Customer Churn Rate and How to calculate
What is customer churn rate?
Customer churn rate is the percentage of customers lost during a given period of time. For SaaS or mobile apps, that means customers who cancel their subscription. For ecommerce, that means customers who fail to make a repeat purchase within a time frame established by the business, such as 90 or 120 days.
Typically, churn rate includes only paying customers. For SaaS companies, that would mean excluding trial customers from your calculations.
Customer churn rate looks at numbers of customers lost, not the amount of revenue lost. To track revenue loss you would need to look at MRR Churn rate.
The inverse of customer churn is customer retention rate, which focuses on the customers retained over a given period of time.
How to calculate churn rate:
[ (#) Total customers churned this time period / (#) Total customers at the start of this time period ] X 100 = (%) Customer Churn Rate.
Calculate customer churn rate by dividing the total customers churned over a specified period (such as 30 or 90 days) by the total customers at the start of the period. Multiply that by 100 to generate a percentage. The time frame might depend on your industry and the length of your sales cycle, though many businesses calculate monthly churn rates.
For example, if the total customers lost in August was 150, and the total number of customers at the start of the month was 5,000, then the customer churn rate would be 3%:
[ 150 customers churned in August / 5000 customers as of August 1st ] X 100 =3%
Another way to calculate churn rate is by cohort. A cohort is a group of customers who all signed on with your company at the same time. Tracking cohort churn rate helps you see how long people are using your product before churning. Monthly churn rate tells you how many customers you lost in a particular month but not when each one signed on with your company.
The formula for calculating churn rate by cohort is very similar to the monthly version:
[ (#) Total customers churned from cohort / (#) Total customers in cohort from specified time period ] X 100 = (%) Customer Churn Rate.
Why tracking customer churn rate is critical
Regularly watching churn rate can help you quickly make adjustments to your retention strategies. High churn makes it difficult for a company to grow. Being proactive about customer satisfaction can help you sustain or even bolster company growth.