Customer turnover, also known as customer churn and customer attrition, is what happens when a business loses customers. There is a formula associated with calculating customer turnover that takes the number of lost customers and compares it to the number of gained customers. This can be confusing when, because no customers are gained, the formula shows no turnover. In preventing customer loss, many businesses improve shipping speed and customer service and ensure that the customer feels valued, because these are common reasons for a customer to quit a business. Gaining new customers is harder and more costly than keeping old ones, so businesses tend to focus more on keeping the customers they already have.
Businesses lose customers all the time. It might be the fault of the business, that the customer has no need for the service anymore, or that he or she moved to another area and cannot shop at the same business. This process of losing customers and gaining new ones is known as customer turnover. Most businesses prefer to have a low turnover percentage, because this stabilizes the customer base. Turnover is based on a standardized time period, such as the start of the quarter or year.
Calculating customer turnover is difficult at first, because it only counts if more customers are added compared to the amount of customers lost. For example, if a business has 1,000 customers, then loses 100 customers and none is added, then there is zero turnover. If there are 1,000 customers, 100 lost and 125 gained, then turnover is calculated based on the amount of customers replaced, and those added. The turnover rate itself is 100 divided by 1,000, which equals 10 percent, and the increase would be calculated by dividing 25 by 1,000, netting an increase of 2.5 percent. Customers not replaced during the time period show a decline in the overall customer base.
Businesses focus their efforts most on keeping old customers and preventing customer turnover, because keeping these customers is much easier and cheaper than finding new ones. The most common reasons for customers leaving, and contributing to customer attrition, are that service is lacking, packages take too long to reach their destination, and the customer feels like he or she is not valued by the business or staff. If a business just has new customers replace old ones, then the potential to make greater profits can be lost on gaining the new customers.