What is customer retention and customer churn?
Customer retention refers to a company’s ability to retain repeated customers. Conversely customer churn (also known as customer attrition) refers to the turnover of a company’s customer base.
Why is it important for transaction purposes to monitor customer retention and churn?
Companies often spend money acquiring new customers, believing this to be a fast route to increasing revenue. However it is often more profitable to focus on retaining existing customers. Or in other words, companies should focus on reducing customer churn.
A potential acquiror will consider customer retention and churn in appraising a company for acquisition purposes. A track record of customer retention and low customer churn rates will indicate that a business has a respected brand and is delivering a high level of customer service.