Churn

Churn is the proportion of subscribers to a service who cancel it but are replaced by new subscribers over a given period of time. It is most often disclosed by media and telecoms companies.

Suppose a pay TV broadcaster has a million subscribers. Of these 50,000 (5%) cancel their subscriptions over the course of an year. Over the same year it gains 70,000 new subscribers. It ends the year with 20,000 more subscribers than at the beginning of the year.

This means that its subscriber numbers grew by 20,000 or 2% and it had a subscriber churn of 50,000 or 5%.

As churn is the number of customers who have unsubscribed but been replaced, if there has been a net loss of customers then churn will be equal to the number of new customers. So if the same company had lost 50,000 customers and gained 30,000 new ones it would have a net subscriber loss of 20,000 (2%) and a churn of 30,000 (3%).

Calculating churn for mobile telecoms companies is further complicated by inactive accounts. Many pre-pay customers will simply cease using a connection when they get a new one. Therefore customers who have not used their phones for some months should not be regarded as current customers (when calculating churn, or for most other purposes). Including inactive accounts will understate churn.

Churn is important as it is a measure of customer loyalty, and therefore how stable a company's subscription revenues are likely to be if sales growth flags.

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