What is Churn?
In the field of business, a churn refers to some form of turnover or some kind of attrition. It may be applied internally to the own customers of a particular company, and also externally to the customers that it serves. The term “churn” is said to be borrowed from a procedure involved in processing dairy products and butter production.
The term “churn” is most commonly used in businesses that involve a subscriber base like those of telecommunication companies and Internet service providers. In these companies, churn specifically points to subscribers that discontinue their services and switch to other providers. Obviously, this type of scenario is one that every organization would want to avoid. Having customers transfer to other companies and avail of their services is not good for business. In this context the term “churn” is also referred to as the “churn rate” or “turnover rate” which basically measures how many of the company’s subscribers discontinue with their subscription plans and try out other companies or networks.
There is no absolute reason why customers and/or subscribers transfer to other service providers but the churn rate is considered to be a good indicator for customer dissatisfaction. Many believe that this is the main reason why people would want to try out the services of another and discontinue existing service. Another factor that increases the churn rate is price competition among different service providers. When other companies are able to provide the same service at lesser price, then it is expected to draw customers from rival companies. It is for these reasons that many companies try to have lock-out forms of contract or binding periods for the services availed by customers. In this way, some customers will be discouraged to switch to other companies. Some companies also resort to providing better value for the existing services they offer to customers so as not to increase their churn rate.