What Is Churn Rate in Business: Meaning, Calculation and Tips

Churn rate measures the percentage of customers who stop doing business with a company over a specific period. In the UK, businesses use churn rate to track customer loss and assess retention performance.

In the UK, companies track this metric in sectors with recurring revenue models, such as broadband and mobile providers, subscription-based streaming platforms, energy suppliers, insurance firms, banks, gyms, and fintech apps. It measures the percentage of customers who cancel, switch providers, or fail to renew within a defined period.

Businesses aim to win new customers and keep existing ones. When customers leave, revenue falls and acquisition costs increase. A higher churn rate leads to greater financial loss. A lower churn rate protects revenue and improves long-term profitability.

With this in mind, this article looks at what churn rate is, its different types, how to calculate churn, as well as tips on reducing this metric. 

What Is Churn Rate?

Churn rate is a customer behavior metric that looks at how many customers leave a business or stop subscribing for a service over a period such as a month, quarter or a year.

Also referred to as an attrition rate or customer churn, this metric reflects customer turnover and retention performance. Expressed as a percentage, a higher number indicates higher churn, which is unfavorable for a business, while a lower churn number indicates lower churn, which is favorable for a business.

The reason is that churn impacts growth, profitability, and long-term business sustainability. 

Churn rate has two main forms: customer churn and revenue churn. Customer churn measures how many customers leave. Revenue churn measures how much income the business loses when those customers leave.

Why Measuring Churn Rate Matters

When a customer leaves a business, it signals that something is wrong. The business offering may no longer be suitable for the customer or the business may not be prioritising the customer’s needs as well as it should. 

When a customer leaves, the business loses future revenue and must spend more to replace that customer. This directly affects margins and cash flow. For that reason, tracking churn is a core financial control, not just a marketing metric.

Other advantages of measuring churn include:

• It signals customer satisfaction, loyalty, and product–market fit.
• It exposes weaknesses in onboarding, service quality, pricing, or support.
• It shows whether customer acquisition spend delivers sustainable returns.
• It highlights segments with high risk, which allows targeted retention action.
• It improves revenue forecasting by identifying predictable loss patterns.
• It protects customer lifetime value (CLV) and strengthens long-term profitability.
• It supports board-level reporting with clear retention and growth metrics.
• It helps assess the impact of contract terms, renewal cycles, and price changes.

In the UK, high churn rates across different business verticals can be a sign of poor business performance as higher losses in customers indicate internal flaws within the business model and service offering.

Types of Churn Businesses Should Track

The results of a churn calculation are not a single metric that should be looked at in isolation. Instead, it has several sub-metrics that can be measured to identify how well a business is doing to retain customers over a given period.

These sub-metrics are voluntary churn, involuntary churn, revenue churn and employee or partner churn.

Voluntary churn

Churn that takes place on a voluntary basis refers to situations when a customer makes an active choice to stop doing business with your company. 

An example of this is the case of subscription cancellation.

Voluntary churn can occur for several reasons. A customer may have had a poor experience with your business. They may also be price sensitive. In some cases, competitors may have offered better terms or incentives that influenced their decision to leave.

Involuntary churn

Involuntary churn occurs when a customer stops doing business with your company without making a conscious decision to do so. External factors drive this outcome.

Common causes include failed payments, expired or replaced cards, insufficient funds, bank declines, payment gateway errors, and outdated billing details. Fraud prevention systems can also block legitimate transactions. In subscription businesses, cards often expire every three to four years, which creates predictable risk points.

As a business owner, you can reduce involuntary churn by sending automated payment updates and email reminders. These notifications alert customers to take action before the next payment is due.

You can also offer alternative methods such as direct debit, digital wallets, or enable automatic card update tools through your payment processor. This reduces reliance on a single card.

Revenue churn

Revenue churn measures the amount of recurring revenue you lose when customers cancel, downgrade, or reduce their subscription spend. For a subscription business, predictable recurring revenue drives cash flow, forecasting accuracy, and valuation. When customers leave or move to lower tiers, monthly recurring revenue declines even if your total customer count remains stable.

For example, losing three enterprise clients who each pay £2,000 per month results in a £6,000 monthly revenue loss. Losing 30 customers who each pay £20 per month results in a £600 loss. The customer churn rate may look similar in percentage terms, but the revenue impact differs significantly.

To keep track of the situation, do the following:

• Track revenue churn separately from customer churn. 
• Measure gross revenue churn, which reflects lost revenue from cancellations and downgrades. 
• Also track net revenue churn, which includes expansion revenue from upgrades or add-ons. 
• If expansion revenue exceeds losses, net revenue churn becomes negative, which signals strong account growth.

Another useful tip is to segment revenue churn by plan, contract type, and customer size. Focus retention efforts on high-value accounts. Monitor usage data and intervene early when engagement drops. This approach protects your most valuable revenue and improves long-term stability.

Employee or partner churn

Employee or partner churn, also known as employee turnover, refers to the loss of staff or business partners that your company fails to retain.

This form of churn carries direct and indirect costs. You incur recruitment expenses, onboarding time, training costs, and lost productivity. New hires often require several months to reach full performance. During this period, service quality can decline, response times can increase, and customer satisfaction can drop. The loss of experienced employees can also reduce institutional knowledge and disrupt internal processes.

Partner churn creates similar risks. When a distribution partner, reseller, or integration partner leaves, you may lose access to revenue channels, technical expertise, or customer segments. Replacing a strategic partner often requires contract negotiations, onboarding, and alignment of systems and standards.

High employee or partner churn can signal deeper issues such as weak leadership, unclear incentives, misaligned expectations, or limited growth opportunities. 

How to Calculate Churn Rate  

The standard formula for calculating customer churn is as follows:

Churn Rate = (Number of Customers Lost During Period ÷ Total Customers at Start of Period) × 100  

For example: If you start the month with 1,000 customers and lose 50, your churn rate will be (50 ÷ 1,000) × 100 = 5%.

Churn is not limited to monthly measurement. You can track it quarterly or annually, based on your business model and reporting structure.

Many marketplace tools automate churn tracking and provide clear analytics. These insights help you make informed, data-driven decisions.

Churn Analysis and Insights  

For more accurate churn management, you’ll need to identify patterns behind the loss of customers. 

Focus on these actions:

• Segment churn by customer type, contract length, product line, acquisition channel, or region.
• Compare voluntary and involuntary churn to separate payment failure from true dissatisfaction.
• Track churn by cohort to see how retention changes over time.
• Analyse churn at renewal points to assess pricing and contract impact.
• Review usage data to detect decline in engagement before cancellation.
• Use structured feedback, exit surveys, and support data to identify recurring complaints.
• Correlate churn with growth rate, customer lifetime value (CLV), customer acquisition cost (CAC), and profit margin.
• Identify high-value accounts at risk and assign proactive retention strategies.

Churn analysis becomes clearer when you monitor behaviour trends, revenue impact, and segment performance. This approach helps you pinpoint the root cause and take targeted corrective action.

Common Causes of Customer Churn

Customer churn often stems from structural weaknesses across the customer journey. 

Common causes include:

• Poor onboarding or an unclear value proposition, which prevents customers from understanding the benefit.
• Ineffective customer support or slow issue resolution, which reduces trust.
• Pricing dissatisfaction, unexpected increases, or rigid contract terms.
• Low engagement or subscription fatigue, especially in crowded digital markets.
• Payment friction, such as failed transactions, complex checkout flows, or limited payment options.
• Product gaps that fail to meet evolving customer needs.
• Aggressive competitor incentives at renewal points.

Churn reduction should remain a constant priority across all pricing tiers. Businesses should refine onboarding, communicate value early, monitor engagement, and deliver fast, consistent support. A structured retention strategy protects recurring revenue and strengthens long-term growth.

Churn Benchmarks and Trends in the UK

Although churn benchmarks differ across industries, there are some common figures that emerge across the UK for different business verticals. 

According to UK Data Services, some of the most frequently encountered annual churn benchmarks in the UK are as follows:

• SaaS and software: 5%-7% (B2B) and 15%-25% (B2C);
• Telecommunications: 10%-15% (mobile) and 12%-18% (broadband);
• Financial services: 8%-12% (banking) and 10%-15% (insurance);
• eCommerce and retail: 20%-30% (subscription) and 60%-80% (marketplace).

The UK Customer Satisfaction Index (UKCSI) indicates improvements across all sectors. The latest data shows that 83.2% of customer experiences are resolved right first time, which is the highest level recorded to date. This result reflects stronger operational standards and a clear focus on delivering smooth and reliable customer experiences.

Furthermore, customers (64.1%) felt understood by the businesses they interacted with, which responded positively to their needs and expectations. Other important criteria that customers have indicated are important include a combination of value, affordable prices, and quality. 

The last trend indicates an increase in customers (35.6%) who prefer excellent service, regardless of price.

How to Reduce Customer Churn: Proven Strategies

Businesses that are focused on reducing customer churn or reducing customer attrition can follow certain proven strategies to improve their subscriber growth rates.

Here are five worth considering.

1. Improve onboarding

The onboarding process gives your customer a first impression of your business. If your onboarding process is poor, the customer is unlikely to remain loyal and is more likely to terminate their subscription or discontinue using your services.

Conversely, if you provide your customers with clear guidance and immediate value during the sign-up process, you’re much more likely to win them over for the long haul.

To achieve this goal, you need to use automation to simplify your setup processes as well as create a smooth payment process to avoid user frustration.

2. Enhance customer experience

To foster customer loyalty, your business needs to offer a strong service that is focused on customer satisfaction. Some of the ways customer satisfaction is achieved is when a business goes beyond the generic support structures to something meaningful that will truly benefit the customer.

In line with this, offer multiple support channels to meet different customer needs. Use proactive communication. Listen carefully, respond with clarity, and focus on resolving issues as quickly and efficiently as possible.

3. Implement retention campaigns

Use retention campaigns to strengthen your customer lifecycle strategy. Offer loyalty rewards, targeted discounts, and referral incentives to encourage repeat purchases and long-term engagement.

When you’re able to use relevant insights about your customers’ behaviors, you can better anticipate their needs. Customer engagement should be an ongoing process that is driven by customer data and behaviors so that you can find the right approach to ensure you retain them.

4. Streamline payments and billing

Payments acceptance and customer billing should also be a smooth experience. As noted earlier, involuntary churn occurs when customers cannot complete payments due to external factors beyond their control. These issues prevent them from renewing their subscriptions.

To address this challenge, your processes to take payments should be effortless. Offer automatic payment retries and flexible billing options so customers can pay without friction. Ensure all card transactions are secure and smooth. This builds trust and reduces failed payments.

5. Gather and act on feedback

Your business’ efforts to regularly collect customer data should be ongoing and proactive. This means collecting customer feedback, acting on it and making improvements based on it.

Your business should respond quickly to complaints, suggestions, and feedback. Take action to resolve issues and show customers that you value their input. A proactive approach improves their experience and strengthens long-term loyalty.

Advanced Churn Management and Prediction

In addition to these strategies, artificial intelligence (AI) can help reduce customer churn. Use predictive analytics and forecasting to identify customers at risk of leaving. Act early with targeted offers, tailored communication, or service improvements. This approach increases retention and supports steady revenue growth.

By allowing AI tools to learn from customer behaviors, you will be able to identify customers at risk much earlier and act faster to reduce churn. Your AI tools, integrated with customer relationship management (CRM) and payment systems, can give you access to a wealth of data in real time so that you can better read and react to customer sentiment. 

Using Churn Data to Strengthen Business Strategy

Access to your churn data and proactive action strengthen your business strategy. 

Why? Because:

• Churn insights feed into financial planning, marketing strategies, and customer success efforts.
• Churn reduction leads to increased customer lifetime value and revenue stability.
• Using churn data can help you evaluate product-market fit and pricing elasticity.
• Lower churn supports business valuation and investor confidence.

A business strategy that’s based on actionable, real-time data is an effective method of helping your business grow.

Conclusion

In summary, mastering your business’ subscription model requires a deep understanding of churn as a vital metric. By using the standard formula, your business can quantify its retention success. Whether navigating telecommunications churn or SaaS-based attrition, staying ahead of churn trends is key for long-term sustainability.

Reducing these losses demands proactive engagement and reliable payment systems to prevent involuntary cancellations. By leveraging customer insights and continuous analysis, UK businesses can refine their subscription services to better meet user needs. 

Ultimately, a lower churn rate translates into stronger loyalty, higher profitability, and enduring business success.

Frequently Asked Questions

Does churn mean turnover?

Yes. In a business context, both terms describe the rate at which individuals leave a group. While "churn" is the standard term for subscription customers, "turnover" is more commonly used for employees or physical inventory. Both metrics highlight the need for replacement to maintain steady growth.

Is churn a KPI?

Absolutely. Churn is a vital key performance indicator (KPI) for any subscription-based business. It acts as a “health check" for customer satisfaction. A high churn KPI signals that your acquisition efforts are being undermined, making it more challenging to scale efficiently.

How do you measure employee churn?

Divide the number of employees who left during a specific period by the average number of total employees during that same timeframe, then multiply by 100. This metric helps HR evaluate workplace culture. High employee turnover often triggers higher customer churn due to the loss of experienced staff.