Churn-Rate 101

Your churn rate is the amount of customers or subscribers who cut ties with your service or company during a given time period. These customers have “churned.”

ChurnSketch

Churn rate can be represented in a number of ways, including:

ChurnTypes

It is possible to have a negative churn rate. This happens when your existing customer base spends more in a given month than they did in the previous month. Businesses who “upsell” their customers to more expensive plans without losing existing business experience negative churn.

Keeping track of your churn rate is tantamount to success. Normally, it’s cheaper and easier to retain customers than it is to go through the process of acquiring new ones. Monitoring churn allows you to consider what you’re doing to keep customers, and see what actions might result in a higher retention rate.


Calculating Churn Rate

Let’s say you are a company that publishes a magazine. You have 100 subscribers. In the month of May, you have seven new customers sign up for subscription service and have 3 end their subscriptions.

Different practitioners may choose to calculate the “churn rate” for this month in different ways. The most traditional formula would be the number of customers lost divided by the number of customers at the start of the month.

Equation1

Some businesses choose to base their churn rate off of the number of subscribers at the end of the period instead of the beginning of the period.

Equation2

Churn Rate for eCommerce Businesses

Sometimes, an eCommerce business may wish to calculate its churn rate. However, most eCommerce businesses do not have a recurring revenue model or explicitly defined “subscribers” or “subscriptions.”

To resolve this, eCommerce companies must decide what characteristics constitute a “churn” event. For example, if a company knows that most of their customers who will make a repeat purchase do so within 90 days, they may choose to mark any customer who has not made a purchase in 90 days as “churned.”

For help figuring out when your eCommerce customers are churning, sign up for a free trial of RJMetrics.


Monitoring Churn Rate Automatically

Whether you are a subscription business or an online retailer, maintaining a handle on your churn rate will help you make smarter, data-driven decisions over time.

Try it in RJMetrics

RJMetrics is currently offering a free 14 day trial for visitors of churn-rate.com. In this 14 day period, your data will be fully integrated with the RJMetrics system, and you’ll be able to explore and analyze your customer data in an easy-to-use interface. Give it a try today!



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