Attrition occurs when a customer cancels her service or stops using a company’s product. An attrition percentage, which is also called churn, measures the percentage of customers who left a company during a time period, compared to the total number of customers the company had at the end of the time period. A low attrition percentage suggests a company’s customers are satisfied with the company’s service, while a high attrition rate could signal increasing industry competition or company flaws that are driving customers away. You can calculate a company’s attrition percentage to help forecast its operational performance.
Determine the number of customers a company had at the beginning of a period and the number of customers it acquired during the period. A company typically discloses this information in its annual report. For example, assume a company had 5,000 customers at the beginning of the year and gained 1,000 new customers during the year.
Determine the amount of attrition, which is the number of customers lost, during the period. For example, assume the company lost 500 customers during the year.
Add the number of customers gained during the period to the number of customers at the beginning of the period. Then subtract the number of customers lost to calculate the total customer base at the end of the period. For example, add 1,000 new customers to 5,000 existing customers, and subtract 500 customers lost. This equals a customer base of 5,500 customers.
Divide the number of customers lost during the period by the total customer base, and multiply the result by 100 to calculate the attrition percentage during the period. For example, divide 500 by 5,500, which equals 0.09. Multiply this by 100, which equals an attrition rate of 9 percent. This means the company lost 9 percent of its customers during the year.