how to calculate Churn Rate and start working with it

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You've probably heard about the customer churn rate (also called the churn rate or churn metric). Some marketers call it one of the most important business metrics. In this article, we'll figure out what churn is, how and why to calculate it, and how to work with it. Let's go!

We talked about Churn in the video:


Simply put, churn rate is the number of users who stop interacting with your business . Depending on your industry, this could mean that customers deleted their account, cancelled their subscription, did not renew their contract, did not repurchase, or simply decided to switch to your competitor.

Churn rate is most interesting to consider using the example of SaaS services , since the work on it here is broader than in other areas.

SaaS growth is directly related to the expansion of the customer base. The more users you acquire, the more noticeable your churn rate becomes. How can you reduce churn while maintaining lead and revenue growth? Knowing what exactly influences your churn and how users react to the product itself plays a huge role in engagement and reducing churn. In this article, we will tell you how to calculate customer churn and offer options for reducing churn and building strong relationships with customers.

Calculating the Churn Rate (Customer Churn Rate)
In its simplest form, customer churn can be calculated as the number of customers you lost divided by the total number of customers. By dividing one indicator by the other, you get “customer churn” as a percentage of the total base.

churn rate customer churn rate
Using this formula, you can calculate the churn for the entire life of your business. The resulting value will help you answer the following question:

Of all the users my service has attracted over time, how many didn't want to come back and make a repeat purchase?
How do you know if a customer has left? It all depends on your business. To do this, you need to evaluate your customer information. Usually, SaaS monetization is based on a subscription model, so it’s easy to calculate: the user hasn’t renewed their subscription — that means they’ve left.

For online stores where payment is not based on time but "per item", it is a bit more difficult to do. First, segment customers by purchase frequency, and then find the moment when your data says that if a user has not bought at a specific moment, most likely, he has left forever.

For example, you segmented your users by purchase frequency and found that about 95% of customers who didn’t buy within a year never return to buy. Then, based on the data, you can use a year as a starting point for calculating churn. It’s not a perfect estimate, but it’s a great way to quickly check that your system is working. It’s also useful information for reducing churn, but more on that later.

Outflow for the period
Lifetime churn is a powerful statistical metric, but for the convenience of ongoing analysis, it is easier to calculate churn over a period.

churn rate customer churn rate
Churn for a period depends on the number of users who uae email list left in a specific period. This is often easier to formulate than to calculate. For this, you may find the following formula useful. In it, you express the number of customers who left as the difference between the number of users for this period and the number of users for the previous period, taking into account new users.

customer churn for the period
To make it clearer, let's imagine that you had 100 customers last quarter and 125 this quarter. 30 of them are new users. You want to calculate the churn for the period. You start the calculation with the number of users who left:

Calculation of customer churn rate for a period
Even though your subscriber base grew from 100 to 125 this month, 5 users still left. Some analysts get distracted by the numbers showing growth and fail to examine churn.

It's important to note that you can have churn even while growing. In fact, your growth is the difference between acquisition and churn, so reducing churn has a big impact on your growth and revenue, sometimes even more than acquiring new users.