate refers to the percentage of employees who leave the company over a given time period. It includes both the attrition rate and turnover rate of a company. A high employee churn rate can prove to be costly for the company.

Formula For Employee Churn Rate

To calculate the employee churn rate for a month, you need to divide the number of employees who left the company during the period by the average number of employees for that month and multiply the result by 100.

Formula: Number of employees leaving during the period ÷ average number of employees during the same period ✕ 100.

Conclusion

Keeping track of both customer and employee churn is useful for businesses as it can help you make the right decisions for the success of your company. In case you notice a high churn rate over a given period, you can take the necessary steps to reduce it.