A Definition of Attrition Rate
A standard attrition rate definition refers to employee or staff turnover. Still, in a broader sense, the attrition rate calculates the number of individuals or items that vacate or move out of a larger, collective group over a specified time frame.
The attrition rate is also commonly referred to as the churn rate. A term often used by human resources professionals to determine a company’s ability to retain employees, the attrition rate is increasingly used in the marketing world as a figure that points to the company’s ability to retain customers or to project the number of new sales necessary to maintain the status quo, accounting for customer churn or customer attrition.
Customer Experience Impacts Customer Attrition
Customer attrition occurs when customers break ties with an organization. Churned customers do not interact with or purchase from a company after a while. As customer retention becomes a valuable metric (and beneficial to the bottom line), it is in companies’ best interests to reduce customer attrition rate.
Attrition statistics show that positive relationships with customers lead to customer loyalty and retention, while negative customer experiences result in higher customer attrition rates and lower profits.
- Suppose companies do not meet customers’ expectations. In that case, customer attrition rates increase: 95% of people share bad experiences, 54% share bad experiences with more than five people, and 58% are more likely to tell others about their customer service experiences than eight years ago.
- 89% of consumers start doing business with competitors after having a poor customer experience.
- An estimated $83 billion is lost yearly due to poor customer experiences and customer attrition in the United States.
- 60% of customers end their relationships with companies when they perceive indifference on the part of salespeople.
- 70% of customers leave a company due to poor service, usually from a salesperson.
- 80% of churched customers identify themselves as “satisfied” or “very satisfied” just before leaving.
- Customers who rate their salespeople as exceptional are 10-15 times more likely to remain loyal.
Overall, customer emotion is a key factor in customer attrition rate. Because salespeople need to know as much about customers as possible to understand their attitudes, it is important for organizations to gather feedback from customers regularly. Determining the cause of customer attrition helps organizations make positive changes and deliver better customer experiences to meet customers’ expectations and reduce attrition.
Some proven ways to reduce customer attrition include setting and meeting customer expectations, improving your value to customers, delivering an exceptional customer experience, increasing customer satisfaction, and building customer relationships.
The above can be achieved through AI capabilities that can help business users profile their customers and engage with them in ways that will reduce the overall attrition rate. Read more about the features of the Intelligent Engagement Platform.
Calculating Attrition Rate: The Attrition Rate Formula
It’s quite simple to calculate the attrition rate. It’s generally expressed as a percentage of customers and typically on a monthly or annual basis.
To calculate your customer attrition rate, use this simple attrition rate formula:
Number of customers lost by the end of the period divided by the total number of customers at the beginning of the period.
So as an example, to calculate the attrition rate for a company that had 650 customers at the beginning of the month and 600 customers at the end of the month, the attrition rate formula would be:
Number of customers lost: 650 – 600 = 50 customers
Number of customers at the beginning of the period: 650
Attrition rate formula: 50/650 = .0769 or 7.7%
The attrition rate is a complimentary figure to the retention rate, which refers to the number of customers retained during a given period, and to the customer acquisition rate, which refers to the number of new customers acquired during a given period. The three figures together should equal 100 percent.
Advantages of Understanding Your Customer Attrition Rate
It’s so simple to calculate the attrition rate that it may seem an unimportant figure. But to most businesses, keeping track of customer attrition rate is a key success metric. In most verticals, it is more profitable to keep current customers than to acquire new customers.
There are exceptions to this rule; for example, companies that rely on a membership business model may make more money on new customers through a higher sign-on rate than recurring membership fees. In these cases, customer acquisition rates may be more significant to the company’s bottom line.
In any case, companies that calculate attrition rates and monitor changes over time can pinpoint weaknesses and identify areas in which improvements can be made to increase customer retention and reduce customer attrition. Additionally, the customer attrition rate is a valuable metric often used by sales teams to determine sales goals for the next month, quarter, or year, offering a figure to base the number of new sales required to maintain profitability.
Pros and Cons of Attrition Rate
Calculating attrition rate is a simple process for most businesses, and this metric can be used to formulate company goals and objectives. However, the attrition rate is more challenging to calculate in some industries and verticals. By consulting a list of currently active clients, marketing agencies can easily calculate attrition rates. But determining the number of active customers is somewhat subjective for businesses such as retail stores.
Retailers may monitor return customers through online channels, coupon redemption, or other methods, but cash-paying customers are more complex to track.
Relying on the total sales is a viable alternative in some circumstances. However, this calculation blurs the lines between attrition and acquisition rates, as it can only accurately differentiate new customers from repeat customers with individual customer identification. When promotional offers and redemption codes are used, tracking individual customers and monitoring repeat purchases becomes more accurate.
Companies aim for a low attrition rate. Companies that experience a sudden increase in attrition rate can use this data to investigate pain points and conduct further research into the motivations behind customer attrition, identifying opportunities to prevent customers from churning and retain their business.
Need more information on the attrition rate? Check out these great articles and resources:
- The Attrition Mission: Banks Using a Data-Driven Approach to Improve the Customer Experience
- For Everything, Churn, Churn, Churn