Definition: Churn rate is a metric used by businesses to measure the rate at which customers stop doing business with an entity over a specific period. It is a critical indicator of customer retention and loyalty, often calculated as the percentage of customers lost compared to the total customer base at the beginning of the period.
Calculation: To calculate the churn rate, divide the number of customers lost during a given time frame by the number of customers at the start of that period, and multiply the result by 100. For example, if a company starts with 1000 customers and loses 50 over a month, the churn rate is (50/1000) * 100 = 5%.
Importance: Understanding churn rate helps businesses identify patterns and reasons for customer loss, allowing them to take strategic actions to improve customer satisfaction, enhance service offerings, and ultimately reduce churn. High churn rates can indicate underlying issues with product quality, customer service, or competitive pressures.
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