what is the churn rate 
the churn rate also known as the rate of attrition or customer churn is the rate at which customers stop doing business with an entity it is most commonly expressed as the percentage of service subscribers who discontinue their subscriptions within a given time period it is also the rate at which employees leave their jobs within a certain period for a company to expand its clientele its growth rate measured by the number of new customers must exceed its churn rate understanding the churn ratechurn rate reflects the rate at which a company loses customers or subscribers a high churn rate could adversely affect profits and impede growth what is considered a good or bad churn rate can vary from industry to industry the churn rate not only includes when customers switch providers but also includes when customers terminate service without switching this measurement is most valuable in subscriber based businesses in which subscription fees comprise most of the revenues the churn rate of a company is particularly meaningful in industries where customers can easily switch from one provider to another such as telecommunications or streaming services churn rate vs growth ratewhile the churn rate tracks lost customers the growth rate tracks new customers a company can compare its new subscribers to its loss of subscribers to determine both its churn rate and growth rate the difference between the two shows whether there was overall growth or loss in a specific time period if the growth rate was higher than the churn rate the company experienced growth if the churn rate was higher than the growth rate the company experienced a loss in its customer base for example if in one quarter a company added 100 new subscribers but lost 110 subscribers the net loss would be 10 there was no growth for the company this quarter but rather a loss this would be a negative growth rate and a positive churn rate it s important to pay attention to customer acquisition costs if most customers churn before you have made back the money spent on acquiring that customer then your customer acquisition costs are too high for your business model it is critical for a company to ensure that its growth rate is higher than its churn rate otherwise it will experience declining revenues and profits with the eventual scenario of having to close the business advantages and disadvantages of the churn ratethe advantage of calculating a company s churn rate is that it provides clarity on how well the business is retaining customers which is a reflection on the quality of the service the business is providing as well as its usefulness if a company sees that its churn rate is increasing from period to period this can show that a fundamental component of how it is running its business is flawed this can indicate a few potential problems the churn rate will indicate to a company that it needs to understand why its clients are leaving and where to fix its business the cost of acquiring new customers is much higher than it is to retain current customers so working to lower the churn rate can save a business money in the long run one of the limitations of the churn rate is that it does not take into consideration the types of customers that are leaving customer decay is primarily seen in the most recently acquired customers perhaps your company had a recent promotion that attracted new customers once this promotion was over or even if the benefit of the promotion never ended customers that were trying out the product may determine it s not for them canceling their subscription the impact of losing new customers versus long term customers is critical new customers are transient whereas old customers are entrenched and have enjoyed your product if they leave that is usually due to a significant reason a high churn rate in one period may be indicative of a high growth rate from the previous period rather than a judgment on the quality of the business the churn rate also does not provide a true industry comparison of the types of companies within an industry most new companies will have a high acquisition rate as new people try the business but they will also have a higher churn rate as these new clients leave a company that is mature and has been around for decades will have a low churn rate as its clients are established but its acquisition rate will also be lower comparing the churn rates of both these companies will be like comparing apples and oranges provides clarity on the quality of the businessindicates whether customers are satisfied or dissatisfied with the product or serviceallows for comparison with competitors to gauge an acceptable level of churneasy to calculate