Churn Rate vs Retention Rate
- noha79
- Jun 2
- 5 min read
Customer Retention Rate (CRR) and Customer Churn Rate are two of the most important metrics in today's business world, directly related to the backbone of any project or business: the customer. Businesses begin with the idea of a product sold to a customer and a service provided to that customer. Therefore, the importance of customers to any project is undeniable, as they are simply the working capital. Losing them can lead to business decline, bankruptcy, and the exit of both the competition and the market.
What will we learn in this article?
What is Customer retention rate (CRR)?
The simplest definition of "Customer Retention Rate" is the percentage that reflects a company's ability to retain its existing customers over a specific period of time.
To simplify the concept further...
Let's assume a company started operations in early 2025 with a customer base of 10 and lost 3 of them.. What does that mean? It retained 70% of its customers. This is the concept of customer retention rate.
What is Customer Churn Rate?
It is simply the opposite of customer retention rate because it represents customer churn rate, which is the percentage that represents the number of customers who cease to deal with a company over a specific period of time. It can be measured weekly, monthly, quarterly, or annually.
If we take the same example as above, with the retention rate...
A company that lost 3 of its 10 customers would have an estimated churn rate of 30%. Therefore, retention rate and churn rate are inversely related metrics. The higher the customer retention rate within a company, the lower the likelihood of them churn or losing customers.
Higher customer retention rate = Lower churn rate
Higher churn rate = Lower customer retention rate
Customer retention is the means, churn is the outcome
What is the importance of Retention Rate and Churn Rate?
After we've simplified and explained the two concepts, and explained the difference between them and the relationship between them, we move on to an important aspect: explaining the importance of both metrics for any company.
The importance of customer retention rate lies in maintaining customer relationships for the longest possible period. This means maintaining stable, sustainable profits for the company, because customers simply find this company superior to its competitors, which motivates them to stay with it. As we all know, the cost of retaining customers is lower than the cost of acquiring new ones. A satisfied customer may also recommend this brand to others, and they also find real value in this product or service, motivating them to stay or continue purchasing.
So, the importance of customer retention rate lies in:
Increasing and sustaining profits or income
High recommendation and loyalty rates.
An indicator of product or service quality.
In contrast, customer churn or attrition rates are risk indicators and serve as "warning signs" of problems in the customer experience, product and service quality, communication, and other stages of the customer journey with the company.
Why is it important?
Understanding and analyzing the causes of churn and attrition.
Measuring the effectiveness of marketing and customer service.
Directly impacting profits.
How to calculate Customer Retention and Churn Rates?
Let's start by explaining how to calculate the Customer Retention Rate. The first step is to determine the time period over which you want to calculate the retention rate. Next, you'll determine:
The data we need:
S = Number of customers at the beginning of the period
E = Number of customers at the end of the period
N = Number of new customers during the same period
Now, let's apply the equation:
[(E-N) ÷S] x 100 = Customer Retention Rate
Quick example:
Number of customers at the beginning of the period (S) = 100
Number of customers at the end of the period (E) = 100
Number of new customers during the period (N) = 10
So, your retention rate is 90%.
Let's explain it and apply the same equation:
At the end of the period, you had 100 customers.
But you added 10 new customers during the period.
So, the customers who stayed with you from the beginning = 100 - 10 = 90 customers.
These 90 are out of the 100 you initially had.
Therefore, your retention rate = 90%.
Now, let's move on to how to calculate the customer churn rate. Before we begin, we'd like to point out that there are multiple and different formulas used to calculate the churn rate depending on the nature of the business. However, in this article, we'll explain the most common ones.
The data we need:
Time period: Monthly
Number of customers at the beginning of the period = S
Number of customers at the end of the period = E
Now, we apply the equation:
E - S x 100 = Customer Churn Rate
Quick example:
Calculating the churn rate for January
Number of customers at the beginning of the month = 100
Number of customers at the end of the month = 90
So, the churn rate for January is 10%, meaning 10 customers out of 100 left the company.
How do we improve Customer Retention?
Improving customer retention is one of the most important factors for business growth and stability, simply because it maintains the most important pillar: customers.
8 Practical Ways to Improve Customer Retention Rates
Understand your customers' needs and expectations continuously.
Improve the customer journey and experience with your company.
Provide professional customer service.
Care for existing customers (not just new ones!)
Constantly and effectively communicate with your customers.
Use customer data to deliver personalized offers tailored to their needs.
Monitor churn rates monthly to address customer dissatisfaction.
Measure ongoing performance through Customer Satisfaction (CSAT) and Net Promoter Score (NPS), as well as retention and churn rates.
Conversely, how can we reduce churn rates or customer loss?
To reduce churn rates, companies first need to understand the reasons why customers leave. In other words, why did they stop buying? Why did they switch to another competitor? Why didn't they return after the experience? From there, companies can identify weaknesses and address them to reduce their customer churn rate.
8 Practical Ways to Reduce Customer Churn Rate
Respond quickly to customer complaints and requests.
Understand the reasons for churn early.
Provide a seamless user experience.
Loyalty and rewards programs can motivate them to stay.
Personalize offers and experiences.
Churn analysis.
Monitor competitors.
Delivering continuous value (not one-time value).
And remember: customers don't always leave because of a mistake, but because of mishandling the mistake.
