Churn Rate

To refresh your memory - or introduce the concept - I am going to explain what Churn Rate is and it’s importance. Then we will take a look at a simple example that will help you understand the concept better
Churn rate
The Turnover rate refers to the proportion of customers who stop buying from us after a certain period of time. It is a possible indicator of customer dissatisfaction as they cease to be loyal to our brand. The formula to calculate the churn rate or the rotation rate is:
Churn rate = 1 / Average customer lifetime
Imagine that we sell a product or service that analyzes customer behavior. We see that the average customer buys from us for three consecutive years and then stops consuming us. What would be the Churn Rate or Rotation Rate in this case?
A client buys us for 3 years 1/3 = 33%
Another example, if we know that out of 100 customers, 25 stop buying from us every year, this will be a turnover rate of 25%.
 

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