Customer churn rate
To calculate churn rate, you need to know two things: the number of customers you had at the beginning of the period, and the number of customers you had at the end of the period.
How is Customer churn rate calculated?
The formula for calculating Customer churn rate is:
Customer churn rate = ( Customers who cancel / Total number of customers at beginning of time period) * 100
If you have 100 customers and 12 of them stop using your product or service in one month, your churn rate for that month would be 12%.
Why is Customer churn rate important to measure?
Customer churn rate is important because it can be a leading indicator of financial trouble. If a company's churn rate is increasing, it could be a sign that the company is losing touch with its customer base, and that could lead to lower revenues.
The higher the churn rate, the less profitable your business will be. If you have a high churn rate, then this means that a large number of customers are cancelling with you. This leads to a lower level of recurring revenue coming into your business than if you were to have a lower churn rate. This also impacts total revenue as to make up for the loss in customers you will have to acquire new customers which can cost 5 times more than keeping an existing customer.
Frequently asked questions
Have another question? Reach out to our retention expert team.
- What is customer churn rate?
Customer Churn rate is an important metric because it helps companies understand how many customers they are losing each month. It is often used to determine whether a particular product or service is profitable. If too many customers are leaving, then it's likely that the product or service isn't providing enough value for people to continue paying for it.
- Is a low churn rate good?
The answer is yes. A low churn rate is a good thing because it indicates that your customers are happy with the product and service you provide them. They won't be looking to cancel their subscription with you and therefore you will increase your recurring revenue.
- What does a 20% churn rate mean?
A churn rate of 20% means that for every 100 customers you had at the start of the month, 20 of them will leave.
For example, if you have 200 customers at the beginning of the month and only 160 at the end of the month, your churn rate is 20%.
- What is a good churn rate?
A good churn rate is one that is low, or if you’re actively working on it, decreasing.
While a good churn rate varies from industry to industry ( 20% - 5%) it's universally beneficial to have a lower churn rate as it allows you to increase your recurring revenue. It is also a sign that your customers are happy with your product/service and the price you are charging for it.
- How can I reduce my churn rate?
There are a number of ways to reduce customer churn rate. Some common strategies include:
- Improving customer service
- Offering more value to customers
- Introducing an involuntary churn tool to retry card payments
- Survey customers that are leaving to find out how you can improve your product(s)
- Incentivise customer to stay with targeted offers at the point of cancellation
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