Churn Rate

What is 'Churn Rate'

The churn rate, also known as the rate of attrition, is the percentage of subscribers to a service who discontinue their subscriptions to that service within a given time period. For a company to expand its clientele, its growth rate, as measured by the number of new customers, must exceed its churn rate. The rate is generally expressed as a percentage.

BREAKING DOWN 'Churn Rate'

Churn rate is an important consideration in the telephone and cell phone services industry. In many geographical areas, several companies are competing for customers, making it easy for people to transfer from one provider to another. If one out of every 20 subscribers to a high-speed internet connection discontinued his service within a year, the annual churn rate for that internet provider would be 5%.

To be counted as part of the churn rate, the customer does not necessarily have to move his service to a different provider; he just has to terminate his relationship with the current provider. This measurement is most valuable in subscriber-based businesses in which subscription fees make up the bulk of the company’s revenue.

Churn and Growth Rates

A company can compare its churn and growth rates to determine if there was overall growth or loss. While the churn rate tracks lost customers, the growth rate tracks new customers who begin purchasing from the organization. If the growth rate is higher than the churn rate, the company has experienced growth. When the churn rate is higher than the growth rate, the company has experienced a loss in its customer base.

Churn Rates in the Telecommunications Industry

One industry in which churn rates are particularly useful is the telecommunications industry. This includes cable or satellite television providers, internet providers and telephone service providers, both landline and wireless. As most customers have multiple options from which to choose within a geographic area, the churn rate helps a company determine how it is measuring up to its relevant competitors.

Churn Rate and Employee Retention

Employee turnover within a business can also be measured in a churn rate, as it provides a method for analyzing the company's hiring and retention patterns. This can be especially helpful if overall employee longevity within a company is low. When statistics are examined on a department by department basis, it can highlight which particular departments are experiencing more frequent turnover within the company, or at a higher rate than the business average.

RELATED TERMS
  1. Churning

    Excessive trading by a broker in a client's account largely to ...
  2. Commission Broker

    Someone who gets paid by the brokerage company for which he works ...
  3. Customer Service

    The process of ensuring customer satisfaction with a product ...
  4. Growth Rates

    The amount of increase that a specific variable has gained within ...
  5. Customer

    An individual or business that purchases the goods or services ...
  6. Economic Growth Rate

    A measure of economic growth from one period to another in percentage ...
Related Articles
  1. Financial Advisor

    Is Your Broker Churning Your Account?

    Is your broker churning your account to generate fees? Here's how to know and what recourse you have.
  2. Trading

    So, You Want To Take Your Broker To Court

    Find out how to file a claim with your broker and what you can expect throughout the process.
  3. Financial Advisor

    What's Involved in Customer Service?

    Customer service is the part of a business tasked with enhancing customer satisfaction.
  4. Financial Advisor

    4 Dishonest Broker Tactics And How To Avoid Them

    Protecting yourself from dishonest broker practices means knowing how to spot them.
  5. Investing

    How To Pick The Best Telecom Stocks

    This ever-changing industry can leave investors scratching their heads. Find out which metrics matter.
  6. Markets

    Explaining Growth Rates

    Growth rate refers to the amount a specific variable or measure has grown over a specified time, whether related to one company or an entire economy.
  7. Trading

    What It Takes To Become An Elite Trader

    A select few investors defy the odds and churn out profits over long periods of time, building the kind of wealth others only dream about.
  8. Insights

    The World's Top 10 Telecommunications Companies

    Learn about the top 10 telecommunications companies in the world and information about each company’s customer base, market share and services.
  9. Financial Advisor

    4 Signs Your Financial Advisor Is Ripping You Off

    Pay attention to the habits of your financial adviser to avoid him ripping you off by commingling, churning, scamming or embezzling your money.
  10. Markets

    Great Company Or Growing Industry?

    Look at the big picture when choosing a company - what you see may really be a stage in its industry's growth.
RELATED FAQS
  1. What does it mean when they refer to the churn rate of a telecommunications company?

    Learn what companies in the telecommunications industry mean when they refer to a churn rate, and discover tactics companies ... Read Answer >>
  2. What are the best metrics to evaluate a telecommunication company?

    Use fundamental analysis and three specific metrics to evaluate telecommunications companies to find the best one for your ... Read Answer >>
  3. What does churning mean?

    A. Trading with yourself, or with someone else in attempt to make the tape appear more active than it really is.B. Trading ... Read Answer >>
  4. Is good customer service something to look for in a company in which I am considering ...

    Learn about the importance of customer service when deciding whether to invest in a stock. Good customer service can ensure ... Read Answer >>
  5. What is the long-term average growth rate of the telecommunications sector?

    Examine the current state of the telecommunications sector and learn about the historical average growth rate for telecommunications ... Read Answer >>
  6. How does a merger affect the customer?

    Learn how a merger may affect customers of the industry. The effects of mergers may be positive or negative, but there's ... Read Answer >>
Hot Definitions
  1. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  2. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  3. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  4. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  5. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
  6. Omnibus Account

    An account between two futures merchants (brokers). It involves the transaction of individual accounts which are combined ...
Trading Center