What Is Churn Rate?

Churn rate definition

Churn rate, also known as customer churn or attrition rate, shows the percentage of customers or subscribers who decide to stop interacting with a business, either by canceling their subscriptions or not renewing their contracts.

Churn rate is an important metric, especially for companies whose clients make recurrent payments.

How to calculate your churn rate

In order to determine your company’s churn rate, you will need the following information:

• A time period of interest, for which you wish to calculate customer attrition.
• The number of customers you acquired in this time frame.
• The number of clients you lost due to expired contracts or cancellation.
• To calculate the attrition percentage you need to divide the number of lost customers by the number of acquired customers and multiply the resulting number by 100.

For example, let’s say that your company acquired 700 customers between January and April. During the same time period, 70 customers were lost due to contract expiration.

In this particular case, the churn rate takes the following value: 70/700 x 100 = 0.1 x 100 = 10%.

The importance of knowing your churn rate

Knowing the attrition rate of your customers is very important. This is due to the potential underlying issues that might need to be addressed immediately.

A high churn rate could indicate that you are trying to sell your product to the wrong type of consumers. At the same time, it could indicate a missing functionality or maybe your customers do not feel like your product helped them achieve the desired outcome.

Seeing customers switch to your competitor is something highly unpleasant and undesirable, not to mention the fact that acquiring customers is much more expensive than retaining them.

If your client doesn’t engage with your brand long enough for you to at least regain your customer acquisition costs (CAC), it means something is amiss in your strategy.

While understanding churn rates might seem a little intimidating, using this metric will allow you to develop the best retention strategy for your customers and this will, ultimately, strengthen your brand.