Churn Rate

What It Means

Churn Rate is a measure of how many people (e.g. customers, employees, etc.) a company loses and has to replace over time. It is a common key success factor in many businesses. especially those that rely on subscription revenues. Revenue Churn is another measure that goes a level deeper, looking at how much Monthly Recurring Revenue was lost over a period of time due to Customer Churn.

There are several ways to measure Churn Rate, but the simple method is to divide the number of customers who have left by the total number of customers.

Why It’s Important

Revenue growth is primarily achieved through two methods: 1) increasing the amount of Revenue per customer and 2) increasing the number of customers.

Market dynamics and competition will largely dictate whether a company can increase the amount it charges for a product or service. This puts a critical importance on a company’s ability to find and acquire new customers. If a company is losing existing customers as quickly as it can acquire new ones, growth becomes very difficult. Buyers look at a company’s customer Churn Rate and the portion of sales made up by Recurring Revenue as an indicator of risk and the potential for future growth.

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Churn Rate

What It Means

Why It’s Important

Related Terms

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