Churn rate

Churn rate is also called attrition rate and is the rate at which subscribers stop doing business with the company during a given period of time.Churn can also be applied to the number of subscribers who cancel or do not renew a subscription. The higher your leakage rate, the more it affects your business.

Churn is widely applied in business for contractual customer bases. Examples include a subscriber-based service model as used by mobile telephone networks and pay TV operators. The term is often synonymous with turnover, for example participant turnover in peer-to-peer networks. Churn rate is an input into customer lifetime value modeling, and can be part of a simulator used to measure return on marketing investment using marketing mix modeling. The term comes from the image of agitation of cream in a butter churn.

The churn rate is a particularly useful measurement in an industry like the telecommunications industry. This includes cable or satellite television providers, internet providers, and telephone service providers (landline and wireless service providers).

Customer base churn

Main article: Customer attrition

Customer churn or customer attrition is the phenomenon where customers of a business no longer purchase or interact with the business. A high churn is the higher number of customers no longer want to purchase goods and services from the business. Customer churn rate or customer attrition rate is the mathematical calculation of the percentage of customers who are not likely to make another purchase from a business.

Customer churn happens when customers decide to not continue purchasing products/services from an organization and stop their association. Customer churn can prove to be a roadblock for an exponentially growing organization and a retention strategy should be decided in order to avoid an increase in churn rates.

Churn is closely related to the concept of average customer life time. For example, a 25 percent annual churn rate implies an average customer life of four years. An annual churn rate of 33 percent represents an average customer lifetime of three years. Attrition rates can be reduced by creating barriers that discourage customers from switching suppliers (contract binding periods, use of proprietary technology, value-added services, unique business models, etc.) or retention activities such as loyalty programs. Attrition rates can be overestimated when a customer leaves service and resumes it within the same year. Therefore, a clear distinction needs to be made between "gross churn", the total number of disconnections, and "net churn", the total loss of subscribers or members. The difference between the two measures is the number of new subscribers or members who joined during the same period. If suppliers offer a loss leader "introductory special", it can lead to high churn rates and subscriber abuse, as some subscribers will sign on, let the service expire, and then sign on again to continue using the current. Specifics.

When talking about subscribers or customers, the phrase "survival rate" is sometimes used to refer to the 1 minus rate. For example, for a group of subscribers, a 25 percent annual expense rate equates to a 75 percent annual survival rate. Both imply a consumer life of four years. That is, the lifetime of a customer can be calculated as the inverse of the customer's predicted leakage rate. For a group or segment of customers, their customer lifetime (or tenure) is the inverse of their overall churn rate. So Gompertz distribution models of the distribution of customer life times can also predict the distribution of churn rates.

For companies with rapidly growing customer bases (eg, child with the BCG-Matrix problem or digital media companies in Star Face), statistical analysis can be confusing as to what percentage of the total customer base is shrinking in a given year - what percentage of subscriber base is shrinking in 2010? - The churn rate of a particular consumer group. For example: Taking customers who subscribed in a given month, say January 2010 – how many paid in January 2011? Examining a rapidly growing aggregate customer base will lower the actual attrition rate compared to a cohort-based approach to calculation. A cohort-based approach will also allow you to calculate survival rate and average customer lifetime, whereas an aggregate approach cannot calculate these two metrics.

Researchers at Deloitte have argued that social network analysis is a good tool to calculate churn.

In recent years, using AI and machine-learning as a means to calculate customer churn has become increasingly common for large retailers and service providers.

The phrase "rotational churn" is used to describe the phenomenon where a customer churns and immediately rejoins. This is common in prepaid mobile phone services, where existing customers may take up a new subscription from their current provider in order to avail of special offers only available to new customers.

In most circumstances churn is seen as indicating that customers are dissatisfied with a service. However, in some industries whose services delivers on a promise, churn is considered as a positive signal, such as the health care services, weight loss services and online dating platforms.

Some researchers have disputed the simple assumption that just dissatisfaction would lead customers to churn, and called for a more nuanced approach.

See also

• Turnover (employment)
• Customer attrition
• Customer retention
• Turnover

Further reading

• Berry and Linoff, Michael J.A. and Gordon S. (2000). Mastering Data Mining: The Art and Science of Customer Relationship Management. John Wiley & Sons. ISBN 0-471-33123-6.
• Cached Insight paper on churn in the mobile communications industry.