The term “churn” is used in different perspectives but in a
broader sense it can be described as the rate of customers that leave the
subscription of any service in a specified time. This rate is helpful in
analyzing the growth of business. For instance when comparing the performance
of two months, if the growth rate exceeds the churn rate, it will show that the
company is progressing. This rate is usually calculated in cellphone companies
where the competitors also provide a number of similar services. Calculation of
churn rate also helps to analyze the success or failure of a new service or in
making comparisons among different services.
Churn rate can be calculated in both ways such as in
percentage and amount of customers. Some companies also have negative churn
rate. Calculation of this business metric helps in retaining existing customers
by bringing alterations in the service quality. Companies focus more on churn
rate because making new customers is difficult in comparison of retaining the
existing customers. This rate serves as an important tool in decision-making.
Not only in the subscription business but in online business as well, the
importance of churn rate cannot be denied.
Different companies use different methods of calculating the
churn rate, one of the easiest methods is the division of total customers who
left the service with the total customers at the beginning of the month.
Besides this, some companies use the total number of the customers at the end
of the month instead of taking the total customers at the start of the month.
Both methods give answer in percentage form. In addition to this, churn rate
can also be sued to calculate the employee turnover rate of a business. Thus,
it is helpful to calculate the churn rate and make business decisions easier.
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