Revenue churn rate
Definition
The Revenue churn rate expresses your customer churn rate as a monetary value. You may have a low churn rate, but if you’re churning your biggest customers then there’s still a problem to address. This metric is important for subscription-based businesses as it can give Insights into customer satisfaction and whether the company's pricing is sustainable.
By reducing revenue churn rate, businesses can improve their bottom line and ensure that they are growing sustainably. I.e. They are not growing through acquisition but continually battling a leaking bucket that is getting worse over time.
How is Revenue churn rate calculated?
To calculate revenue churn rate, you will need to know the total revenue for the month and the total amount of revenue lost due to churn. To get the total amount of revenue lost due to churn, you will need to know the number of customers that cancelled their subscription and the average monthly revenue per customer.
The formula for calculating Revenue churn rate is:Revenue churn rate % = ((MRR Churn + Downgrades MRR) / Existing MRR ) * 100
Example:
If your company has a monthly recurring revenue of $10,000 and loses $1,000 due to churn, your revenue churn rate would be 10%.
Why is Revenue churn rate important to measure?
Revenue churn rate is a key metric for subscription-based businesses as it can give Insights into customer satisfaction and whether the company's pricing is sustainable. A high churn rate can indicate that customers are not happy with the service or that the company's pricing is too high.
It’s also important because it is a leading indicator of future revenue. If a business has high revenue churn, it is likely that they will have difficulty growing their business.
What is a good revenue churn rate?
A good revenue churn rate will vary depending on the industry, the customer spend and the lifetime of your business, but typically, all businesses will benefit from lowering the Revenue churn rate. As a starting point, aim for a Revenue churn rate above 5%.
How can I reduce Revenue churn rate?
There are a few ways to reduce revenue churn rate, such as:Improving customer serviceOffering more value to customersIntroducing an involuntary churn tool to retry card paymentsSurvey 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
What is the difference between Revenue Churn Rate and Customer Churn Rate?
Revenue Churn Rate measures the percentage of recurring revenue that is lost each month. Customer Churn Rate measures the percentage of customers that cancel their subscription each month
