What is 'Churn Rate'

The churn rate is the percentage of subscribers to a service who discontinue their subscriptions to the 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. This rate is generally expressed as a percentage.

The churn rate is also known as the rate of attrition.

BREAKING DOWN 'Churn Rate'

When a business loses customers, its profit and growth may be negatively affected, depending on how high the churn rate is. 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.

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. 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%.

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. Customer Service

    Customer service is the process of ensuring customer satisfaction ...
  2. Customer

    A customer is an individual or business that purchases the goods ...
  3. Economic Growth Rate

    An economic growth rate is a measure of economic growth, typically ...
  4. Organic Sales

    Organic sales are revenues generated from the firm's existing ...
  5. Interest Rate Call Option

    An interest rate derivative in which the holder has the right ...
  6. Variable Interest Rate

    A variable interest rate is a rate on a loan or security that ...
Related Articles
  1. Trading

    Is your forex broker a scam?

    While the forex market is slowly becoming more regulated, there are many unscrupulous brokers who should not be in business.
  2. Investing

    4 Dishonest Broker Tactics and How to Avoid Them

    Protecting yourself from dishonest broker practices means knowing how to spot them.
  3. Insights

    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.
  4. Investing

    How To Pick The Best Telecom Stocks

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

    3 Key Numbers for Frontier Communications (FTR)

    Telecom has been a haven for investors lately, and rural telecom pioneer Frontier Communications (NASDAQ: FTR) has tried to turn the trash of other major telecoms into treasure. Yet even as ...
  6. Investing

    Sprint's Q2 Shows It May Finally Be Back on Track

    Having seen the company fall to fourth place among the four major wireless carriers, Sprint (NYSE: S) investors would have been correct to worry about whether the company could reverse its flagging ...
  7. Investing

    Smartphone Markets Are Maturing: Should You Still Own QQQ?

    Explore the ramifications of maturing smartphone and PC markets for the PowerShares QQQ ETF, as well as a fund risk greater than Apple's declining revenues.
  8. Insights

    Fact Sheet: What Is The Fortune 500 List?

    The Fortune 500 is a list most have heard of but don't know much about. Here, we present the basics with a few interesting facts.
  9. Insights

    10 Countries With Lower Interest Rates Than the US

    Learn about the 10 countries with lower interest rates than the United States and how interest rates indicate a country's economic outlook.
  10. Investing

    Wells Fargo Upgrades Verizon: ‘Bad News' Is Over

    Analysts see the telecom conglomerate recovering from a near 15% dip in 2017.
RELATED FAQS
  1. What strategies do companies employ to increase market share?

    A company's market share is the percentage it controls of the total market for its products and services. Learn about the ... Read Answer >>
Trading Center