How is churn rate defined in business analytics?

Churn rate is defined as the percentage of customers that stop using a service over a certain period, making this option the correct choice. This metric is crucial for businesses as it directly relates to customer retention and overall business performance. A high churn rate indicates that a business is losing customers at a significant rate, which can point to issues with customer satisfaction, service value, or competition in the market.

Understanding churn rate allows businesses to identify trends over time, evaluate the effectiveness of customer engagement strategies, and implement improvements that enhance customer loyalty. Monitoring this metric helps businesses make informed decisions regarding their product offerings, customer service practices, and marketing strategies to reduce churn and boost retention rates.

In contrast, the other options focus on aspects that do not define churn rate. For instance, the total number of new customers gained does not account for losses and only measures business growth. The ratio of revenue growth to customer retention addresses financial metrics without specifically considering customer losses. Lastly, overall customer satisfaction is a broader metric that does not quantify the specific behavior of customers leaving the service. Understanding churn, therefore, requires a focus on those customers who discontinue use, making the definition provided in the correct option essential for analyzing business performance.