In the context of SaaS (software-as-a-service) businesses, "churn" and "attrition" are often used interchangeably to refer to the loss of customers or users in a given business cycle. However, there is a subtle difference between the two terms.
Churn vs Attrition
Churn specifically refers to the loss of customers or users due to dissatisfaction with a product or service, whereas attrition can refer to any type of loss, including those that are due to external factors such as competition or market conditions. In other words, churn is a type of attrition that is caused by the actions of the company or organization.
The average SaaS company will likely experience both churn and attrition. For example, suppose a SaaS company provides a project management tool to businesses. Some of their customers might stop using the tool because they are unhappy with the features or performance of the software. This would be an example of churn, as it is due to the actions of the company (i.e. the quality of their product). On the other hand, the SaaS company might also experience attrition due to external factors, such as a competitor launching a similar tool that offers more features at a lower price. In this case, even though the SaaS company has not done anything to cause the loss of customers, they are still experiencing attrition.
Customer Attrition Definition
Thus, broadly defined, customer attrition is the process of customers leaving or abandoning a business, product, or service. This can happen for a variety of reasons, such as dissatisfaction with the offering, loss of interest, or the availability of a better alternative in addition to market dynamics beyond the company’s control. Customer attrition can be a significant problem for businesses, as it can lead to a decline in revenue and market share.
Customer Churn Definition
Customer churn, also known as customer turnover, is the loss of customers or clients by a business due to factors within their control. It is typically measured at the end of a time period as a percentage of the total number of customers or clients that the business had at the beginning of a period. For example, if a business has 100 customers at the start of a month, and 10 of those customers stop using the business's products or services by the end of the month, the business's customer churn rate for that month would be 10%.
How to calculate Customer Churn
To calculate customer churn, you would need to determine the number of customers that have stopped using your product or service over a certain period of time. This could be calculated by comparing the number of customers at the beginning of the period to the number at the end of the period, and subtracting any new customers that were gained during that time. The result would be the net number of customers that have churned. This can be expressed as a percentage by dividing the number of churned customers by the total number of customers at the beginning of the period, and multiplying by 100.
To speed up the calculation process, try out Custify’s SaaS Churn Calculator.
How to Calculate Customer Attrition
To calculate customer attrition, you would need to determine the total number of customers that have left your product or service over a certain period of time. This could be calculated in a similar way to customer churn, by comparing the number of customers at the beginning of the period to the number at the end of the period, and subtracting any new customers that were gained during that time. However, for attrition, you would also need to include any customers that were lost due to external factors such as competition or market conditions. The result would be the total number of customers that have experienced attrition. This can also be expressed as a percentage using the same method as for customer churn. This measure is much easier to conceptualize for businesses with self-serve models, as the reasoning for customers leaving a product are not always provided.
Whether customer churn and attrition are equally important will depend on the specific business and its goals. In general, customer churn can be seen as a more direct indicator of the effectiveness of a company's product or service, as it reflects the dissatisfaction of customers who have stopped using the offering. This can be particularly important for businesses that rely on recurring revenue from subscriptions or repeat purchases, as churn can lead to a decline in revenue over time.
Attrition, on the other hand, can be seen as a more broad-based measure of the health of a business, as it reflects the overall rate at which customers are leaving the company. This can be important for businesses that need to maintain a certain level of customer base in order to remain competitive, or that need to grow their customer base in order to achieve certain goals.
In summary, both customer churn and attrition can be important metrics to track, but the relative importance of each will depend on the specific business and its goals.
To learn more about why customers churn and how to prevent it, read our blog on how engineering can be your first line of defense against customer attrition