What is Customer Churn Rate?
Customer Churn Rate is the rate at which a subscription based company is losing its customers due to account cancellations or non-renewal of subscriptions.
Customer Churn Rate is a critical KPI for these types of businesses because (1) the cost of retaining a current customer is almost always less than attaining a new one1, and (2) for businesses with recurring revenue models, keeping a customer can be worth hundreds and even thousands of dollars in future revenue.
Customer Churn Rate Formula
To calculate Customer Churn Rate, use the following formula:
Customer Churn Rate = (Number of customers lost during a period) / (Total number of customers at the beginning of the period) × 100
This formula provides the churn rate as a percentage, showing the proportion of customers who stopped doing business with you during a specific time frame.
How to Calculate Churn Rate
To calculate Customer Churn Rate, follow these steps:
- Choose a time period: Select a specific period for which you want to calculate the churn rate, such as a month, quarter, or year.
- Count total customers at the beginning: Determine the total number of customers you had at the start of the chosen period.
- Count customers lost during the period: Identify the number of customers who stopped doing business with you or canceled their services during the chosen period.
- Apply the formula: Use the Customer Churn Rate formula
- Interpret the result: The resulting percentage represents the proportion of customers who churned during the specified time period. A lower churn rate generally indicates better customer retention and satisfaction.
Keep Customer Attrition in Check by Utilizing The Customer Churn Rate KPI
Companies concerned with customer churn often distinguish between gross versus net Customer Churn Rate.
Gross Customer Churn Rate is the rate at which a company is losing customers, while Net Customer Churn is a measure of the difference between Gross Customer Churn Rate and New Customer Acquisition Rate.
For example, if a company’s Gross Customer Churn Rate is 7% and its New Customer Acquisition Rate is 5%, the company’s Net Customer Churn Rate is 2%.
For subscription based businesses, a positive Net Customer Churn Rate is an indication that the company is in trouble, as customer growth is contracting.
Due to the importance of keeping Customer Churn Rates down, subscription based companies often have departments dedicated to engaging and improving relations with unsatisfied customers, or winning back lost customers.
1Zero Defections: Quality comes to service., Reichheld & Sasser. Harvard Business review. 1990.
Monitoring SaaS KPIs on a Dashboard
Once you have established benchmarks and targets for measuring Customer Churn Rate, you’ll want to establish processes for monitoring this and other SaaS KPIs. Dashboards can be critical in this regard.
Learn more about how to track your Customer Churn Rate on a SaaS Dashboard.
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