If you’re looking to reduce customer attrition, it’s important to understand the difference between attrition rate vs retention rate. The former is a measure of how many customers leave over time while the latter is a measure of how many customers stay with the company.
Attrition Rate vs Retention Rate
One way small businesses measure loyalty is by calculating customer attrition rate vs retention rate.
Retention is the percentage of customers that continue to do business with you, while your rate of customer attrition is how many leave.
The customer attrition rate is used to identify customers who have stopped using a product or service. This can be due to several reasons, such as poor customer service or a poor quality product.
Your customer retention and attrition rates can indicate several things about your business, such as the quality of your product or service, how good your customer service is, or whether you’re keeping up with industry trends.
It’s important to get regular feedback from both retained and churned customers to see where you can make improvements. This way, you can make changes to better serve your customer base and keep them coming back.
What Does Attrition Rate Mean?
Your attrition rate is the opposite of your retention rate. It calculates the number of people who left, rather than those who stayed.
It’s also known as churn or loss of customers or clients within a certain period.
Churn or loss of customers or employees refers to anyone leaving your service, whether that’s a customer canceling their subscription or a staff member resigning.
If you have 800 subscribers at the beginning of the month and 900 by the end, with 200 new subscribers, them the attrition would work out the percentage of those who decided to leave.
How to Calculate Attrition Rate
To calculate the rate of customer churn, you must first make note of the total number of customers in your group at the beginning of the period, then add the number of new customers you acquired in that same time frame.
This final number is then subtracted from the end number, and divided by the start number.
Let’s say we have 800 subscribers at the beginning of a month. At the end of the first month, we have 200 new subscriptions. But during that month, 100 people canceled their subscription, leaving us with 900 at the end of the first month.
So, we add 800 and 200, which equals 1,000. We then subtract 900 from 1,000, which leaves us with a remainder of 100.
This figure is then divided by 800 and multiplied by 100 to give us an attrition rate of 12.5%.
Customer attrition rate: (800 + 200 – 900) / 800 x 100 = 12.5%
What Does Retention Rate Mean?
Customer retention rate is the percentage of people who have stayed active or been a member of your business in a given period.
How to Calculate Retention Rate
To calculate your retention rate you need the same 3 numbers:
- Number of customers at the beginning of the period
- Number of customers at the end of the period
- Total number of customers you acquired during this period
We take the number of customers by the end of the month and subtract those customers gained during the period. Then divide the number by those customers at the beginning of the period.
Using the same example for the attrition rate, we have 900 subscribers at the end of the period and subtract the 200 we acquired during the month.
This gives us 700, which we then divided by the 800 subscribers we had at the beginning, multiplied by 100.
Customer retention rate: (900 – 200) / 800 x 100 = 87.5%.
Employee Retention vs. Attrition
A retention ratio is the percent of employees who have stayed with your company during a specific period.
If you began 2018 with 20 employees and finished the year with 15, your retention rate would be 75%. This means that you were able to keep three-quarters of your staff.
Attrition is the percentage of employees you lost for one reason or another and did not replace. The attrition rate measures how many employees have left your company over a certain period.
If you started with 20 employees at the beginning of the year and ended with 15, your employee turnover rate was 25%.
Conclusion
Small businesses often use attrition rate vs retention rate to determine customer loyalty. Customer retention is the percentage of customers that continue to do business with you. Attrition is the opposite and is the percentage that stops doing business with you.
Your retention rate and your churn rate are valuable metrics for determining the health of your company. By soliciting feedback regularly from your customers, you can determine where your business is succeeding and where it needs to improve.
