Average account revenue churn (ARC)
Definition
The average account revenue churn rate is a metric used to calculate the average monthly revenue lost due to churn. Churn measures the percentage of customers or subscribers who cancel their service within a given time period. For subscription businesses, it's important to keep tabs on churn rate because it directly impacts revenue.
There are two types of churn: Customer churn and Revenue churn. Customer churn is the number or percentage of customers who cancel their subscription within a given period of time. Revenue churn is the amount of revenue lost from customers who cancel their subscription within a given period of time.
Average account revenue churn (ARC) specifically measures the amount of average MRR lost when customer’s cancel your product or service. This metric is important for subscription businesses because it identifies if your churning high or low value customers during the period.
How is Average account revenue churn (ARC) calculated?
Average account revenue churn is calculated by dividing the total revenue lost from churned customers by the total number of customers at the beginning of the period.
The formula for calculating Average account revenue churn (ARC) is:ARC = ( MRR charged last month but not this month / MRR at beginning of time period) x100
Example:
Let’s say your MRR at the beginning of the period was $300k and since then 3 monthly subscription customers have churned (because they cancelled in the last month). You decide to re-calculate your MRR today, based on this churn and it’s now $270k.
$300k - $270k = $30k MRR churn
$30k / 3 lost customers = $10k per customer.
Your ARC = $10k on average.
This means, you would expect in the future to lose $10k from your MRR every time a customer leaves.
Why is Average account revenue churn (ARC) important to measure?
This metric is important because it allows businesses to track and identify trends in customer behaviour. Additionally, it can be used to predict future revenue loss and to make decisions about marketing, customer service, and product development.
What are the two types of churn?
There are two types of churn: Customer churn and Revenue churn. Customer churn is the number or percentage of customers who cancel their subscription within a given period of time. Revenue churn is the amount of revenue lost from customers who cancel their subscription within a given period of time.
What's included in the calculation?
MRR charged this month is calculated by adding together any New MRR, Expansion MRR, and Reactivations MRR. The MRR from the ‘beginning of the period’ is equal to ‘Last month’s MRR’ calculation.
