In the whirling saga of essential metrics for memberships and subscription platforms, the attrition rate is crowned king. Thus, learning what an attrition rate becomes key to generating business revenue.
The attrition rate is unique in its inherently negative nature. Businesses do their best to keep these numbers as low as possible. Yet, in order to do so, a thorough understanding of the metric, as well as its calculations, is in order.
Keep on reading for a full breakdown of what is attrition, its calculation, and the advantages it can bring to your business.
What is Attrition Rate: The Definition
In the simplest of terms, the attrition rate is the quantitative representation of the number of individuals (or items) leaving a distinct group over a specific period of time.
In the subscription circles, attrition rates are also called churn rates. It’s the main figure indicating a business’s ability to retain customers or members. The lower the figure goes, the better it is for a business’s new sales projections.
The Benefits of Understanding Your Attrition Rate
Attrition rates don’t exist in a void. They’re heavily interlinked with other critical metrics, like your monthly recurring revenue (MRR).
These metrics —together— can form a vivid picture of how your business is faring in regards to revenue as well as the health of your customer engagement.
If your business is creating great value for your existing customers, then you’ll be able to retain them for a long period of time, rising your customer retention rates as well.
Furthermore, calculating your attrition rate as well as monitoring changes over time will enable you to detect weaknesses in your platform. That’s you winning half of the battle.
Once you make these identifications, you can improve your weak spots, which —in turn— will lead to higher customer retention numbers, and lower attrition rates.
Moreover, your sales team can use your customer attrition rate to establish benchmarks and goals for the next quarter (or whatever business time period you’d prefer) to ensure profitability in the long run.
How to Calculate Attrition Rate
Now that we’ve learned all about the benefits of attrition rates, here comes the fun part of actually getting the number.
It’s quite straightforward. You’ll divide the number of customers who left your product by the average customers during a specific period of time.
Attrition Rate = Number of lost customers / Average number of customers across your chosen time period
For example, for a period of one month, you started with 150 customers. However, you ended the month with 175. Over this time period, you’ve lost 25 customers. Here’s how the calculation works.
Attrition Rate = 25 / (( (150 + 175) / 2) ) = 25 / 162.5 = 0.15
Turn it into a percentage → 0.15 * 100 = 15%
The calculation is the numerical representation of your customer movement over a period of one month. The number of customers who canceled their memberships is 25. Then, you divide this number by the average number of customers you have across the month.
Now that you have all your numbers in order, nailing down problem areas (specifically where you start losing customers) become much easier for your business.
Decoding Membership Metrics
Getting to know your attrition rates will shed light on your business’ performance, especially in terms of attracting and retaining customers.
With Pelcro, you get to see other metrics come into play, like your subscriber likelihood scores, and prediction scores. Schedule a demo with our team, and they can showcase how Pelcro can elevate your business.