Churn Rate Formula

What is Churn Rate Formula?

The churn rate formula measures the rate of percentage with which subscribers of the company discontinue their subscription of the service in the company or with which the employees of the company are leaving their jobs within a period of time. This measurement is mostly used in the company having its business based on the subscribers.

How to Calculate the Churn Rate?

There are two areas where the churn rate is calculated—the areas along with the formula used in enlisted below.

Area #1

In the case of subscribers of the company discontinue their subscription of the service in the company.

The formula for calculation of the churn rate, in this case, is mathematically represented as below:

Here,

• The total number of customers lost during a period is the count of the customers, which ended receiving their services from the company.
• The total number of customers of the company at the beginning of the period is the count of the customers who were availing the services of the company at the period’s beginning.

Area #2

In the case of calculation of employees leaving jobs from the company.

The formula for calculation of the churn rate, in this case, is mathematically represented as below:

Here,

• The total number of employees that left the job during a period is the count of the employees, which ended their employment in the company.
• The total number of employees of the company at the beginning of the period is the count of the employees who were serving the company at the period’s beginning.

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For eg:
Source: Churn Rate Formula (wallstreetmojo.com)

Explanation of Churn Rate Formula

The formula for the churn rate can be derived by using the following steps.

• In the case of subscribers of the company discontinue their subscription of the service in the company; the churn rate determines the percentage of such subscribers with respect to total subscribers.

Step 1:. Firstly, determine the total number of customers who ended receiving their services from the company.

Step 2:. Then, determine the total number of customers who were availing the services of the company at the beginning of the period.

Step 3:. Finally, the churn rate will be calculated by dividing the value arrived in step 1 with step 2 values. The formula for churn rate is expressed mathematically, as shown below.

• In the case of calculation of employees leaving jobs from the company, the churn rate determines the percentage of such employees with respect to total employees.

Step 1:. Firstly, determine the total number of employees that ended providing their services to the company.

Step 2:. Then, determine the total number of the employees who were providing the services to the company at the beginning of the period.

Step 3:. Finally, the churn rate will be calculated by dividing the value arrived in step 1 with step 2 values. The formula for churn rate is expressed mathematically, as shown below.

Examples of Churn Rate Formula (with Excel Template)

Let’s see some simple to advanced examples of churn rate formula to understand it better.

Churn Rate Formula Example #1

Let’s take an example of a subscription-based service providing a company which is having a total of 4,000,000 customers at the beginning of the year. During the year, 200,000 customers left the company and joined the competitor. What is the churn rate of the company for the year?

Solution:

Use the given data for the calculation of the churn rate.

Following is the calculation for churn rate:

Churn Rate = (200,000 / 4,000,000) * 100

The Churn Rate will be –

Churn Rate = 5%

Therefore, the churn rate of the company for the year is 5%.

Churn Rate Formula Example #2

Let us take another example of a company which is having 50,000 employees of the company at the beginning of the period. During the month, 2,000 employees left the job. So at the end of the month, only 48,000 employees were left in the company. What is the churn rate for the month?

Solution:

Use the given data for the calculation of the churn rate.

Following is the calculation for churn rate:

Churn Rate = (2,000 / 50,000) * 100

The Churn Rate will be –

Churn rate = 4%

Therefore, the churn rate of the company for the period of one month is 4%.

Relevance and Uses

The churn rate formula is of great importance in the companies that are having their business based on the subscribers, i.e., company, which generates most of its revenue from the subscription fees received from its customers. This is so because the churn rate throws the light on the percentage of the customers who terminated availing services from the company leading to loss to the company. With these calculations, a company can make the informed decision making.

Also, as the churn rate calculates the employee attrition rate, the company can analyze the number of persons leaving the jobs along with the reason for the same. With the help of this, the company takes corrective actions, if any required.

Recommended Articles

This has been a guide to the churn rate formula. Here we discuss the calculation of churn rate using its formula along with examples and a downloadable excel template. You can learn more about financial analysis from the following articles –

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