The formula to calculate the Annual Churn Rate (A) is:
\[ A = 1 - (1 - M)^{12} \]
Where:
Churn rate, also known as attrition rate, is a measure of the number of individuals or items moving out of a collective group over a specific period. It is a critical metric for businesses, especially those with subscription-based models, as it indicates the percentage of customers who discontinue their subscriptions within a given time frame. A high churn rate can signal dissatisfaction among customers or issues with the product or service, while a low churn rate suggests customer retention and satisfaction.
Let's assume the following value:
Using the formula to calculate the Annual Churn Rate:
\[ A = 1 - (1 - 0.05)^{12} \approx 1 - 0.5404 = 0.4596 \]
The Annual Churn Rate is approximately 0.4596, or 45.96%.
